Friday 1 April 2011

Osborne's Carbon Floor - Up There With Brown's Gold Sales

OK, so it was in the Coalition Agreement: "We will introduce a floor price for carbon". And it's not a floor price for carbon, it's a new top-up tax on CO2 emitters with an effect meant to be similar to how things would be if the actual carbon price was higher. And it hasn't been set particularly high; and only until 2020 ...

But it's downhill from there, because, aside from the Treasury, who benefits ? Bloody EDF, that's who, plus assorted windfarm operators - in fact, anyone who has already built a non CO2-emitting power plant. That's people who neither deserve nor need further subsidy because they've already built the damn' things !

Yes, EDF wins, to the tune of billions: £1.3 bn according to the government's own advisers, anything up to £5 bn according to Jeremy Warner in the Telegraph, who goes on to note

Yet even this isn't enough to convince EDF's UK chief executive, Vincent de Rivas, to build more nukes. Post the uncertainty over costs introduced by the Fukushima disaster in Japan, he wants a standing charge for nuclear renewal on top. I'm not sure UK consumers yet fully appreciate what's about to hit them in terms of rising utility charges.

And it's not enough for the greedy greens either, as we've noted before.

Well, in the long term you know what I reckon: Osborne will back off from higher electricity prices, just like he ran scared of the Fuel Duty Escalator. But if he does back off the 'Carbon Floor' tax, how will he make good on the tax foregone ?

The answer, of course, (if he's determined to press ahead with the Carbon Floor) should start with a windfall tax on the good Monsieur de Rivas. Because another raid on the North Sea producers doesn't look favourite at the minute, eh ? No! says CU, and a bunch of angry oil industry lobbyists (a topic we shall return to).

We really need the 3-figure oil price to work its harsh logic and reorient our energy policy onto rational lines. It can't happen too soon.



ken from glos said...

I couldn,t agree more. I have just paid my power bills and as far as i can make out i paid a 12% tax for windmills or some such thing.

I get the feeling i am being ripped off.

Mark Wadsworth said...

ND, I'm not sure if I can see a coherent policy emerging from any of this.

Agreed, slapping North Sea companies with higher corporation tax is stupid, but imposing a charge that vaguely relates to oil prices can't be too terrible (although you have told me before it's unworkable in practice because these licence agreement have to be agreed in advance).

Maybe they could set the corp tax rate for North Sea at zero per cent plus 1% for every $4 of the price of a barrel of oil, so if oil averages $80, they pay 20% and if oil averages $180 they pay 45% or something?

Which leads me on to a more subtle point, the distinction between private law (which regulates contracts directly between govt and oil company) and public law (where the govt can set any tax rates it likes).

Nick Drew said...

ken - you are, you are

Mark - I'll get to your subtle point at the end (I promise)

there are any number of really complicated 'upstream' taxes (i.e. taxes on production) around the world, several of them trying to be a 'rate-of-return' tax

it's bloody difficult

also, to attempt what Osborne is trying (i.e. tax-take neutrality while delivering some sort of offset for the consumer price of petrol), there needs to be factored in (1) the feedback loop, because production volumes are a (faint) function of price and (2) geology, because the volumes are declining anyway

for the North Sea, deep in decline, you could only ever aspire to something rough and ready over any given short period,

and you'd need to recalibrate it frequently - which buggers any chance of a 'stable tax regime' which the producers, weeping copious crocodile tears, say they need

the subtle point - yes ! - the subsidy-wallahs have realised this at long last, seeing how Osborne has tried to play tunes on several of the 'green taxes' and subsidies of late

so now they are saying: nothing less than a CONTRACT for their electricity at extortionate prices will satisfy them

oh, and the contract must be under-written by HMG, because (of course!) it will be so far out-of-the-money for the buyer (us!!) that only AAA credit on the buy- side will do (I hope this would count as something horrible on the govt's books ...)

surely (?), this is headed to reductio ad absurdum quickly enough to put a stop to it ?? please ???

Anonymous said...

Offshore Windfarms, new Nuclear and 25 year mortgages are the way forward. Britain is leading the way. The United States is following.

Pity the speech was on April 1st.

Mark Wadsworth said...

ND, as to minimum prices, the govt had an outbreak of commonsense recently and scrapped feed in tariff subsidies for larger installations.

James Higham said...

That's people who neither deserve nor need further subsidy because they've already built the damn' things !

Alternatively, being penalized for doing the politically correct thing?