Subsidy loophole to be closed for dirty fossil fuels

The UK government has announced it will close a legal loophole that could have given billions of pounds to old coal power plants. However, the news has reopened the debate over why subsidies for fossil fuels are continuing to undermine carbon reduction policies.

The loophole was found in the Department of Energy and Climate Change’s (DECC) new electricity market reform policy, the Capacity Market. The Capacity Market aims to deliver secure energy for the future, although think tank e3g and Greenpeace calculated £5-10 billion would have been paid to old coal plants if the loophole stayed.

On Friday a spokeswoman from the DECC told the Guardian, “We are going to amend the capacity market rules to clarify without any doubt that only new projects can access the 15-year maximum term. We will be consulting on this shortly.” 

Closing this loophole will save the pubic from paying for billions of pounds worth of subsidies for old coal plants. However, Greenpeace has said even if the loophole is closed, existing plants would still be able to bid for one to three year contracts worth millions of pounds.

“The idea that super-polluting old coal plants should get billions in subsidies for the next 15 years is so indefensible that the government has little choice but to close this loophole. If it’s true that no one at DECC was aware of it, this raises serious questions about who’s really writing our energy policy,” said Greenpeace UK energy analyst Jimmy Aldridge.

He added, “One colossal waste of bill payers’ money has now been ruled out, but the government is still offering ageing coal plants other subsidies worth hundreds of millions, putting our climate ambition at risk and locking us into more years of dependence on coal, the dirtiest of all fuels.”

Campaigners say such subsidies undermine the UK’s carbon emission reduction measures. A paper from e3g has even called for an investigation into the UK Capacity Market by the EU, claiming subsidies create “barriers” to reducing carbon emissions.

UN experts have recently said the huge subsidies given to fossil fuel industries must be curbed if we are to cut carbon emissions. Campaigners have added that the government must instead fund green energy projects, in order to help reduce fuel poverty, cut emissions and help investors.

Experts warn that we need renewable projects to transition to a greener world – in line with EU targets to cut fossil fuels before global warming reaches dangerous levels.

“A much better use of this money would be to invest in clean, sustainable ways to help keep the lights on such as cutting energy waste and building interconnectors with Europe, storage, and smart demand management,” added Aldridge.

Photo: jonasclemens via Flickr

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Further reading:

Fossil fuel subsidies preventing transition to low-carbon economy

European commission sets out future energy strategy

MPs call for cuts to fossil fuel subsidies, not green levies

Green subsidies should be cut to reduce bills, report says

Changes to solar subsidies threatens jobs and investor confidence