UK freezes CO2 tax for power generation until 2021

• 6 years ago (2018-10-31)
• David Flin

Emissions 65 Europe 1089

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The UK Government announced in its autumn budget that it will freeze its domestic CO2 tax on electricity generation at £18/mt until 2021. It said that the tax will be reduced if the total price on carbon stays high. This means that a carbon price will continue to apply to UK-based plant operators if they fall out of the EU carbon market after March under a no-deal Brexit scenario.

Currently, power generators in the UK face a total carbon cost that has two elements: the EU carbon price under the EU Emissions Trading System, and the UK domestic Carbon Price Support tax, which tops up the ETS price to meet a projected value set by the Government.

An increase in EU carbon prices in 2018 had raised the possibility that the UK Government might reduce the domestic tax element of the combined carbon price, but this now cannot happen until 2021 at the earliest.

The UK’s future carbon pricing policy is complicated by uncertainty over whether the UK will continue to participate in the EU ETS after Brexit. The UK has informally agreed to stay in the EU ETS until the end of 2020, but this is dependent on reaching a deal with the EU over Brexit. A no-deal scenario would see the UK fall out of the EU ETS in March 2019. The Government said that in the event of a no-deal situation, it would introduce a Carbon Emissions Tax to help meet the UK’s legally binding carbon reduction commitments under the Climate Change Act. It said: “The tax would apply to all stationary installations currently participating in the EU ETS. A rate of £16 would apply to each tonne of CO2 emitted over and above an installation’s emissions allowance, which would be based on the installation’s free allowance under the EU ETS. The Government is also legislating so it can prepare for a range of long-term carbon pricing options.”