The head of one of the UK's six largest utilities has called for measures to limit carbon prices and promote both clean coal and new nuclear generation.

The head of one of the UK’s six largest utilities has called for measures to limit carbon prices and promote both clean coal and new nuclear generation

Dr Paul Golby, chief executive of E.On UK, wants the cost of carbon to be capped to act as a buffer in case of unexpected economy-threatening events.

Speaking at a conference in London, Dr Golby called for ‘safety valves’ to be put in place to ensure that external factors did not adversely affect the trading scheme by driving prices to levels where government might be forced to intervene to protect the economy. Such an intervention might come about if an unexpected event such as a drought or extremely high temperatures caused carbon free generation such as hydro or nuclear to stop producing. That could then force up the price of carbon permits across Europe and so put European industry at a disadvantage on the world stage.

According to Dr Golby, evidence from phase I of the EU Emissions trading scheme (EU ETS), where high gas prices have driven up CO2 costs, illustrates the need to ensure that sufficient economic safety valves are in place. “We must maximise the opportunity to generate CO2 permits through investments outside the traded sector since this provides a market response to high CO2 costs. In addition, it may be necessary to impose a cash out price or long-term cap on CO2 cost, thereby imposing a clear ceiling to the economic costs,”

In a reference to nuclear and clean coal generation Golby also called for more rapid progress in the development of a regulatory framework that makes investment in nuclear power or carbon capture and sequestration a commercial option.

“In simple terms, will the EU Emissions Trading Scheme lead to the deployment of low carbon technology? I would say ‘yes’ but not without international agreement being reached on new CO2 targets post-2012,” he concluded.

But utliities are loading prices with carbon tax
The Dutch Energy research Centre (ECN) has released a report suggesting that European utilities could be factoring over 70% of the costs of carbon dioxide emissions trading into their power prices.

The report looks at the impact of emissions trading on electricity prices in Belgium, France, Germany and the Netherlands and at the policy of allocating a fixed amount of emissions allowances. The study shows that electricity producers in the countries studied pass these allowances through to their costs, resulting in higher energy bills for large and small consumers. Between 40% and 70% of the costs of free allowances are being passed on to consumers says the report.

As a result of these practices, the study adds, the producers are increasing their profits while consumers are facing higher electricity prices. For some large industrial consumers it is difficult to pass through their higher electricity costs to their sales prices.

ECN concludes by recommending replacing the current system of free allocation with an auction of emission allowances in the near future. There will be new rounds in 2006 for the allocation of emission allowances for the period 2008-2012.