Britain comes up with its own emissions trading scheme

On January 1st, EiD had a post about Britain, Brexit and ETS and where everything was heading. Now Andrew Warren, Chairman of the British Energy Efficiency Federation writes in February issue of Energy in Buildings & Industry about Britain’s own emissions trading scheme. Although the UK has set its own scheme, it is likely that, as a result of Brexit trading advantage agreements, the difference from the European scheme will be little more than minimal.


The UK ETS may be independent only in name

Just a few days before Christmas, it was officially confirmed that from January 1, the United Kingdom would have its very own emission trading scheme. To be called, with stunning originality, the U.K.: ETS.
All of the 1,400 U.K. installations, that had for the past 15 years participated in the European emissions trading scheme( the EU: ETS), overnight left that scheme. And joined in with the U.K. one.

This should have come as a surprise to nobody. For most of the past three years , all participating companies had been working on the assumption that this was the timetable, largely because that marked the end of the third official phase of the EU scheme. Wherever possible, most of the former U.K. allowances had increasingly been held by other branches of each company, based elsewhere in the other 31 participating countries.

There were after all formal public consultations concerning the possible U.K. scheme held in 2019 via the Committee on Climate Change. Last June the Business Department issued a formal document about the U.K.: ETS concept. It was intended to “ ensure a smooth switchover for businesses , and a more ambitious limit on carbon emissions on our road to net zero by 2050.” The frontispiece even expressed an ambition of “reducing the current cap by 5%”

During October the House of Commons Business Select Committee held a series of oral sessions specifically based around the operation of the U.K.: ETS based around this document, which largely retained a common framework with its original parent.

Certain key parts, like verification of data, were to be retained wholesale. Methods of reporting could be altered a bit.

But the official line was that, whilst it would not be imposed, the potential should remain for the “ possibility and consideration of a link “ between the two systems “ if this suited both side’s interests..” Everybody has been very aware of how the previously independent Swiss ETS was becoming merged with the EU scheme.
The MPs cross-examined at length the then energy minister( now Business Secretary) Kwasi Kwarteng on the subject. Who was very careful to say that, splendid idea as this might be according to the Business Department, it was not yet actually agreed to be Government policy.

Auctioning allowances delay

And nor was it resolved as such until late December. A key reason why the all-important auctioning of U.K.:ETS allowances has had to be put off until the second quarter of 2021.

Why this delay ?Because in November 2018 the U.K. Parliament had voted to give the Government permission to replace the EU: ETS with a new domestic Carbon Emissions tax of £16 per tonne of CO2 emitted from power stations and industrial sites.

That tax has yet to be introduced but had been strongly promoted in the Treasury as another option, either in place of the U.K. trading scheme or , increasingly, additional to it.   According to a Treasury technical notice issued when it was approved , “ the new tax would maintain the carbon price for those stationary emitters currently covered by the EU: ETS.”

Clearly with the EU carbon price already fluctuating around 30 euros per tonne, that commitment became nugatory.  Simultaneously , increasingly loud noises were being made, both by national governments and by the European Commission, about the growing need to place import taxes upon those who seek to import into Europe goods and materials that do not reflect any pricing acknowledgment of their consequent carbon impact.

Since 2018, both the U.K. and the EU have adopted far more stringent carbon reduction targets, both for 2050 and now for the ( far more immediate) 2030 target dates. This summer the European Commission is set to publish detailed proposals for border taxation on any and all goods and measures , that are imported from countries where prices carry no comparable additions to reflect carbon emission externalities. There is every likelihood that such a border tax will be approved across the EU. It is inevitable that it will be opposed as anti-free trade by many outside Europe.

The U.K. has made it plain that its own climate policy will be more rather than less ambitious than those adopted by all other European countries. Under the terms of the Brexit agreement, we have also agreed not to diverge from EU policies that might provide a significant trading advantage . So I am prepared to bet that, by 2025 , we will have introduced a very similar carbon border tax.

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