Impact of Carbon Budgets on Energy Prices

           Carbon and Climate
Wind turbines in the industrial zone

A new report from the Committee on Climate Change (CCC) analyses the effects that climate change policies have on energy prices in both the domestic and business sectors. Detailed analysis demonstrates how the different price components have changed since 2004. The price breakdown CCC provides for 2016 attributes approx. 30% of the price to climate policies for both medium commercial companies and large manufacturing companies. The proportion is slightly higher than often reported because the full carbon cost has been taken into account and includes the CRC Energy Efficiency Scheme, which is a separate payment to the energy bill. The price breakdown also includes the Climate Change Levy in addition to low carbon support mechanisms and the upcoming costs of the capacity market. CCC predicts that carbon policies will continue to rise, eventually reaching 40 – 42% of electricity costs in 2030. Extra-large manufacturing companies receive compensation for many policies due to the energy-intensive nature of their processes and the need to maintain competitiveness at an international level. This compensation means that carbon policy costs for this type of business stood at just 9% in 2016 and are expected to rise to 18% in 2030.

CCC’s forecast of policy costs for 2030 is based on climate policies that will be required under the fifth carbon budget, which commits the UK to emissions cuts of 57% by 2030 against 1990 levels. Actual policy proposals to meet the target are expected this year. The UK has made good progress against past budgets, with emissions now 38% below 1990 levels. However, this progress has been predominantly achieved by the power sector, and action is now needed in the sectors of low-carbon heat, energy efficiency, and transport. CCC see that energy efficiency opportunities can offset increasing prices, with potential savings of around 16% of annual electricity consumption and 5% of gas consumption for the commercial sector and 10%-15% for energy-intensive manufacturing by 2030. The report also highlights opportunities for the business sector in the transition to a low-carbon economy because its contribution to the economy is the same as oil, gas, and coal extraction sectors combined.

Nikki Wilson

Nikki joined Alfa Energy in September 2015 as a Carbon Management Consultant where she advises clients on legislation, compliance, and the implementation of carbon management schemes. She is a Practitioner member of IEMA, has a postgraduate diploma in Environmental Decision Making, and has over 15 years’ experience in energy consultancy.