Four British power generators have called on the government to maintain the country's carbon tax until at least 2025, according to a letter seen by Reuters, putting them at odds with industrial groups who want it scrapped.
The carbon tax is paid by power generators for each tonne of carbon dioxide (CO2) they emit, and was frozen in 2014 at 18 pounds per tonne until 2021.
British chancellor Philip Hammond is expected to provide details on what will happen to the tax after 2021 in his autumn statement on Nov. 23.
Most British power companies support the carbon tax. Its cost is passed on to consumers through higher electricity bills, meaning companies with low-carbon generation such as nuclear or renewables can then benefit from the higher electricity prices.
"We are calling on the UK government ... to maintain the carbon price floor beyond 2021, by keeping the carbon price support rate at least at its current level until 2025 to maintain secure and reliable energy supplies," a spokesman for power generator SSE, one of the letter's signatories said in an email on Monday.
The other signatories were Drax, Vitol owned VPI Immingham and Calon Energy.
Industrial groups have called for the government to abandon the tax, saying it has made electricity prices in Britain uncompetitive.
"The UK has some of the highest electricity wholesale prices in the EU and this is in large part due to the carbon price floor," Richard Warren, senior energy and environment policy adviser at Britain's manufacturers' organization EEF, said in an email.
EEF estimates the carbon tax adds around 8-10 pounds per megawatt hour (MWh) to British wholesale power prices, which currently trade at around 40 pounds/MWh.
The power firms said the carbon tax encourages them to invest in low-carbon power generation and said it is central to the country's efforts to meet its climate change goals.
But EEF's Warren said the government already helps low-carbon investment though other schemes, such as its contracts-for-difference which provides a guaranteed price for electricity production.
Power generators pay the carbon tax on top of their obligations under the EU's Emissions Trading System, which forces companies to surrender one carbon permit for every tonne of carbon dioxide (CO2) they emit.
Benchmark prices in the EU ETS have plummeted from around 30 euros a tonne in 2008 to below 5 euros, rendering them too cheap to encourage investment, the power firms said.
Britain has a legally binding target to cut its emissions by 80 percent on 1990 levels by 2050 and has embarked on electricity market reforms aimed at spurring investment in low-carbon nuclear and renewable power.
Britain also plans to phase out coal-fired power generation by 2025.
(By Susanna Twidale)