LONDON (Reuters) - Britain should phase out a carbon emissions tax levied on power producers by the mid 2020s, cutting household electricity bills by around 7 percent, an influential think tank on UK government policy said in a report on Friday.
The report comes ahead of next week's Autumn Statement on the UK budget by Chancellor Philip Hammond, in which he is expected to say something about the future of the tax, currently frozen at 18 pounds ($22.34) per tonne until April 2021.
"We recommend that the CPS (carbon price support) is phased out by the mid 2020s, to bring carbon prices in the UK in line with the rest of Europe," the Policy Exchange said.
"This will reduce electricity prices and bills for UK consumers, and support investment in new, flexible power generation in the UK, creating jobs and boosting GDP," it said.
The chancellor is under pressure to boost growth and create jobs in his first major policy announcement, and the first government budget statement since Britons voted in June to leave the European Union.
Removing the tax would reduce electricity prices, and cut household bills by 36 pounds a year, or around 7 percent, the report said.
"We keep all taxes under review, and do not comment on speculation around the Autumn Statement," a spokeswoman for HM Treasury said.
Britain introduced the tax in 2013 as a part of its efforts to reduce emissions and meet its climate targets, by making polluting fossil fuel power production more expensive.
The tax is paid by power generators on top of their obligations under the EU's Emissions Trading System, which forces companies to surrender one carbon permit for every tonne of carbon dioxide (CO2) they emit.
Benchmark EU carbon prices trade around 5.70 euros ($6.06)/tonne.
Britain plans to have closed all its coal-fired power plants by 2025 unless they are fitted with technology to capture and store carbon emissions, meaning there is less need for the tax after 2025, the report said.
Most British power companies support the carbon tax.
"It supports investment in existing and new low-carbon electricity generation and tips the balance away from more polluting power sources," said a spokesman for EDF (PA:EDF) Energy, the British arm of French utility EDF.
EDF owns Britain's nuclear power stations as well as some coal and gas-fired plants and is due to build the new Hinkley Point C nuclear power station.
Industrial groups have called for the government to abandon the tax, saying it has made electricity prices in Britain uncompetitive.
Britain has a legally binding target to cut its emissions by 80 percent on 1990 levels by 2050.
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