On Tuesday night in the House of Commons, the nuclear industry moved a significant step closer to getting their hands on an extra £1.3 billion of public money, courtesy of a coalition Government that promised no subsidy for nuclear power.
A Labour attempt to claw the money back through a windfall tax failed. And although this was supported by environmentally-minded Conservative MP, Zac Goldsmith, not a single Liberal Democrat MP gave their backing.
Admittedly there were notable abstentions. Sixteen Liberal Democrat MPs did not troop through the Government lobby to block the Labour proposal – including, intriguingly, Danny Alexander.
The issue is the introduction of a UK Carbon Floor Price.
In order to tackle climate change, major polluters are required to buy permits for all the carbon they emit, through the EU Emissions Trading Scheme. The idea behind the scheme is that this will encourage polluters to invest in cleaner energy and technology.
However, the scheme has been undermined in recent years because the price of carbon has fallen so low that it’s far cheaper to pay for the carbon permits than to invest in cleaner factories and power stations. The Carbon Floor Price aims to tackle this by setting a minimum price for carbon permits.
But this will have other consequences too.
Most of the electricity we use is generated from gas, and it’s largely the cost of gas-fired power that sets the wholesale price of electricity. This means that if the cost of running gas-fired energy goes up, so does the wholesale price of electricity. If you own a nuclear power station this means you can match this higher price, but unlike the gas-fired station, you don’t have to pay any extra costs to generate it.
The result is a windfall of over £1 billion for the owners of Britain’s nuclear power stations, paid for by consumers already struggling with huge hikes in their fuel bills.
Clearly we need investment in new electricity generating capacity, and the public will have to fund this in one way or another. And, while Friends of the Earth doesn’t agree with it, we also appreciate that some people think new nuclear power is essential to meet UK climate change targets and keep the lights on.
But even the most ardent supporter of new nuclear stations must surely ask why such a big subsidy should be handed to operators of existing power stations – without any requirement to build new ones. The lucky winners can invest the extra profit in new fossil fuel power stations that do nothing to meet our environmental goals – or simply give the extra cash away as dividends to shareholders and bigger bonuses for senior staff.
Friends of the Earth’s view isn’t driven by our scepticism over nuclear power – we don’t think existing wind farms deserve the windfall payments either. If we have to extract more money from consumers, the very least we can do is spend it on bringing new energy capacity online or reducing demand – not waste it inflating the profits of old power plants.
For that reason we backed a windfall tax to allow the money to be used to develop new renewable generation – or a comprehensive programme to stop homes leaking heat and wasting fuel bills, with particular focus given to the most vulnerable members of society.
This is broadly what was proposed in Tuesday’s debate, and is completely in line with the Liberal Democrat policy to “ensure that any changes to the carbon price do not result in windfall benefits to the operators of existing nuclear power stations”. And this makes it doubly disappointing that the party didn’t show more courage on this issue.
This will not be the last Budget before the carbon floor price begins, so a windfall tax can still be introduced. But Liberal Democrat MPs will have to be more muscular if they’re not to break their “no nuclear subsidy” promise with a windfall payment that doesn’t even make sense to nuclear enthusiasts.
Martyn Williams is senior parliamentary campaigner at Friends of the Earth.
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23 Comments
So the incidence of a higher tax on gas generation will fall entirely on the consumer in the form of prices?
And the incidence of a higher tax on nuclear generation will fall entirely on shareholders in the form of lower profits?
Really? Both of those things?
@JustAnotherVoter
The carbon floor price will impose costs on gas generators – and yes I am suggesting consumers will end up paying this through bills.
The CFP will not impose costs on nuclear generators but will boost their profits (according to the Treasury). No one knows where these additional profits will go, but there are no conditions that require them to be invested in low carbon generation, or demand reduction.
You call a windfall tax on nuclear a “higher tax” because you ignore the effect of the increased profits resulting from the CFP introduction. If the combination of both leave nuclear companies with no increase in costs or profits, there is nothing to fall on anyone.
this is incredible. why on earth did chris huhne not support his own party’s policy? he should be dragged here to LDV to explain himself. or maybe he didn’t get the point of the policy, or even asked someone else to take the point for him…
Why does higher taxes for the gas and coal industry mean a public subsidy for the nuclear industry? Is there taxpayer money going to the nuclear industry from this? Please stop confusing people. If you are opposed to carbon taxes or emissions markets as a policy to bring about reductions in carbon emissions then please just state that outright.
