The electricity industry has attacked the government over a proposed 16-fold tax increase that it says will hobble companies already struggling to cope with stringent emissions standards and a fall in power prices.

The Treasury has tabled a proposal to increase the penalties the industry pays to put ash from burning coal into landfill, from £2.50 a tonne to £40. The government says the rise is necessary for Britain to comply with a European Union landfill directive. The industry’s annual landfill bill would jump from £7.5m to £120m, according to the Treasury.

David Porter, head of the Association of Electricity Producers, said: “All this does is dump a great big bill on the industry for no environmental benefit. Coal-fired producers are under quite enough pressure already.” The AEP has met officials from the energy department and the Treasury but Porter said the reception to their plea was “mixed”. The consultation is due to end on July 24.

Each year the power industry produces about 6m tonnes of ash. Half ends up in landfill and the rest is sold to be used in asphalt for roads and breeze blocks.

The EU directive requires “active” waste to be separated from inert waste. Active waste, such as food and other organic material, is more difficult to deal with because when it degrades it emits carbon monoxide and other harmful gases. Inert materials require less upkeep. Reclassifying ash as active waste means it would be subject to the higher tax.

Because a lot of ash builds up in winter when construction activity is low, millions of tonnes are stored in open lagoons. The Gale Common lagoon, which takes ash from Yorkshire’s Eggborough and Ferrybridge plants, stores 35m tonnes.

RockTron, a company that has built a plant at Fiddler’s Ferry, Cheshire to break down ash for a variety of uses, estimates that there are more than 100m tonnes recoverable around Britain.

The proposed rule change comes at a difficult time for the coal-fired power industry. Drax, owner of western Europe’s largest coal-burning station, was forced to raise £108m in a rights issue last month after it was downgraded by credit rating agency Standard & Poor’s to BBB minus, one notch above non-investment grade or “junk” status.

Among S&P’s concerns was the company’s £2 billion plan to build three biomass stations. Analysts expect Drax’s profits to drop by a third this year because big users, such as cement makers and vehicle factories, have cut production.

In May, Welsh Power handed Uskmouth, a coal-fired plant in Wales, to creditors after it was unable to meet debt repayments amid falling wholesale power prices.

A Treasury spokesman declined to comment because talks are still in progress. He said: “The consultation will ensure the tax is robust and well placed to continue to make an important contribution to achieving environmental policy objectives.”

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