Budget 2011: devil in the detail

George Osborne’s carbon floor price and cuts in fuel duty to be funded by the North Sea oil and gas taxes have given environmental taxes unaccustomed prominence in the post-budget headlines. The fuel duty cut could be argued to be contrary to the government’s objective to increase environmental tax receipts by approximately 50% by 2020. There’s some devil in the detail of the carbon floor price as the government have pre-set the ‘top up tax’ rates by reference to the futures market for carbon. If the actual carbon price in the period in question is greater than the futures market predicted it does not appear there is a mechanism to adjust the levy on fuel supplies downwards. Energy-intensive industries will resent this impure application of the floor price concept which could easily make electricity more expensive than if a true carbon floor price policy based...