Chris
I have tried to explain that above – but to recap, the additional tax on the fossil fuel will increase the price that nuclear power stations can sell their electricty for, but will not add to their costs.
As an analogy, if I was an taxi-driver with an electric car, while 80-90% of taxi drivers owned petrol ones, something that put up petrol prices would lead to taxi fares going up. Because I could increased my fares, but did not need to buy petrol, this would give me a windfall profit.
But let me stress – this is not based on some spurious Friends of the Earth dreamy thinking, it comes direct from HM Treasury who answered a question from Martin Horwood MP asking what the windfall to the nuclear industry would be. And even before that Liberal Democrats had already recognised the risk when they passed their policy which I linked to above.
And as for whether any tax-payers money will go to the nuclear industry as a result of this – no, not from their tax bill. However if they also pay an electricity bill, they will contribute. If your argument is something is only a subsidy if it comes from the public via a tax, but not a subsidy if it comes from the public via a Government measure putting up their energy bills, then I disagree with you.
We are not against carbon taxes or emissions markets per se – we are against ones that break Coalition agreements not to subsidise nuclear power.
I’m sorry, but the priority right now has to be raising the price of carbon emissions. If that makes nuclear power more viable, that is not the same thing as a direct government subsidy to the nuclear industry, and therefore to my mind this is perfectly consistent with our policy. Saying that nuclear power should not get special treatment from the government to make it viable is one thing, but saying it should specifically be singled out for worse treatment than the rest of the market is quite another.
This whole kerfuffle is silly. Our MPs have made absolutely the right decision.
Except – and I’m quite surprised that you haven’t mentioned this Martyn – there will be a direct subsidy for nuclear power. The Government plans to bring in a low-carbon feed-in-tariff for all low-carbon technologies, which includes nuclear. It’s all there in the plans to reform the electricity market:
http://www.decc.gov.uk/assets/decc/Consultations/emr/1041-electricity-market-reform-condoc.pdf
@Chris Jenkinson – ” and therefore to my mind this is perfectly consistent with our policy.”
If you went to the trouble to read the article you would see that this IS party policy, decided at Conference 2010: “ensure that any changes to the carbon price do not result in windfall benefits to the operators of existing nuclear power stations”
Can’t get much more specific a policy than that, and made when IN Coalition. What happened this week was shameful. Whether or not you agree that it’s a subsidy, it’s blatantly a waste of scarce resources. This money should be recouped, recycled into the Green Investment Bank and driven into energy efficiency programmes to help the fuel poor…. or would you rather see it in the pockets of EDF shareholders and execs? I’m pretty sure what most LD voters would say to that!
Sorry Chris, meant @ Andy Hinton.
is this another examply of the pointy-headed lib-dem belief that bad things can be mitigated if only a sufficiently sophisticated regulatory regime can be introduced?
i ask, in all seriousness, because its sounds like we are happy to amend policy to encourage low-carbon power generation, but strangely distressed if the ‘wrong’ kind of low-carbon technology tries to apply for the subsidy?……..
do you not realise that legislation is a blunt instrument, and only countries that place a negotiable value on the rule of law can fiddle with themselves to their hearts content?
this faith in the fallacy of legislative nirvana is what got labour into trouble, wake up!
Quick late night round up after watching all NotW stuff with an open mouth all evening…
@Andy – LibDem policy clearly says that exisitng nuclear power stations should not enjoy a windfall as a result of the carbon floor price. The Treasury says it will. Perhaps you could explain how those two things are in line with each other? And no one is suggesting nuclear should be treated worse – my piece says clearly existing windfarms should not get a windfall either.
