UK: Government calms carbon capture funding fears and counteracts rising power costs

UK: Government calms carbon capture funding fears and counteracts rising power costs
Published: 30 November 2011

Department of Energy and Climate Change insists GBP1bn still available for pioneering projects despite earlier comments from the Treasury. The government was forced to reassure the carbon capture and storage industry on Monday after comments from the Treasury appeared to cast doubt on the future of GBP1bn funding for the technology.

Danny Alexander appeared to suggest money set aside for CCS could be subsumed into general infrastructure spending. But the Department of Energy and Climate Change moved to calm fears, insisting GBP1bn was still available from the government to fund pioneering CCS projects.

The comments by Danny Alexander, the chief secretary to the Treasury and Liberal Democrat MP, came as energy-intensive and high carbon emitting industries looked forward to finding out what exemptions they could expect from the government’s carbon regulations. Details of the concessions – which come despite a massive fall in the price of carbon permits – are expected to be unveiled on Tuesday.

Meanwhile, energy-intensive industries such as heavy industry, steel and cement-making are preparing for the announcement of concessions from the government to ease the impact of regulations intended to reduce greenhouse gas emissions and encourage efficiency. The industries were promised concessions as part of the government’s fourth carbon budget, which would impose strict carbon limits on UK industry in the 2020s. While the carbon budget was being approved, the chancellor attempted to appease a number of Tory MPs who opposed the proposal with reassurances that heavy energy users would receive some exemptions.

The impact of carbon regulations has already been eased on heavy emitters across Europe, as the eurozone crisis and prospect of a deepening recession forced down the price of carbon dioxide permits under the EU’s emissions trading scheme. Permits stood at little more than €7/t, their lowest since the trading system was tightened up in 2008, and well below the level at which analysts estimate the price of the permits makes a difference to companies’ behaviour.

Under plans set out by the Tories before last year’s general election, the price of carbon would be stabilised within the UK by a series of measures that would ensure that British businesses paid at least GBP16/t for their emissions from 2013. However, the package of concessions to be announced are likely to amount to several hundred millions of pounds, to soften the impact of the "carbon price floor".

Energy intensive-industries such as steel making, cement and chemical manufacturers were granted a GBP250m package from George Osborne on Tuesday to help counteract rising power costs. The Autumn Statement confirmed a tax relief and compensation package would be used to shield British businesses from costly environmental legislation.

The measures include compensation for key businesses to help offset the indirect cost of the carbon price floor and the EU emissions trading system, and also increase the level of relief from the climate change levy on electricity to 90pc.

"This package is a welcome recognition of the significant competitive pressures facing energy intensive companies and should go a long way to address them," said Terry Scuoler, chief executive of the manufacturers’ organisation EEF.