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The Telegraph fumbles cost of carbon price floor to consumers

  • 21 May 2012, 14:00
  • Ros Donald

Today's Daily Telegraph reports that energy and climate change secretary, Ed Davey, has admitted families will face higher energy bills as a result of the so-called carbon price floor, the Treasury's new levy on CO2 emissions. But in fleshing out the story, political correspondent Tim Ross has got the numbers slightly wrong in saying that a projected electricity bill increase for high-emissions businesses applies to household electricity bills.

The story - which appeared in the paper's print edition but not online - picks up on an interview about government energy policy Davey gave yesterday to Andrew Neil on the BBC's The Sunday Politics show, talking about green measures against the backdrop of rapidly-rising household energy bills.

Andrew Neil asked Davey why, when wholesale gas and oil prices are already rising, the government is introducing policies that further add to energy bills - in particular, the Treasury's coming carbon price floor, which Chancellor George Osborne announced in his budget speech last year.

The carbon price floor is supposed to spur investment into low carbon technologies by putting a minimum price on the greenhouse gases emitted by businesses. The sectors most likely to be affected include those that use high energy intensity processes like aluminium, chemicals, paper and clay, the Treasury says.  The measure is unpopular, with both business and environmental groups arguing that it is primarily a way to make the government lots of money. Groups say the proceeds could be kept in the sector and used to help reduce consumer bills, for example, as Consumer Focus suggests in a submission on the measure.

The Telegraph article puts Davey's acknowledgement that the price floor will add to electricity bills  into context using numbers from the Treasury's response to a consultation on the policy, which states that the floor price is expected to raise £1.4 billion for the Treasury by 2015-6, with 40 per cent of that coming from consumers.

This is accurate, but the article then goes somewhat awry. It continues:

"Treasury estimates have suggested the floor price would add as much as six per cent to household electricity bills, an additional £25 for the average family."

Not according to the Treasury's response. The department estimates, assuming the cost of the carbon price floor is entirely passed through to the cost of electricity, that "average household electricity bills will increase by around one per cent (£6) in 2013 and around four per cent (£17) in 2016".

So where does the six per cent figure come from? Our closest guess is that it was picked from a subsequent paragraph in the Treasury report, which looks at the cost the price floor will add to businesses' energy bills. It says:

"Electricity bills for an average energy-intensive business will increase by two per cent and six per cent in 2013 and 2016 respectively."

Here the Telegraph appears to have mixed up the average family with the UK's average aluminium smelting business. We tried to get in touch (over Twitter) with Ross to ask whether the six per cent figure came from any other source - he hasn't got back to us, but if he does we'll update here.

The article also neglects to mention that the Treasury expects consumer bills to be between two and four per cent lower for consumers and two and five per cent lower for businesses than would otherwise be the case - due to greater competition between energy companies to move away from imported gas and oil. Gas markets are proving increasingly volatile - according to UK energy regulator Ofgem, wholesale gas and electricity prices counted for up to 48 per cent of the average UK consumer energy bill.

Davey said in the interview yesterday that according to a report  by consultancy Oxford Economics, the UK economy will suffer damage if the government doesn't act to mitigate climate change. On the other hand, he said, climate change policies could reduce the cost of fossil fuel price volatility to the economy by 50 per cent.

The gist of Davey's message is that policies like the carbon price floor will add to energy bills - but not as much as volatile imported fossil fuels will in the future.

There's plenty of arguments to be had over the carbon price floor - some green voices are worried the pricing level is too low to spur innovation, while others in business and the third sector object to the fact that the Treasury is absorbing the revenues instead of ploughing them back into the sector.

The Telegraph's error isn't the biggest in the world, but it is indicative of generally lax standards in energy reporting - and particularly, it seems, in reporting the expected impact of energy and climate change policies. If this was the mistake the Telegraph made, confusing the price floor's impact on consumer bills with extra charges to high-intensity industry doesn't do justice to debate about the best ways to cut bills and CO2.

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