@anonymous – something for another blog perhaps…as are the attempts in the Energy Bill to transfer risks of dealing with waste/decomissioning away from nuclear companies and onto taxpayers, as covered here
http://www.guardian.co.uk/environment/2011/apr/04/loophole-energy-bill-nuclear
@jedi – this is not complex legislation or a sophisticated regulatory regime. A carbon floor price will tilt the playing field slightly further away from investment in fossil fuel generation and slightly towards both nuclear and renewables. But if it also hands the public’s money over to big companies with no benefits provided in return, then it is straightforward to claim it back and put it to better use.
You know FOE’s view on nuclear, so I won’t rehearse them. But the crucial argument here is not that nuclear is wrong and renewables right, but that handing companies money for things that already exist is wrong, whereas handing money over to build the new capacity we need would be right.
And, of course, unless I am much mistaken, Lib Dem party policy (as distinct from the coalition agreement) is still in favour of phasing out existing nuclear power and not commissioning new, which I imagine brings it pretty close to FoE policy. Incidentally, there was a letter to the Grauniad from a long term LD, Steve Griffiths in Witney, yesterday, indicating he is resigning from the party over too many compromises over environmental issues. This is the sort of thing which has happened over recent years, and which we can well do without.
@ Martyn – “the crucial argument here is not that nuclear is wrong and renewables right, but that handing companies money for things that already exist is wrong, whereas handing money over to build the new capacity we need would be right.”
Will the carbon floor price not equally be of benefit to operators of existing renewable energy infrastructure?
You disagree with me then, because I think that is very twisted logic and a bit on the deceptive side. Perhaps you could be more honest and demand a tax on nuclear waste rather than trying to redefine the word subsidy.
@jedi – yes it will be of benefit to existing renewables as well as nuclear, which is why I wrote in my blog:
“we don’t think existing wind farms deserve the windfall payments either. If we have to extract more money from consumers, the very least we can do is spend it on bringing new energy capacity online or reducing demand – not waste it inflating the profits of old power plants.”
Renewables get a smaller windfall profit from this policy, for the simple reason there is less existing renewable capacity than there is nuclear. But it that in no way alters the fact it should be clawed back and use to support new projects.
@Chris – well you can’t convince all the people all the time. But I do note that the wikipedia page on subsidy says
“Subsidy may also be used to refer to government actions which limit competition or raise the prices at which producers could sell their products.”
You do also keep leaping to conclusions about some hidden agenda of policies that we really want and are not being honest about. But truth be known, you are making these positions up without any evidence that we either hold them, or even need to.
We are not calling for a tax on nuclear waste, but we have said that nuclear companies should guarantee they will pay for its safe disposal and decomissioning. As things stand, it is taxpayers who underwrite serous accidents, bail out nuclear companies who fail to pay for their own liabilities (like British Energy a few years back), and provide security for the sites. Making this worse are proposals from the Government to reduce the power of future Ministers to change waste plans of nuclear companies if problems arise – unless the companies agree (which admittdly they probably will do…if the money is forthcoming).
If nuclear companies had to meet these costs I do not believe the industry would be viable. A tax is irrelevant.
@jedi – Yes the benefit will apply also be of benefit to operators of existing renewable generators – which is why I began by writing in the blog
“we don’t think existing wind farms deserve the windfall payments either. If we have to extract more money from consumers, the very least we can do is spend it on bringing new energy capacity online or reducing demand – not waste it inflating the profits of old power plants.”
Technically it is not of equal benefit – the windfall to renewables will be smaller for the simple reason there is less renewable capacity than there is nuclear. But that doesn’t change the principle at all.
PS. I did try to post something along these lines earlier, but it seems to have vanished. If it now appears twice, then sorry.
“Technically it is not of equal benefit – the windfall to renewables will be smaller for the simple reason there is less renewable capacity than there is nuclear. But that doesn’t change the principle at all.”
Thank you Martyn.
Just to note; that while it might not be equal it would be equitable, insomuch as either will get paid for what they produce, accepting your point that neither should benefit from the carbon floor as existing capacity.
@jedi – that’s absolutely right
Thanks for engaging Martyn, but in my view (I used to be a member of FOE but left because I disagreed with the strength of the anti-nuclear line taken and opposition to GM) you should welcome the introduction of the carbon price floor and argue for a more robust EU emissions trading scheme (e.g. arguing for a decrease the number of permits issued, the lowering of the wattage threshold to join, and a more robust oversight of offsetting). I personally think that criticising the carbon floor price for being a subsidy to nuclear is damaging to the pro-environment agenda which struggles enough as it is sometimes.
