Carbon trading price to be rigged?

Secret boost for nuclear plants despite coalition split

Ben Marlow

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Huhne: nuclear tensions

THE government is planning to rig the carbon trading market in a move that will encourage the creation of nuclear power plants — and push up energy bills.

Details buried in the coalition agreement reveal the Conservatives and Liberal Democrats are to set a floor under the carbon price. The move would raise electricity bills for households and businesses, and, in effect, subsidise nuclear power.

It is estimated that £200 billion is required over the next decade to replace Britain’s ageing power plants and to cut emissions.

The nuclear issue is shaping up to be one of the main areas of tension between the coalition partners. Chris Huhne, the Lib Dem named as energy and climate change secretary, has led the party’s opposition to nuclear plants.

He reiterated his scepticism about new nuclear after his appointment last week, warning that there would be no government subsidies available.

Industry analysts, however, said the commitment to fix the carbon price amounted to a subsidy by the back door, which would be paid directly by energy users. “Putting a floor under the power price would effectively transfer risk from the nuclear developer to the electricity consumer,” said Peter Atherton, head of European utilities at Citigroup.

Companies that produce polluting gases must buy carbon allowances to cover every tonne of emissions — theoretically rewarding those who invest in clean energy, and penalising heavy polluters such as coal-fired power plants.

Nuclear stations do not emit carbon, meaning that they do not need to buy the credits. If the price of carbon is kept high, nuclear power becomes significantly more attractive than other energy sources.

The price of carbon credits has, at times, fallen as low as £13 a tonne, making it cheaper for companies to buy more permits and continue polluting.

The coalition, particularly the Tories, want to set a fixed lower limit, estimated to be about £35 a tonne. That would act as an incentive for investment in clean energy, including nuclear.

However, the new plants would take years to build. In the meantime, power companies would continue to generate electricity from coal and pass the costs of the higher carbon price on to consumers through higher energy bills.The carbon plan is one of a series of environmental commitments in the coalition agreement. Others include promises to create a charging network for electric cars, support for “smart” electric meters and a broad range of commitments on renewable energy.

Ben Caldecott, head of UK and EU policy at specialist investment manager Climate Change Capital, said: “The risk is that nuclear gets kicked into the long grass because Huhne has other priorities such as the green investment bank.”

Under the coalition deal, Lib Dem MPs can abstain in any Commons votes on nuclear power but will not be able to use the issue to bring down the government in a confidence vote. “The two positions will be difficult to square,” said Atherton at Citigroup.

Experts called on the two parties to put aside their differences to attract the investment needed to solve a looming energy shortage in the UK.