Budget confirms carbon tax post-Brexit no deal

Heavily emitting factories and power plants will have to pay £16 for each tonne of carbon dioxide pumped out above their existing allowances if the UK cannot agree a Brexit deal.

In the red book, which set out the government’s Budget measures, the government said that a carbon emissions tax will replace the EU Emissions Trading System (EU ETS) if the UK is unable to agree a withdrawal deal by its Brexit date next March.

The document says the new tax will apply to all stationary installations currently participating in the EU ETS from 1 April 2019.

Installations would have to pay £16 for each tonne of carbon dioxide emitted over and above its free allowance under the EU ETS.

The government is also legislating so it can prepare for a range of longer-term carbon pricing options if the UK is unable to remain in the EU ETS.

The introduction of the tax is designed to enable the UK to stick to its climate change commitments in the absence of participation in the EU ETS.

The government has also said it will freeze the carbon price support (CPS) rate at £18 per tonne of CO2 for 2020-21. It will then seek to reduce this rate if the total carbon price, which comprises the EU ETS price and the CPS, remains high.

Other energy related Budget announcements include an extension of the enhanced capital allowances for companies investing in electric vehicle charge points to the end of March 2023.

The Budget also says the government will issue a call for evidence on introducing a new business energy efficiency scheme, focused on smaller businesses.

Chancellor of the exchequer Philip Hammond announced  in his speech an additional £20 million in 2019-20 for the UK Atomic Energy Authority to develop and commercialise nuclear fusion technologies.

The Budget also says the government continues ongoing efforts to rebalance the main Climate Change Levy rates for gas and electricity. The levy electricity rate will be lowered in 2020-21 and 2021-22, while the gas rate will increase over the same period.

Responding to the Budget 2018, Energy UK’s chief executive Lawrence Slade said: “We welcome the clarity government has provided on carbon price support rates up to 2020-21. While it is not our preferred solution we are encouraged by the intention to maintain a carbon price signal in the case of a ‘no deal’ Brexit scenario. Energy UK believes that maintaining a robust carbon price signal is critical to boost the confidence of potential investors in low-carbon generating technologies.

“It is also encouraging to hear that government will be investing in business energy efficiency with the announcement of the industrial energy transformation fund, and a call for evidence on a new business energy efficiency scheme.”