U.K. Chancellor of the Exchequer George Osborne Wednesday set the "top up" fee that electricity generators will pay for their carbon emissions in 2014-2015 under the government's flagship carbon price floor mechanism, which is designed to stimulate investment in green energy.

The "top up" rate is the difference in price between the emissions credits traded under the European Union's emissions trading scheme and the level at which the U.K. government has set the carbon price floor for 2014-2015. It is set at GBP9.55 a metric ton of carbon dioxide emitted for 2014-15.

That means U.K. companies will be paying more per unit of carbon dioxide emitted than companies in the rest of Europe , making wholesale electricity prices higher as the higher carbon cost will be factored into prices for coal and natural gas--fuels that are used for power generation. So the operators of nuclear power stations, which don't burn fossil fuels, would benefit from the higher price of electricity.

The "top up" amount is paid into the U.K. Treasury.

Over the past 12 months, the traded EU carbon price has more than halved due to a significant oversupply of allowances due to the economic downturn in Europe which has resulted in lower industrial output and weaker power demand. This means the government's top up fee is higher than originally anticipated.

Earlier this year, U.K. lawmakers criticized the scheme, saying that it results in a greater cost for British industries compared with European rivals.

The carbon price floor is designed to give long-term certainty on power prices to the companies investing the billions required in big ticket items such as new nuclear power stations and coal and gas plants fitted with carbon capture and storage technology. The price floor assures utilities investing in low carbon energy of higher retail power prices in the U.K.

Energy regulator Ofgem has estimated that around GBP200 billion investment is required to 2020 if the U.K. is to meet its binding EU climate change targets. However, the carbon price, which is currently trading around EUR7/ton, is nowhere near the EUR40/ton-plus level utilities have said is needed to encourage such investments.

In last year's budget, the government set the carbon price floor at GBP16/ton of carbon dioxide emitted from April 2013, rising to a targeted GBP30/ton in 2020 and GBP70/ton in 2030.

The government announced a top up price of GBP4.94/ton for the first year of the scheme.

Last November, the government introduced a package worth GBP250 million to compensate energy intensive users, such as steel, chemical and cement industries, from the scheme and to prevent them from moving where carbon costs were cheaper.

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