Decarbonisation Measures in Proposed UK Electricity Market Reform

The United Kingdom is committed to legally binding greenhouse gas emissions reduction targets of 34% by 2020 and 80% by 2050, compared to 1990 levels, as set out in the Climate Change Act 2008. Decarbonisation of electricity generation will form a major part of this reduction and is essential before other sectors of the economy can be successfully decarbonised.

The Government’s proposals for electricity market reform, published in a White Paper in July 2011, included three initiatives to encourage decarbonisation of electricity generation in the UK: A Carbon Price Floor to complement the European Union Emissions Trading Scheme (EU ETS); Feed-in tariffs which will eventually replace the Renewables Obligation; and an Emissions Performance Standard to restrict future use of the most carbon intensive forms of generation.

In implementing these proposals, the Government aims to attract investment in low-carbon generation, deliver security of supply through an appropriate mix of electricity sources and ensure a minimum amount of impact on consumer bills; all this at a time when security of supply is threatened by scheduled closures of existing plants and both the demand for, and subsequently the price of, electricity is increasing.

The Government published Planning Our Electric Future: A White Paper for Secure, Affordable and Low-Carbon Electricity in July 2011. The paper contained three proposals designed to encourage decarbonisation of the UK electricity sector, the rationale behind the introduction and potential impacts of a Carbon Price Floor, Feed-in tariffs and an Emissions Performance Standard are discussed in turn below.

The European Union Emissions Trading Scheme (EU ETS) is a cap and trade system covering the European electricity generation sector and energy intensive industries. Introduced in 2005, it provides a mechanism through which the European price of carbon can be gradually increased to take into account negative externalities, such as the social and environmental impact of emissions, which would not normally be considered.

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