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The Price We All Pay For The Emissions Trading Scheme

March 17, 2023

By Paul Homewood

More on the Emissions Trading Scheme, or ETS:


A typical CCGT plant would emit about 374 kg of carbon dioxide per MWh, assuming 53% efficiency. With ETS allowances currently priced at £84/tonne of CO2, that adds a cost of £31.42/MWh.

Wholesale power prices, which are effectively based on CCGT generation, are about £140/MWh at the moment, so that ETS element accounts for nearly a quarter of the market price.

As this cost surcharge is reflected in the price of all electricity sold on the market regardless of source, except for CfD generators which account for about 20 TWh a year, it means that energy users are paying about £10 billion a year extra as a direct result of government policy.

As I have noted previously, carbon prices rocketed from around £15/tonne three years ago. This was deliberately engineered by the UK government, in tandem with the EU, by restricting the number of free allowances handed out.

To make matters worse, the ETS is operated under the auspices of the four governments, that is the UK, Scottish, Welsh and N Ireland Governments. Therefore any changes, such as flooding the market with new permits to bring prices down, would need the consent of all four.

8 Comments leave one →
  1. Derek T permalink
    March 17, 2023 5:40 pm

    That is a shocking revelation. 25% of the wholesale price is due to government policy. This should be all over the papers and the TV and yet we hear nothing about it.

    • In The Real World permalink
      March 17, 2023 6:20 pm

      It does seem that most of the media have not wanted , [or not been allowed ,] to tell the public about this fact .
      This huge increase in costs under the ETS scheme has been to blame for very large increases in cost for energy users .
      Tried to post a link showing how electricity cost started to rocket up in 2021 [ long before the Russian invasion ,] but link did not work .
      But anyway , the rise in ETS costs for gas/oil/coal etc generators , has really led to a doubling of prices for consumers .
      It is also a very good way to conceal the amount of subsidies given to wind/solar generation , as they are given carbon credits , which the fossil fuel generators have to buy from them .

      • In The Real World permalink
        March 17, 2023 6:45 pm

        The link I could not get to post showed that the average grid price had been around £35 per MWh for over 10 years before 2021 with CCGT costing around £25 per MWh .
        So the large increase in ETS costs for gas generation more than doubled the grid price from then .
        There have probably been other factors in the currant prices which are several hundred percent higher than before 2021 , but most of the media propaganda will not mention the fact that most of it is caused by CARBON TAXES .

  2. Ben Vorlich permalink
    March 17, 2023 9:01 pm

    Following the announcement of the budget for the UK’s fifth Contracts for Difference (CfDs) allocation round (AR5), and the plan on how different renewable energy projects will compete, the renewable energy industry in the UK has warned the budget and the parameters were “too low and too tight” and that CfD Round 5 would “fail to maximise investment in wind, solar and tidal energy”.

  3. Micky R permalink
    March 18, 2023 8:00 am

    That would pay for a reasonably sized fleet of advanced ultra-supercritical coal-fired power stations.

  4. gezza1298 permalink
    March 18, 2023 11:34 am

    I wonder if anyone can help explain there is a big drop from 2026/7 to 2027/8? The driver is a cut in environmental levies as well as an increasing negative figure for Contracts for Difference. The cfd figure goes negative for the current period which is as yet only a forecast. What is their track record of outturn to forecast I wonder.

    • March 18, 2023 11:42 am

      The current year all depends on what wholesale price of electricity they assume.

      The figures for January already show that the market price is back below the CfD strike prices

    • It doesn't add up... permalink
      March 18, 2023 8:01 pm

      I suspect that it assumes one of the many sets of fictitious numbers that are employed in CFD auction calculations. These ones are used to calculate how much of each pot is used up by the CFD bids.

      a technology specific reference price is used in the valuation formula, set out in Appendix 2 of Schedule 2 in the Allocation Framework, with each price series of the technology applied set out in Schedule 3. These are estimates of future wholesale electricity prices and are used to calculate the estimated budgetary impact of each application during the Allocation Round.

      Click to access Accompanying%20note%20for%20Budget%20Notice%20for%20Allocation%20Round%205%20PDF.pdf

      I can find no description of how these prices are concocted beyond the fact that they make some adjustment for relative income from different technologies. The evidence suggests that they are full of wishful thinking. For offshore wind, in 2012 money the numbers are

      Offshore Wind reference price £/MWh
      49.91 2025/26
      42.53 2026/27
      38.76 2027/28
      33.56 2028/29
      27.79 2029/30

      Click to access cfd-allocation-round-5-allocation-framework.pdf

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