The public consultation is now open until February 11th and the documents can be accessed here. Most importantly, the UK government twill introduce a CO₂ emission tax on top of the EU emission unit allowances (EUAs) in order to improve predictability for investors. This will be done by reforming the existing Climate Change Levy (CCL) on fossil fuels, so that energy generators will pay the CCL based on their CO₂ emissions. The combination of EUAs and the CCL will together set a gradually increasing minimum CO₂ emissions price. Today, fossil fuels generation is exempted from the CCL.

The report does not determine the precise level at which the CO₂ emission floor price should be set, but the important point is that it is expected to gradually rise. The CO₂ emission price could start at £20, £30, or £40 a tonne. Under each scenario set out in the consultation document, the price would then continue to rise to reach £70 per tonne in 2030.

Bellona hopes that the revenues obtained through the CO₂ emission tax will be recycled for climate mitigation, in particular renewables, energy efficiency and CCS technology, in order to ensure the development of low carbon generation.

Besides, the consultation document also sets out a proposal to introduce a CO₂ Emissions Performance Standard (EPS) that would limit the amount of carbon dioxide that can be emitted from power stations per unit of electricity.

The UK government sees an EPS as a way to block the construction of power plants without CCS. The level of the EPS has not been decided yet, but could be set at 600g CO₂/kWh or 450g CO2/kWh.  As energy minister Charles Hendry said, timing is crucial and an EPS must be set gradually as it could actually drive away the investments in first wave of CCS projects in the first stage if it is too tight. Nonetheless, the EPS must be ambitious enough to accelerate the development of low carbon technology and put an end to dirty coal. UK NGO’s advocate a 300g CO₂/kWh to make de facto CCS mandatory.

”In order to avoid an EPS being just a dash for gas, an EPS has to be gradually and rapidly lowered to 150g/kWh. It has to be coupled with ’carrots’ for CCS projects, and a gradual phase-in to cover not only new but also old plant, The government should set out all of this now to give real certainty to investors,” says Eivind Hoff from Bellona Europa, who welcomes the proposed combination of an EPS and a CO₂ emission tax as CCS incentive.

Designs and plans for the CO₂ emission  floor price is set out in a consultation released by the Treasury. Responses can be provided over the next two months.

A final decision will then be introduced in the 2011 Finance Bill.

Access the Government press notice here.