Carbon Price Support (CPS) is a UK government policy introduced in April 2013 to encourage a shift away from fossil fuel use in electricity generation. It acts as a top-up tax on carbon emissions from power stations, designed to ensure a minimum or “floor” price for carbon in the UK power sector. In reality, it increases the price of all electricity because the price of UK electricity is still set in 99% of occasions by gas.
Carbon Price support in action
How it works
Power generators in the UK already pay for their carbon emissions through the EU Emissions Trading System (EU ETS) — and now the UK ETS after Brexit — which sets a market price for carbon permits (allowances). However, when the ETS carbon price was low, the incentive to reduce emissions was weak.
To strengthen it, the UK introduced the Carbon Price Support rate, applied through the Climate Change Levy (CCL) on fossil fuels used for electricity generation (coal, gas, oil).
The CPS is set as a £ per tonne of CO₂ emitted.
It effectively raises the cost of emitting carbon by ensuring a minimum combined carbon price (ETS price + CPS).
Key figures
Introduced at £4.94 per tonne CO₂ in 2013/14.
Rose to £18 per tonne by 2015/16 and has remained roughly around this level in subsequent years.
The government froze the rate to limit electricity price impacts on consumers and industry.
Purpose and impact
- Encourages low-carbon generation (e.g. renewables, nuclear, gas instead of coal).
- Played a major role in the rapid decline of coal power in the UK — from 40% of electricity in 2012 to under 1% by 2024.
- Helps the UK meet its net zero and carbon budget targets.
Criticisms
Contributes to higher wholesale electricity prices, when UK already has some of the highest household electricity prices in the world
Reduces competitiveness of energy-intensive industries.
High prices of electricity have played a role in the decline of UK industrial production.
As a unilateral UK measure, it can create carbon leakage (where production moves abroad). Although UK emissions are down, some of the consumption includes carbon use where goods are produced abroad.
“The Carbon Price Support has done its job in ending Britain’s reliance on generating electricity from coal. The Government should disband it, at a cost to the Exchequer of around £200 million next year.”
– Resolution Foundation (Spliting the Bill)
Evaluation
It is important to bear in mind, the high price of electricity is due to many other factors other than tax. But, with the decline in coal, its usefulness has fallen. Also, it is not particularly helping renewable energy anymore. The real problem is growing network costs.
Current status
As of 2025, the CPS continues under the UK ETS framework, though its future rate and structure are under review as the UK seeks to align the ETS with its net zero by 2050 pathway.
Carbon Tax Pros and Cons
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