By Susanna Twidale
LONDON (Reuters) - Energy companies and green groups have written separate letters this week to Britain's finance minister asking for the country's strong carbon price to be maintained to prevent a rise in coal-fired power generation and greenhouse gas emissions.
The letters, to British Finance Minister Philip Hammond, come ahead of Britain's Oct. 29 budget and after the government said it was considering four carbon pricing options for Britain when it leaves the European Union next year.
Energy companies SSE (LON:SSE), Drax and Orsted urged the minister to maintain a strong carbon price which they said had been a fundamental "economic incentive for lower carbon and renewable generation to replace coal-fired generation."
Coal power plants produce double the carbon dioxide emissions of gas-fired power plants.
The three companies have made significant investments in renewable power generation in Britain, and Drax has recently announced plans to buy a group of Scottish gas, hydro and pumped storage power plants from Spain's Iberdrola (MC:IBE).
However, some industrial groups have warned against high carbon prices in Britain saying it brings higher electricity prices and harms the country's competitiveness.
Britain's carbon price is currently made up of two levies, a domestic carbon tax set at 18 pounds ($24) per ton, paid on top of obligations under the European Emissions Trading System, which forces companies to surrender one carbon permit for every ton of CO2 they emit.
EU carbon prices have more than doubled this year to around 19 euros ($22) a ton, meaning the total carbon price for British companies is around 35 pounds a ton.
In last year's budget, when EU carbon prices were lower, the government said the total carbon price at that time, around 24-25 pounds per ton, was the right level, leading to concerns among companies and green groups the domestic tax could be lowered at the next budget.
The high carbon price has helped to make coal generation less economic and encouraged companies to switch to gas generation, reducing Britain's greenhouse gas emissions.
"Given recent gas price rises, a higher total carbon price is now required to maintain this status quo," said a separate letter to the ministry from green groups including Greenpeace, Friends of the Earth and WWF.
Earlier in October, Britain's National Grid (LON:NG) said coal-fired power generation was likely to rise over the winter as high gas prices made coal power plants more profitable.
Setting a price on carbon dioxide emissions is aimed at curbing pollution and helping Britain meet its target to cut emissions by 80 percent on 1990 levels by 2050.
Britain is already half-way toward meeting this target, with much of the emissions reductions achieved attributed to a sharp fall in coal power generation.