The U.K. should use a single carbon price to abate carbon dioxide emissions rather than rely on the costly and inefficient Renewables Obligation Scheme to reduce CO2 emissions, U.K. energy regulator Ofgem said Thursday.
Ofgem said in its response to a government consultation on the future of the renewables obligation scheme that the government would be better positioned to combat climate change at a lower cost to customers by choosing a sole market- based mechanism such as the European Emissions Trading Scheme rather than setting targets for renewable energy technologies that in turn would help reduce CO2 emissions.
It also said the government’s plans to tweak the Renewables Obligation would be detrimental to end users since it will be very hard for the government to predict how much additional subsidy is needed for each different type of renewable technology. As a result, end-user costs would rise.
The U.K. government uses a series of different mechanisms to reduce green house gases from the U.K. energy sector, which accounts for 44% of the U.K.’s total green house gases. These mechanisms include the European emissions trading scheme, the Climate Change Levy – a business tax on energy consumption, and the Renewable Obligation Scheme.
The Renewable Obligation Scheme is the most costly and inefficient form of lowering CO2 emissions, Ofgem said in its response, with consumers paying six times more to abate a ton of CO2 emissions through the RO than through the European Emissions trading scheme, according to figures provided by the energy regulator.
“We think that given the high cost to customers and the limited effectiveness of the scheme, the government should consider alternatives to the RO,” Ofgem said in its statement. The scheme has been estimated to cost both business and domestic consumers over GBP1.8 billion to date.
“We think that the new (European Union) commitment that 20% of energy is to be supplied by renewables by 2020 requires a more fundamental rethink of current policy and a review of alternative policy instruments,” it added.
Ofgem recommended the U.K. push for a long-term carbon-price signal by extending the European Emission Trading Scheme beyond 2012.
It also said the E.U. and the U.K. should consider introducing a floor price for carbon to ensure investment in renewable technology. A floor price could be achieved by setting long-term renewable electricity contracts in which the government would compensate generators if wholesale electricity fell below a certain level.
Ofgem also said that feed-in tariffs – fixed subsidies paid for each megawatt of electricity produced from a renewable source – would also be a cost-effective form of promoting renewable power generation.
The Renewables Obligation Scheme itself could also be tweaked to make sure that annual renewable obligation payouts to energy suppliers and generators were used more efficiently.
Company Web site: http://www.ofgem.gov.uk
-By Alex MacDonald, Dow Jones Newswires; +44 (0)20 7842 9328; alex.macdonald@ dowjones.com
(END) Dow Jones Newswires
Copyright (c) 2007 Dow Jones & Company, Inc.
13 September 2007
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