Tuesday 21 October 2014

Electricity prices to soar after UK tax increase on fossil fuels

Colm Kelphie

Published 08/04/2014 | 18:14

Electricity prices are likely to increase because of a British tax on fossil fuels.
Electricity prices are likely to increase because of a British tax on fossil fuels.

Electricity prices for households and businesses here are likely to increase because of a British tax on fossil fuels, a think-tank has warned.

The Economic and Social Research Institute (ESRI) said the impact of the UK’s so-called Carbon Price Floor would have a knock-on effect here because of the interconnection between the two markets.

The CPF was introduced last April and is a levy on fossil fuels used to generate electricity.

An ESRI paper concluded that the CPF would force energy providers in the UK to look for exported electricity from Ireland.

And the extra pressure on the generating assets here would therefore push up wholesale prices in the Irish market, John Curtis, one of the report’s co-authors, said.

That would then likely have a knock-on effect on retail prices and hit consumers.

“It definitely could have an impact on retail (prices),” Mr Curtis told the Irish Independent.

“They (UK government) said it wouldn’t have any impact on the Irish market.

“This is saying that it has the potential to increase prices here.”

The ESRI paper looks at the price projections for 2016 and finds that wholesale prices will increase 2.4pc over the year.

The CPF came into force in April last year and aims to ensure power producers pay at least 30 pounds per tonne for emitting carbon dioxide by 2020, to help spur investment in low carbon technology and encourage utilities to switch from burning coal to gas.

Britain has a legally binding target to cut its emissions by 80pc on 1990 levels by 2050 and has embarked on electricity market reforms aimed at spurring investment in low-carbon nuclear and renewables.

The ESRI paper points out that the CPF was originally intended for the whole of the UK, including Northern Ireland, but it wasn’t introduced in the North. But the think-tank warned that had it been introduced in the North, Irish electricity prices would have risen by about a fifth.

“The UK’s unilateral carbon policy has a clear and significant impact on adjoining energy markets,” the paper stated.

“Policy ambitions within the Republic of Ireland to decarbonise the electricity sector will become more difficult. There is also a negative welfare impact with Irish electricity consumers paying more for electricity.”

However, the paper states that a CPF introduced here would reduce emissions from the electricity sector by 17.3pc and raise tax revenues of about €260m.

Mr Curtis warned that the figures were only projections and prices could also be affected by other factors not related to the CPF. 

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