The Carbon Price Floor (CPF) is a UK Government policy implemented to support the EU Emissions Trading System (EU ETS). The CPF taxes fossil fuels used to generate electricity via Carbon Price Support rates set under the Climate Change Levy. The price floor consists of two components which are paid for by energy generators in two different ways: (i) The EU ETS allowance price; and (ii) the Carbon Support Price (CPS), which tops up the EU ETS allowance prices, as projected by the Government, to the carbon floor price target.
At Budget 2014 the Government announced that the CPS component of the floor price would be capped at a maximum of £18/tCO2 from 2016 to 2020 to limit the competitive disadvantage faced by business and reduce energy bills for consumers. This price freeze was extended to 2021 in Budget 2016.