Wide-ranging new consultation sets out series of proposals for carbon pricing mechanisms once the UK leaves the EU
With all eyes on the release of the Committee on Climate Change’s long-awaited report on the feasibility of a new net zero emission target yesterday, the government quietly provided further details on one of the key policy mechanisms that could help the it deliver more rapid emission reductions.
The UK government in conjunction with the Scottish Government, the Welsh Government and the Department of Agriculture, Environment and Rural Affairs in Northern Ireland, yesterday published a consultation on “the future of UK carbon pricing” setting out a series of proposals for ensuring carbon prices on heavy emitters are maintained post-Brexit.
The document stresses that, as stated in the Political Declaration that was published alongside the government’s Withdrawal Agreement, Ministers preferred option is to establish a UK emissions trading scheme (ETS) that will be linked to the existing EU ETS.
“Establishing a linked ETS has the significant benefit of creating a larger carbon market which will deliver more cost-effective emission reduction opportunities for UK businesses,” it states. “Securing a linking agreement with the EU for a linked UK ETS is therefore our preferred option.”
However, with government efforts to secure a Parliamentary majority for the Withdrawal Agreement still deadlocked the consultation sets out a series of alternative proposals designed to ensure carbon prices are maintained and disruption is minimised should the UK crash out of the EU without an agreement later this year.
The alternative options open for consultation include a standalone domestic emissions trading system; a tax on carbon, similar to the policy previously proposed by the Treasury in one of its ‘no deal’ Brexit technical notices’; and remaining in the EU ETS and participating in Phase IV of the scheme, which runs from 2021 to 2030.
The consultation is seeking responses from businesses, including those covered by the EU ETS, trade bodies, environmental groups and other interested parties. It will be open until 12 July.
The document highlights how the government would like to see any new UK ETS broadly mirror the EU ETS, which is set to see free allocations of allowances and emissions caps tighten from 2021 as officials seek to push up the price of carbon and increase the incentive for businesses to switch to clean technologies and operating models.
Carbon prices have rallied in recent years after the EU introduced new mechanisms to tackle an oversupply of allowances in the market – mechanisms the UK proposes incorporating as part of any domestic ETS.
“We propose that the scope of a UK ETS match that of the EU ETS both in respect of sectors and greenhouse gases covered,” the government said. “We also seek views on the potential to expand scope in later years of UK ETS operation.”
The government stressed that whatever happens the UK’s “future approach will be at least as ambitious as the current EU Emissions Trading System (EU ETS) and will provide a smooth transition for relevant sectors”.
However, some businesses covered by the EU ETS have already experienced disruption as a result of the delay to the original Brexit date. The EU has declined to issue free carbon allowances to British firms while the UK’s future involvement in the ETS is uncertain and as a result British Steel has had to secure a £100m loan from the government to help cover its carbon allowance bill.
Source : Business Green