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.

 

Electricity pylons crossing the Essex countryside. Photograph: Getty Images
Felipe Araujo
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Hull revisited: What happens when a Brexit stronghold becomes City of Culture?

We report from Hull, to find out if you can replace the kind of nostalgia that led to a Leave vote with cultural investment.

At 75 metres long, the offshore wind turbine blade erected across Queen Victoria Square, in the heart of Hull, is a sculpture intended to mark a new chapter in the city’s history. For the next 12 months, Hull, a city of more than a quarter of a million people in the northeast of England, will be the UK’s City of Culture.

The 28-tonne blade hails from the local Siemens plant. The German technology company employs around 1,000 people in the area, making it Hull’s biggest single employer.

Seen up close in this context – laid dormant in the middle of a town square instead of spinning up in the air generating energy – the structure is meant to remind passersby of a giant sea creature. It is also, I’m told, an allusion to Hull’s rich maritime history.


All photos: Felipe Araujo

Nostalgia is a big thing in this part of the country. At one point, Hull was the UK’s third largest port but technology and privatisation drastically changed that. The battle over cod fishing with Iceland in the waters of the North Sea 40 years ago has also dealt a major blow to a region with a long and proud trawling tradition.

People here still talk about a bygone era when the fishing industry provided jobs for everyone and there was enough money to go around.

Fast forward to 2017, and the country’s new capital of culture is the same city that voted 67 per cent in favour of leaving the EU last June. Its new-found prestige, it seems, is not enough to erase years of neglect by a political class “too busy for commoners like us”, as one resident puts it.

“More than a message to Brussels, it [the Brexit vote] was a message to Westminster,” Paul Leeson-Taylor, a filmmaker born and bred in Hull, tells me. “For the first time in a long time people in Hull felt like they had the chance to change something, and they took it.”

But while speaking to people on the high street and hanging out with locals at the Community Boxing Club in Orchard Park, one of the city’s most deprived areas, there is one word that consistently popped up in conversation – more than any specific policy from Westminster or the much-hated rules “dictated” by Brussels. Foreigners.

According to official figures, Hull’s population is 89.1 per cent white British. Still, immigration is big on people’s minds here.

During my two-day stay in the city, I find myself being the only black person in most places I visit – I’m certainly the only black guy at the boxing club. So when someone begins a sentence with “I’m not racist but…”, I know a tirade on immigrants is about to ensue.

“There are just too many of them,” Nick Beach, an estate agent whose Polish clientele is a big part of his business, tells me as he is about to teach a boxing class to local children. Beach was born in Shepherd’s Bush, in West London, but has been living in Hull for the last 20 years.

“When I go down there these days and go into Westfield shopping centre, it is very rare you get an English person serving you now,” he says. “I just find it disappointing that you go into your capital city and you are a minority there.”

These are the much-discussed “left behind”, a white working-class community that has gained particular prominence in a time of Brexit and Donald Trump. Under economic pressure and facing social change, they want to have their say in running a country they claim to no longer recognise.

For Professor Simon Lee, a senior politics lecturer at the University of Hull, immigration is only a superficial layer when it comes to explaining the resentment I witness here. For him, the loss of the empire 70 years ago is still something that as a country Britain hasn’t come to terms with.

“The reason for us to be together as a United Kingdom has gone, so what is the project?”

As destiny would have it, a foreign company will now play a major role on Hull’s economic future, at least in the short term. In the wake of the Brexit vote, there were widespread fears Siemens would pull out of the region and take its factory elsewhere. With the massive blade looming large in the background, Jason Speedy, director of the blade factory in Hull, assures me that isn’t the case.

“The Brexit decision has made no difference. We have made our investment decision, so Siemens, together with the Association of British Ports, has put in £310m. It’s all full steam ahead.”

As Hull becomes the country’s cultural hub for the next few months, the hope is that its residents stop looking back and start looking forward.

For Professor Lee, though, until there is a complete change in the power structures that run the country, the north-south divide will remain – with or without the EU. “The way you kill nostalgia is to have something new,” he said. “The reason why people here are nostalgic is because there is nothing to replace it with.”

Felipe Araujo is a freelance journalist based in London. He writes about race, culture and sports. He covered the Rio Olympics and Paralympics on the ground for the New Statesman. He tweets @felipethejourno.