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Renewable energy

Carbon Taxes: The Hidden Cost of Britain's Transition to Renewables

Strategic Insights

— 2 min read

As Britain's last coal plant shut down in 2024, climate activists hailed it as a triumph for green energy. However, the real story behind King Coal's demise was not the rapid advance of renewables, but a tax imposed by the government to slash emissions. The carbon tax, doubled in 2015, effectively crippled the business model of coal-fired plants. While this measure has been successful in reducing emissions, it has also pushed up electricity prices for households and businesses, making it difficult for industries to remain competitive.

Key Takeaways:

  • The carbon tax imposed on fossil fuel power stations in 2015 played a major role in the demise of coal power stations, with coal production declining from 39% of total electricity generation in 2015 to less than 1% in 2024 (Source: UK Government statistics).
  • The carbon tax has resulted in tens of millions of pounds in costs for Ineos's chemical plant in Grangemouth, Scotland, and has severely dented its competitiveness compared to rival factories in the US and Asia (Source: Ineos CEO Sir Jim Ratcliffe).
  • The tax has also inflated everyone's power bills, with carbon taxes accounting for 32% of gas power plants' costs and 7.5% of a typical household's power bill (Source: Ember and Centre for British Progress).
  • Industrial businesses are struggling to remain competitive due to the steep costs imposed by the carbon tax, with many citing their overseas rivals who do not face the same costs (Source: Chemical Industries Association).
  • The UK carbon trading scheme is designed to reduce emissions, but the shrinking supply of free credits and the increasing cost of buying extra credits is putting pressure on businesses to cut their emissions (Source: Oxford Institute for Energy Studies).
  • Plans to link the UK carbon trading scheme with the EU's could drive prices higher, but supporters hope it will ensure a "carbon border" where imported goods pay carbon taxes (Source: Dr Hasan Muslemani, Oxford Institute for Energy Studies).

Statistics:

  • 39% of total electricity generation came from coal in 2015 (Source: UK Government statistics).
  • £25.64 or 32% of gas power plants' costs were accounted for by carbon taxes in July (Source: Ember).
  • £70 per year or 7.5% of a typical household's power bill was paid by carbon taxes (Source: Centre for British Progress).
  • The UK carbon trading scheme reduced the available number of credits by 70% between 2021 and 2030 (Source: Oxford Institute for Energy Studies).
  • £70 per tonne was the UK carbon price in Friday (Source: Bloomberg).

Sources:

  • UK Government statistics
  • Ineos CEO Sir Jim Ratcliffe
  • Ember
  • Centre for British Progress
  • Oxford Institute for Energy Studies
  • Chemical Industries Association
  • Dr Hasan Muslemani, Oxford Institute for Energy Studies
  • Bloomberg

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