SSE and Drax tell Philip Hammond they need longer-term clarity on price floor if they are to replace coal power plants

Two of Britain’s biggest energy companies have called on Philip Hammond to strengthen a carbon tax that has driven a dramatic collapse in coal power generation, arguing it is essential for the shift to cleaner energy.

SSE, the UK’s second largest energy supplier, and Drax, which runs the country’s biggest power station in North Yorkshire, urged the chancellor to use his autumn budget to shed light on the tax’s fate into the 2020s.

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The government said last year that the level of the carbon price floor – the minimum price for greenhouse gases emitted by power generators – would be frozen until 2020, but disappointed those who had expected long-term plans to be laid out.

“We urge you to ensure the UK has a robust and strong carbon price,” wrote SSE and Drax in their letter.

The intervention by two major firms comes after a report warned that without a commitment to a strong carbon price, coal could enjoy a last hurrah in the early 2020s. Energy intensive industries who pay the tax, such as the chemicals sector, want to see the tax abolished or watered down.

Both SSE and Drax need a healthy carbon price to ensure the economic case stacks up for their hopes of building new gas power stations. Drax recently applied for planning permission to change two of its three remaining coal units to gas, which is comparatively low carbon.

“At the moment the industry only has sight of the carbon price to April 2021. This is welcome but we now need to understand the trajectory of the UK’s carbon price into the 2020s, particularly as without it generators have less clarity as they seek to deliver a new generation of efficient gas plants in the next Capacity Market Auction in February 2018,” the companies said in the letter.

First introduced in 2013 to encourage a switch to greener energy, the carbon price floor was a crucial factor in coal power generation plunging by two-thirds last year.