Do they think we are all idiots?
Falling carbon price could result in higher bills, energy firms warn
Electricity bills could go up as a result of the weekend's feeble agreement on climate change at Copenhagen, energy suppliers have warned.
The price of carbon – paid by heavy polluters such as power plant operators – plummeted yesterday by almost 10% on Europe's emissions trading market. This was in response to the EU scrapping a planned commitment to cut emissions by 30% by 2020 because other countries failed to show similar ambition.
E.ON and Centrica warned that they would not invest the tens of billions of pounds to build expensive new nuclear reactors and clean coal plants at today's carbon price, which is supposed to penalise dirty coal and gas plants.
Spot prices are now around €12 (£10) a tonne, close to a six-month low, and experts say that to make building new nuclear reactors financially viable, a price closer to €40 is needed.
A spokesman for E.ON said that without government action to tighten carbon markets, companies would wait until ageing reactors and coal plants close over the next decade and until power prices rocket before they made the investment.
"It is taking a hell of a risk of the lights going out," he said. "Power prices would go through the roof – they would have to get at a level where we think 'there's money to be made'. But we will get very, very tight [on security of supply]. It's the worst case scenario."
Some companies including Centrica repeated calls for the UK government to intervene and put a floor – or higher minimum price – on carbon to guarantee them a profit on building the expensive low carbon emitting power plants. The Guardian reported in October that senior government officials had promised the nuclear industry to fix a higher carbon price in the event of a failure at Copenhagen. A spokeswoman for Ed Miliband, the energy and climate change secretary, last night would not comment on his plans.
Centrica also pointed out that the failure by the EU to increase its commitment from a 20% reduction in carbon emissions to a 30% cut by 2020 left the UK at a distinct disadvantage. Gordon Brown has already set a much higher target for the UK to cut emissions by 34% by 2020. This will make it harder for heavy polluters in Britain, such as manufacturers, to be competitive with their European rivals, who have less onerous pollution targets. The EU's lower reduction target – which determines the price of carbon on the EU emissions market – also makes it much harder for the UK which needs a higher carbon price to meet its own target.
Global energy companies such as Shell have also been pushing for a global market for carbon as the best way to stimulate investment in low carbon technologies. But analysts said the Copenhagen talks made this less likely, because countries did not sign up to individual binding emissions targets as they did under the Kyoto protocol. Countries also split into negotiating blocks, epitomised by the final agreement drawn up by the US, China, India, South Africa and Brazil, which excluded the rest of the world, making it harder to set up a global carbon trading system.
Andreas Arvanitakis, senior analyst at Point Carbon, said: "In some respects, it looks as though a single international carbon market is less and less likely, with a patchwork of regional price signals emerging instead."
A spokeswoman for Shell was downbeat about the Copenhagen summit. "The Copenhagen accord is just a step towards a global framework, but much more is required. We appreciate the difficulties of the process and recognise that the accord reflects a true political willingness to combat climate change. However, it remains unclear how this political willingness will translate into concrete steps and drive an international process to deliver a global framework."