Britain’s Treasury is considering whether to increase the country’s divisive carbon price floor in 2020-21, when the levy on fossil fuel-based power is due to be unfrozen from current levels of £18/tonne, according to the Telegraph.

In an article published Saturday, the newspaper, citing a number of sources and experts, reported that it’s likely that the price floor, which effectively works as a top-up tax on EU carbon allowance prices, will be increased or remain frozen rather than be scrapped completely, as some corners of industry are calling for.

The Telegraph said several major energy suppliers including EDF and Centrica are “understood to be urging the Treasury to commit to an increase,” because their power, which comes mainly from low-carbon sources, stands to benefit compared to coal-fired generation, which would become more costly.

EDF is considering extending the lives of four of its ageing nuclear plants and sees a higher carbon price floor as crucial to their longer-term economic viability, especially with UK power prices at multi-year lows.

“Government policies valuing reliable, low-carbon energy generation remain essential in giving us the confidence we need to invest in our existing nuclear stations,” EDF CEO Vincent de Rivaz told the Telegraph, adding that current market conditions were “exceptionally challenging”.

In the past few years, low coal and carbon prices have made gas-fired generation unprofitable compared to coal, leading utilities with fuel-switching capacity to burn the dirtier option.

However, EU carbon prices have moved into a higher trading range on the back of efforts to choke supply in the bloc’s ETS, while the UK price floor was nearly doubled last year – two factors that have combined to help make UK coal-fired power unprofitable while pushing the country’s gas-fired generation back into the money.

But heavy-emitting manufacturers, including the beleaguered UK steel industry, have called on the levy to be scrapped altogether because it puts them at a competitive disadvantage internationally, even to rivals in other European nations, most of which haven’t introduced similar unilateral measures to price carbon.

One expert told the Telegraph that removing the charge would reduce annual government revenues by £1.6 billion.

A spokesman for the UK Treasury told the Telegraph: “[The] government will be making an announcement about rates beyond 2019/20 in due course. No decision has yet been made.”

By Mike Szabo – mike@carbon-pulse.com