Energy-intensive industries are bracing themselves for a renewed surge in utility bills tomorrow when the UK government’s highly controversial Carbon Price Floor starts feeding through into energy costs.
Lambasted by business and environmental groups as a “stealth tax”, the price floor is expected to raise up to £3.2 billion over the next three years.
Although critics say the funds should be ploughed back into the green energy technologies that the price floor is intended to support, the money will instead be absorbed for general use by the cash-strapped Exchequer.
Michael Murphy, energy partner with MacRoberts Solicitors in Glasgow, said all business and residential consumers would be affected, with heavy industries, hospitals, councils and other large-volume users bearing the brunt of the increases.
“What we have said to our clients is that we are telling you this not because there is a clever way to avoid it – we are telling you this because your utility bills are going to rocket,” he said.
The net effect will be to take money out of a fragile economy, with firms committing more of their cash to meet rising operating costs.
“That is the first call, and will come before investment in growth and new jobs,” Murphy added.
In an apparent effort to pre-empt any negative backlash against tomorrow’s price increases, the Department of Energy & Climate Change (Decc) released a report last week, which claimed that although utility bills will continue to rise, they will be 11 per cent lower by 2020 than they would have been without the government’s energy policies.
However, the Decc report also conceded that many businesses are bearing a bigger share of the burden brought by government policy.
Whereas 9 per cent of the average household bill goes towards the cost of energy and climate-change policies, bills for medium-sized business users are 21 per cent higher as a result of these UK government initiatives. That figure will rise to 22 per cent by 2020.
Energy-intensive users pay an extra 1 to 14 per cent to fund UK government policies, rising to between 6 and 36 per cent by 2020.
The UK government has said it will compensate those at risk of being driven out of business via a £250 million package of support, but details of how this will work have not been finalised.
Certain industries such as steelmaking will receive further support by way of an exemption from the separate Climate Change Levy.
Although the Chancellor has promised to extend support beyond 2015, Murphy said this will not keep pace with the escalating price floor.
“The really concerning news is that the £16 per tonne you pay from Monday is going up to £30 per tonne by 2020 and £70 by 2030,” he said. “We have to brace ourselves for energy costs going up quite substantially in the next 15 years.”
The UK levy is intended to drive investment in low-carbon technologies by propping up the current low price for the “right to pollute” under the European Union’s Emissions Trading Scheme (ETS).
Keeping the cost of energy derived from fossil fuels high underpins the investment argument for green power.
However, the abundance of ETS credits available means the price for emitting the equivalent of one tonne of carbon fell to as low as £3 in January and is now trading at between £4 and £5 per tonne.
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