The government’s existing carbon price floor policy will fail to give confidence to investors.
That’s the claim of investment manager and advisory group Climate Change Capital, which says investors will look negatively at the current policy because it will be implemented through the tax system.
Climate Change Capital states that investors would have to hope that every year Parliament will continue to vote for increasing carbon price support until at least 2030, and this, it argues, is unlikely to happen.
CCC also claims that a non-credible carbon price policy would actually lead to reduced investment in renewables and less security of power supply in the long term.
A new report by The CCC suggests embedding the carbon price floor commitment in a contractual obligation, which would then provide investors with the long-term credibility they are seeking.
This would involve the Treasury underwriting the value of carbon price support so that the carbon price floor was guaranteed. It could sell these guarantees for a nominal fee to investors.
CCC head of policy Rupert Edwards said: “The government’s carbon price floor proposals demonstrate that the UK has the ambition to take a leadership role on climate policy at a time when the EU as a whole seems to be losing its nerve.”
But he added: “A policy to reduce uncertainty must itself be certain. To ensure that certainty, a contractual obligation could be created with no costs to government if the Treasury keeps to its carbon price floor commitments. This Carbon Price Support Guarantee would increase certainty, reduce the incentive for investors to ‘wait and see’, and lower costs for investors and the economy. If part of an integrated approach, for example with Electricity Market Reform and the Green Investment Bank, it would be a powerful commitment to a low-carbon Britain.”