Carbon tax to replace EU ETS in ‘no deal’ Brexit scenario

The government has said it will replace the EU emissions trading system (EU ETS) with a carbon tax if no Brexit deal is agreed.

The final batch of so called “no deal” policy papers, published by the Department for Business, Energy and Industrial Strategy department on Friday (12 October), includes an assessment of how the UK will implement its climate change requirements if no withdrawal agreement with the EU can be reached.

If no deal is concluded, the paper states that the UK will cease to participate within the EU ETS, which will be replaced with an extended carbon tax.

The government has promised to provide more details of how a carbon price will be applied in the Budget, which will be announced on 29 October.

Legislation on the tax, which would apply across the UK from next year in the event of a “no deal”, will be included in the Finance Bill 2018-19.

The paper also says the UK government will remove operators’ requirements relating to the surrender of emissions allowances.

It has already brought forward domestic operators’ EU ETS compliance deadline for this year to before Brexit day on 29 March 2019 to ensure that they will not be affected by a potential “no deal”.

And UK operators will be unable to use EU ETS allowances issued by the UK for the 2019 compliance year to meet their 2018 compliance obligations.

The Scottish and Welsh governments have slammed the government’s moves to quit the EU ETS in a joint letter to chancellor of the exchequer Philip Hammond.

They say that even though emissions trading policy is devolved to the Scottish and Welsh governments, the Treasury has yet to respond to requests for a meeting to discuss the future of the EU ETS post-Brexit.

The extension of the carbon tax, which is a reserved matter for the UK Treasury, would remove the devolved administrations’ accountability for emissions reduction even though they have statutory obligations over this area.

The letter says: “It is plainly unacceptable for the UK government to seek to replace long-standing emissions trading arrangements – reached by agreement between all four administrations – with a unilateral carbon tax, and to do so without any discussion at ministerial level.

“The UK government’s continued prevarication on its approach to emissions trading, and its refusal to have a formal ministerial discussion, means there is now insufficient time to properly design alternatives in a ‘no deal’ scenario.

“Presenting a new carbon tax as a fait accompli, highlights the UK government’s cavalier approach to the impacts on the traded sector and its flagrant disregard for accountability to devolved administrations and legislatures.”

The chances of Britain exiting the EU without a withdrawal agreement have increased following the breakdown of talks between the UK government and the European Commission during the weekend.

Exchequer secretary Robert Jenrick said at the Conservative party conference that the UK’s government’s preference is for the UK to remain aligned with the EU ETS rather than introduce a carbon tax.