London, 18 May (Argus) — The Carbon Markets and Investors Association (CMIA) has criticised UK government proposals to implement a minimum carbon price as a means of subsidising nuclear technology. The lobby group called instead for a discussion on tighter EU emissions caps for phase 3 of the EU emissions trading scheme (ETS).

“The whole point of cap-and-trade is that you achieve your environmental goal at the least cost to society and having a minimum carbon price seems to go against that,” CMIA director Miles Austin told Argus today. “A discussion around a minimum price is missing the point. If the [UK] government feels that the carbon price should be higher or that particular technologies need to be brought on board then the simple answer to that is to push for a tighter cap,” Austin said.

The UK's coalition government formed last week between the Conservative party and their junior partners the Liberal Democrats has committed to implementing a minimum carbon price in a move to boost the development of new nuclear capacity. Some in the power industry have suggested that a carbon price floor of €31/t ($38/t) CO2 equivalent would be enough to support nuclear investment. But the UK government is yet to announce what the floor will be.

The government's plans involve reforming the climate change levy (CCL) into a rebateable carbon levy to be paid for carbon produced at generation, rather than based on power supplied. The UK Treasury will set the levy, but generators will be able to offset the costs of EU ETS allowances against the reformed CCL. Generators will not be charged if the allowance price is equal to or higher than the levy. But lower allowance costs would see the difference paid to the Treasury.

Unilateral action
CMIA is against the proposal because it does not want to see the UK “go it alone” and would instead like to see action taken at an EU-wide level. “Unilateral action would place the burden on UK industry only,” Austin said, adding that this would create an uneven playing field in the EU. “This is something that we have been trying to get away from throughout phase 2, so it seems regressive to reintroduce something that makes the playing field uneven again,” he said.

CMIA sees a number of possible actions that can be taken at an EU-wide level that are preferable to the UK working on a unilateral basis. The European Commission is currently considering legislation that could see the introduction of an auction reserve price for EU ETS allowances in phase 3, and the implementation of supply limitations through the “holding back” of auctioned allowances. A decision on these proposals is expected towards the end of June, according to the commission.

CMIA supports these actions as a means of achieving a “multilateral” EU-wide solution, but the lobby group said that “ultimately, far better than any of these measures is just tightening the cap if that is what is necessary”. The EU is in the process of debating the implementation of a 20-30pc emission reduction target for 2020, but CIMA said that there is scope for increasing that target. “In theory it is possible to move to something higher than a 30pc emissions reduction target but the commission would have to gain political consensus in order to do that,” Austin said.

The UK's decision to specifically support nuclear technology is also a concern for CMIA. “The whole point of cap and trade is that you do not back a particular technology, you just say these are the levels of emission reductions that we want and you let the market find out what the price is for achieving these reductions,” Austin said. “If you have to artificially tamper with the price to support a particular technology then that technology is simply not economic”.

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