No sooner had British Chancellor of the Exchequer George Osborne announced that from April 2013 yet another tax would be imposed on industrial users of hydrocarbon fuels, than pressure has built up to get him to rescind the measure, or at least stop it rising to £30 per tonne of CO₂ from its starting value of £14 per tonne.  Word is that Osborne will announce a freeze on the tax in his next budget in March.

Right on cue, Dorothy Thompson, CEO of the Drax company, which runs at 4 GW the largest power station in the UK, is demanding compensation because her 2013 business plan assumed the tax would keep on rising, even though she admits her company, with its 5 coal-burning units would actually be a beneficiary of the freeze.  In the convoluted arguments which pass for analysis on the Drax board, apparently because a tax rise isn’t now going to take place, the subsidies for the one coal-to-biomass conversion Drax has carried out will not be quite as great as the board had assumed – so please may they now have compensation for their own flawed analysis – even though their company will actually be better off overall as a result of the tax freeze.

Lessons to be learned: Repeal of the Climate Change Act (2008)

1) The British energy market is now so twisted and warped with subsidies and taxes changed almost on a monthly basis, that there can be no new investment of desperately needed new power stations, except on the most extravagantly generous terms (to be set in law!) as negotiated by the French State-owned company Électricité de France (EDF) for its yet-to-be-started reactor construction at Hinkley Point in Somerset.

With blackouts looming in 2017/18, the only thing to do is to abandon completely the EU imposed emissions targets in the Climate Change Act 2008 from today, abandon any idea of continuing with the present subsidies to wind and solar and other “renewables” beyond what is  currently contractually necessary, and start again.

2) If the UK state wishes to support a particular technology for electricity generation on national security grounds, it should use a price support mechanism in the form of deficiency payments[1] to enable that technology to compete with others.  The deficiency payments could come from general taxation via a “national security” budget and identified clearly as such in the budget.

The actual value of the price support would be subject to periodic reviews in the light of the normal life of the investment and the competitive price for building it.  The state would receive a share in the profits of the power station beyond the end of price support until the subsidies were repaid.

All power station investment of this kind would have to have at least 49% British ownership.

3) Meantime, disapply the “Large Combustion Plant” Directive of the EU, so that perfectly profitable coal-burning stations will not continue to be shut down, and some already closed under the Directive can be re-opened.  This way blackouts in 2017/18 will be avoided.

References

[1]   As was done for food prior to 1972.

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