Chris – I’m sorry you left FOE, but all the way through this debate I have accepted that some people support nuclear, others don’t. I’m not diminishing the importance of that decision, but have said that I don’t see why nuclear enthusiasts should think subsidising existing power stations is sensible any more than renewable enthusiasts do. Surely we can agree that subsidy should only be used to provide new capacity – and then agree to differ about what type of capacity we should build.
On your other points – we have repeatedly argued for a more robust EU ETS, but MPs were not voting on that in the debate I blogged about. They did vote on the carbon floor price of course – and I wrote above how this could help with some of the problems with the ETS, and FOE did not lobby MPs to vote against it. We are already doing what you suggest.
The criticism is of the failure to bring in a complementary measure that would make the CFP more effective. Our beef is that Lib Dem MPs did not vote for a windfall tax, we have not criticised anyone for supporting a carbon floor price.
I do not accept that because environmental measures are difficult to get through we should stop trying to improve them. Turning a blind eye mean would obviously mean missing out on finance for environmental programmes that it is hard to get hold of in the current economic situation. But also, how long do you think it will take the Taxpayers’ Alliance et al to point out green taxes are not paying for new power stations, but lining the pockets of senior execs at British Gas – who are now so unpopular after their 19% bill increase that there are rumours News International is going to boycott carrying their adverts.
(OK, I made the last bit up).
I agree with the overall thrust of Martyn’s article, and with his take on what constitutes a subsidy.
I think that we should reward operators of low/zero carbon generation capacity, however what needs to be managed is both the size of any such reward and for how long the reward should be available/have meaningful value. In this context, OFGEM potentially has a role. Hence whilst I share his outrage over a backdoor subsidy to the nuclear industry, I do not think that a windfall tax is the best way to close it.
I think energy production waste handling and plant decommissioning needs to be factored in to both the energy cost and reward calculations, for both nuclear and non-nuclear (eg. wind farm). For nuclear plants I suggest we implement a radioactive waste permit system, with a floor price set at a level that would cover disposal costs. but then I agree with Martyn, these are topics deserving their own blog discussion.
Nuclear energy is in a sorry sorry state right now, we are all stuck with very old and dangerous tech mainly the infamous LWB. There are infact many different types of promising reactor that have been proven to work and do they’re job better than current LWB or HWB, the most promising of these technologies is almost as old as LWB’s themselves and its known as the LFTR (liquid fluoride thorium reactor). Discovered by the creator of LWB he said so himself we should switch to this technology asap in case of an eventual meltdown from a LWB (look how that turned out) despite being far cheaper over 90 times more efficient powered by something 5000 times more abundant than gold and 3 times more abundant that uranium with only 1% waste material the reactor was shot down because of our quest for nuclear weapons which thorium simply cannot be used for. LFTR’s are not only far cheaper than our reactors today they have a 100% fail safe (you heard right) encase of an emergency which will not fail like the many backup systems most LWB reactors have today (although they have tiny chances of failing look what happened in fukushima!). Although these reactors sound like nuclear energy perfected into something perfect for the modern world we hear very very little about them despite LFTRs being built and maintained for several years during the 60’s and 70’s and why is this? Its because of massive public opposition against nuclear power governments around the world have been extremely cautious about subsidizing anything nuclear related! So whilst we have been complaining about the indeed terrible current state of nuclear we have also held back its progress to superior reactors that are not only cheaper, cleaner and far more efficient they are most doubtably something we certainly need to help solve the strain of our current energy crisis.
Please watch the following videos about LFTRs where you can find many more advantages when compared to common reactors and in depth explanations as to how they function
http://www.youtube.com/watch?v=6-uxvSVIGtU
http://www.youtube.com/watch?v=D3rL08J7fDA
http://www.youtube.com/watch?v=WWUeBSoEnRk
http://www.youtube.com/watch?v=N2vzotsvvkw
We really need to get rid of these horribly inefficient wasteful reactors that we have today and begin massive funding of clean safe nuclear in the form of LFTRs.