UK policy on carbon pricing and EU ETS replacement

This week I attended a meeting that brought together representatives from the Welsh Government, the Department for Business, Energy and Industrial Strategy (BEIS), Natural Resources Wales and a handful of end users. I was there wearing two hats; as a consultant and also as a verifier.  Previously I’ve attended a meeting to talk about what the UK was going to do post-Brexit and this subsequent meeting was to present and discuss the Carbon Pricing consultation and what the UK’s policy on carbon pricing and what is going to replace the EU ETS; the three options being:

1 – Stay in the EU ETS

2 – Create a UK ETS which is linked to the EU ETS, where all the rules are the same and allowances are inter-changeable. This option would be subject to it being agreed by the EU

3 – Have a standalone UK ETS, which has similar rules and aspirations as the EU ETS.

We’re now in Phase 3 of the EU ETS and the intention has been to complete this phase, with whichever the agreed approach is then coming into play at the start of 2021. However, there remains so much uncertainty given the current political climate and if we crash out of the EU any time in 2019, there is a possibility that we will not be in the EU ETS and a UK ETS will not have been agreed in time. Should this happen then a carbon tax of £16 per tonne for 2019 will come into force. This will be payable on all emissions over and above an installation’s free allocation, had we stayed in the EU, and in the case of opt-outs, the carbon tax would be applied to emissions above targets. This effectively turns everyone into an opt-out and is based on legislation that came out of the HM Treasury in the event of the UK crashing out of the EU in 2019. In that circumstance this tax will be applied from April 2019.

Having listened to discussions and answers to various questions asked, I walked away from this meeting understanding that if we do crash out of the EU at the end of October, the carbon tax will not just apply for the last two months of the year. It will apply from April 2019. The tax rate for 2020 would be announced in the 2019 Autumn budget statement; from 2021 onwards any replacement scheme will be in place.


Swan Energy