Measuring Performance of Long-Term Power Generating Portfolios - Green Energy and Efficiency: An Economic Perspective - page 402

Contracted Background

60

50

40

2012
2017
2022
2027
2032

30

20

10

0

Coal Natl. gas Nuclear Wind Hydro Pmp. Sto.

Power technology

Fig. 5 Generation mix 2012 2032 according to the Contracted Background [ 29 ]

-

3.3 Carbon Price: Assumptions

Taxes on activities that have negative environmental impacts are an important
component of both the tax system and the UK

'

s environmental policies [ 17 ]. The
climate change levy (CCL) is an environmental tax on electricity, gas, solid fuels
and lique

ed petroleum gas supplied to businesses and the public sector. It
encourages energy ef ciency to help the UK meet targets for cutting greenhouse

gases, including CO 2 emissions. Transport taxes such as fuel duty, instead, are
designed primarily to raise revenues for public expenditure.
The UK Government has introduced a carbon price support mechanism to
support investment in low-carbon generation. From 1 April 2013 supplies of fossil
fuels used in most forms of electricity generation are liable either to CCL or fuel
duty. Supplies are charged at the relevant carbon price support rate, depending on
the type of the fossil fuel used. The rate is determined by the average carbon content
of each fossil fuel. The carbon price support rates for 2013

2014 represent the

-

difference between the Government oor) and the futures

market price for carbon in the EU ETS in 2013. These tax rates are equivalent to
4.94

' s target carbon price (the

₤ /tCO2 in 2013 2014 [ 18 ].

-

The carbon price oor announced in Budget 2011 begins at around 16 ₤ /tCO2 in

2013 and follows a straight line trajectory to 30 ₤ /tCO2 in 2020, rising to 70 ₤ /tCO2

in 2030 (2009 prices). The oor will increase at around 2 ₤ /tCO2 per year from

2013 to 2020. The oor effectively eliminates the lower part of a number of random

paths of the carbon price. This policy measure (as compared to an unconstrained
carbon price) has a double effect: it increases the average carbon price while
decreasing its volatility. It in turn affects power technologies in different ways. The
model handles this

oor.