Why Labour is right to oppose Britain’s new carbon tax

By 2015, the coalition's carbon price floor will be inextricably linked with rising energy prices.

Just after 7pm on 5 July last year a significant but largely unnoticed piece of political positioning took place that will increasingly take centre stage at Westminster.  As MPs debated the Finance Bill, line by line, Labour’s Shadow Economic Secretary, Kerry McCarthy, announced that the party would oppose the coalition’s plans to impose a carbon price floor on electricity generators and industry from April 2013. 

The then Economic Secretary, Justine Greening, sought common ground in the debate but Labour stood firm and refused to withdraw its amendment. The House divided and the legislation passed with a majority of 59. Some nervous Tory MPs decided to raise their valid concerns over the impact of a new high carbon tax and three voted against the coalition's clause with many abstentions, but this was well before coalition policy U-turns had become an established fact of Westminster proceedings.

So why was this significant, and why could this play well for Labour in the run up to the next election? Ironically, one has to look at Australia where the incumbent Labor government has just introduced its own carbon price floor (known commonly as the carbon tax) and is now trailing the Liberal/Conservative opposition by up to 20 per cent.

So what is the problem? The price of carbon, traditionally set in the market through the European Union Emissions Trading Scheme (EU ETS), is arguably far too low at around £5/6 per tonne, and therefore, it is argued, too uncertain for the long-term low carbon investment decisions that need to be made. In response, the coalition has decided to impose a unilateral UK carbon price floor to set a guaranteed minimum price for carbon. It has turned its back on the EU scheme, which has kept carbon prices in the UK level with those across Europe.

In effect, the new policy will introduce a UK floor on the price of carbon emissions facing power generators and industry in the UK. If the ETS price is ever above the floor, the tax would be zero; if the EUA price is below the floor, the new tax would make up the difference.

The 2011 Budget confirmed the introduction of this tax from 1 April 2013. The floor will start at £16 per tonne of carbon dioxide (tCO2) and follow a linear path to target £30/tCO2 in 2020 (both in 2009 prices), rising to £70/tCO2 in 2030. According to Treasury, the new tax would raise £3.22bn in tax revenues by 2015-16, which is (unsurprisingly enough) roughly about the amount HM Treasury offered in giveaways at the 2011 Budget. But Britain’s policy to now go it alone with its own carbon price floor from next April risks, undermining any effective and consolidated move to deliver a similar minimum price for carbon in other countries, especially across our main economic competitors in the EU.

So Britain will abandon the EU Emissions Trading Scheme where its absence will allow the price of carbon on the continent to fall to new lows. Today, the price of carbon in recession-hit Europe is only around £5/6 per tonne. It is highly likely that from April next year, when British generators and industry are paying £16 per tonne for carbon, our European competitors could be paying a third of the price. 

Also, given that over 70 per cent of UK electricity is generated from coal and gas plants, this is likely to help electricity bills to spike from 2013 further boosting fuel poverty.  By leaving the EU ETS the government has abrogated its right to lead the fight for a pan EU carbon price floor which would have allowed the UK to operate on a level playing field with the rest of Europe.

The ongoing political debate has confirmed what investors have known ever since the policy was introduced - that the "floor" is nothing more than another fuel duty escalator that can't possibly be banked on, that it won't actually reduce net emissions in the EU; that the best way of introducing a carbon price floor is at a European level and this has been largely been ignored; and that it is a policy that will do nothing for investor confidence, except for providing a windfall to existing low carbon generation, particularly existing nuclear power stations.

So Labour goes to the general election opposing the coalition’s new carbon tax, which by 2015 will inevitably have its fingerprints all over rising energy prices and will have caused some sections of energy intensive industry to scale back plans and cut jobs. Whilst Ed Miliband might not sound or look like Australia’s Tony Abbott, his opposition to Britain’s new carbon tax could prove just as effective as Abbott’s, but with Britain’s voters.

Tony Lodge is a Research Fellow at the Centre for Policy Studies.  His new pamphlet, The Atomic Clock – How the Coalition is Gambling with Britain’s Energy Policy, is published by the CPS.

 

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Voters are turning against Brexit but the Lib Dems aren't benefiting

Labour's pro-Brexit stance is not preventing it from winning the support of Remainers. Will that change?

More than a year after the UK voted for Brexit, there has been little sign of buyer's remorse. The public, including around a third of Remainers, are largely of the view that the government should "get on with it".

But as real wages are squeezed (owing to the Brexit-linked inflationary spike) there are tentative signs that the mood is changing. In the event of a second referendum, an Opinium/Observer poll found, 47 per cent would vote Remain, compared to 44 per cent for Leave. Support for a repeat vote is also increasing. Forty one per cent of the public now favour a second referendum (with 48 per cent opposed), compared to 33 per cent last December. 

The Liberal Democrats have made halting Brexit their raison d'être. But as public opinion turns, there is no sign they are benefiting. Since the election, Vince Cable's party has yet to exceed single figures in the polls, scoring a lowly 6 per cent in the Opinium survey (down from 7.4 per cent at the election). 

What accounts for this disparity? After their near-extinction in 2015, the Lib Dems remain either toxic or irrelevant to many voters. Labour, by contrast, despite its pro-Brexit stance, has hoovered up Remainers (55 per cent back Jeremy Corbyn's party). 

In some cases, this reflects voters' other priorities. Remainers are prepared to support Labour on account of the party's stances on austerity, housing and education. Corbyn, meanwhile, is a eurosceptic whose internationalism and pro-migration reputation endear him to EU supporters. Other Remainers rewarded Labour MPs who voted against Article 50, rebelling against the leadership's stance. 

But the trend also partly reflects ignorance. By saying little on the subject of Brexit, Corbyn and Labour allowed Remainers to assume the best. Though there is little evidence that voters will abandon Corbyn over his EU stance, the potential exists.

For this reason, the proposal of a new party will continue to recur. By challenging Labour over Brexit, without the toxicity of Lib Dems, it would sharpen the choice before voters. Though it would not win an election, a new party could force Corbyn to soften his stance on Brexit or to offer a second referendum (mirroring Ukip's effect on the Conservatives).

The greatest problem for the project is that it lacks support where it counts: among MPs. For reasons of tribalism and strategy, there is no emergent "Gang of Four" ready to helm a new party. In the absence of a new convulsion, the UK may turn against Brexit without the anti-Brexiteers benefiting. 

George Eaton is political editor of the New Statesman.