Report – electricity generation carbon prices to treble by 2050

23rd May 2019 | Commercial Energy

Carbon prices for electricity generation should more than treble by 2050 and VAT rates on domestic energy use hiked to help drive emissions off the grid, according to a new report. The study, published by Grantham Research Institute on Climate Change and the Environment at the London School of Economics, concludes that higher carbon prices will be required across the board in order for the UK to achieve net zero emissions by 2050.

The IPCC has recommended that emissions should be cut to net zero by the middle of this century in order to prevent average global temperatures rising by more than 1.5⁰C above pre-industrial levels by the middle of this century. It proposes that carbon prices should be increased across the board. But it also recommends that the existing “one-size-fits-all” regime of carbon pricing should be rejigged with new taxes and bigger increases for the most heavily emitting sectors, like aviation.

Carbon Prices

The authors propose increasing the carbon price for the electric power sector to £40/tCO₂e, up from around £35/ tCO₂e today, rising to £120/ tCO₂e by 2050. It also recommends increasing VAT rates on gas and electricity to achieve a carbon price of £40/tCO₂e on energy used for domestic heating, rising to £100/tCO₂e by 2050. VAT rates on home energy use are currently set aat a rate of just five per cent, compared to the standard 20%, meaning that natural gas is artificially cheap compared to other heating sources.

Any more to increase carbon prices would however need to be complemented by other policies, such as greater funding for energy efficiency measures, to ensure that fuel poor households are not “disproportionately affected”, according to the study. The carbon price for energy intensive industries, like steel and cement should be increased to £50/tCO₂e via smaller reductions to the Climate Change Levy, Rising to £160/tCO₂e by 2050, recommend the authors.

The report recommends that the government should use the proceeds from its mooted carbon taxes hike to create a market for greenhouse gas removals.

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