Budget 2018 – EU ETS and Carbon Tax

This week Philip Hammond, Chancellor of the Exchequer, delivered the last budget before the UK’s departure from the European Union in March 2019. The Swan team was particularly keen to read the budget and better understand the government’s stance around the EU Emissions Trading Scheme (EU ETS).

So, what does the budget mean for our clients post Brexit?

As everyone knows, there is no agreed deal for what will happen after our departure from the EU. This remains an unknown. However, what the budget does highlight is that in the event of a no deal scenario, the government will introduce a short-term Carbon Emissions Tax whilst it legislates for a long-term solution.

This will ensure the UK continues to deliver its carbon reduction commitments under the Climate Change Act, and apply to all current EU ETS, stationary installations from 1 April 2019. A rate of £16 would apply to each tonne of carbon dioxide emitted over and above an installation’s emissions allowance, which would be based on the installation’s free allowances under the EU ETS – or over their target emissions if they are opted-out. For more detail on the proposed Carbon Tax, click here.

If we don’t crash out of the EU and succeed in negotiating a deal, the Swan team believes that the most likely scenario is that the UK will continue with EU ETS for a transition period. Longer term, with or without a deal, we then feel there are three possible approaches – 1) We continue with a Carbon Tax, 2) We develop our own UK ETS, or 3) We develop a UK ETS which links with the EU trading scheme. The latter is an approach which has been adopted by another non-EU member – Switzerland.

Andrew Park, Swan Energy’s Managing Director says: “There remains some uncertainty but the budget has definitely clarified the no-deal situation and I believe UK EU ETS installations will still be required to monitor, report and verify their emissions following our departure from the EU – whatever the scenario. The Swan team will continue to keep up to date with developments and support our clients throughout.”

All EU ETS participants are required to submit baselines for Phase 4 of the scheme – even if the UK crashes out of the EU without a deal. This is because baseline data will be required for any subsequent scheme that may follow in 2020. The Swan team will be starting to work on baseline figures on behalf of clients in January 2019.

Swan Energy