UK's carbon floor price 'could waste £1bn a year'

Government plans for a carbon floor price could waste £1bn a year and drag another 90,000 households into fuel poverty, the Institute for Public Policy Research (IPPR) will warn today.

The Government hopes the Carbon Price Support (CPS) scheme will establish a predictable investment climate for low-carbon energy projects such as wind farms and nuclear power stations.

But the IPPR think tank's Hot Air report argues the CPS will do nothing to reduce emissions while adding to costs for UK consumers.

The CPS is designed to complement the EU Emissions Trading Scheme (ETS) – which caps carbon dioxide emissions and allows industry to trade carbon emission permits – by kicking in when permit prices drop too low. The floor will start at £16 a ton in 2013, rising to £70 by 2030.

Because the CPS will exist only in Britain, the extra cost will simply drive permits – and carbon emissions – offshore, the IPPR concludes. By creating two carbon prices within the ETS, the CPS will waste up to £1bn as cheap carbon permits from Britain flood the EU.

"Because a floor price for carbon in the UK will depress the carbon price elsewhere in Europe, the UK will effectively hand over billions to European polluters," the IPPR's Andrew Pendleton said.

And because it is part of Britain's annual Finance Bill, MPs will need to vote on the scheme each year, undermining its credibility as a long-term guarantee, the IPPR warned.