UK pressing ahead with plans for carbon price linked to EU ETS

The UK could sustain its own carbon emissions trading system but is pressing ahead with plans to link into the EU’s existing scheme post-Brexit, Claire Perry has told peers.

The energy and clean growth minister, under cross-examination yesterday (27 February) by the House of Lords Energy and Environment Committee, said the government is preparing to consult on establishing a linked scheme with the EU Emission Trading System (ETS).

The UK is due to quit the EU ETS at the end of 2020 when the scheme’s third phase ends, according to the yet to be ratified draft withdrawal agreement between the trading bloc and the UK.

The accompanying political declaration, outlining the post-transition period relationship with the EU, states that a continuing linkage between the UK and the EU ETS is being considered.

Perry said that, based on evidence from other countries like South Korea and New Zealand, the UK could operate its own scheme.

But the preferred option is to remain linked into the EU ETS, she explained: “There is no evidence to suggest that wouldn’t be effective but our strong view is that the linked scheme would be more effective.

“We remain committed to delivery of a linked scheme whether we are in phase three or four.”

Dan Osgood, director of heat and emissions trading at the Department for Business, Energy and Industrial Strategy said: “There are lots of lessons from other trading schemes. We are confident that it [an independent scheme] would be viable if needed but our preference is a linked emissions trading scheme with the EU.”

Perry also downplayed concerns raised by committee chair Lord Teverson that, based on the evidence it had received about the long-winded nature of the negotiations surrounding Switzerland’s relationship with the EU ETS, the UK’s would be similarly delayed.

She said the UK is much more closely aligned to the rules of the EU ETS, having been a member since its inception, contributes much more than the Swiss to the trading system and punches above its weight in terms of per capita contribution to the EU’s overall carbon savings.

“The UK’s progress is helpful to that ambition,” Perry added.

Robert Jenrick MP, exchequer secretary to the Treasury, told the committee the UK is ready to push ahead with its plan B to introduce a carbon tax if no withdrawal deal can be agreed between the UK and the EU.

Based on the EU ETS price for the previous six months and forecasts for the following six, the Treasury set the level of the proposed tax at £16 per tonne in October.

Pointing to the current carbon price of around £17, Jenrick said the Treasury’s calculation had proved to be “a not inaccurate estimate’, adding that the first opportunity to review the level of the tax would be in next autumn’s budget.

Anne-Therese Farmer, deputy director of energy and transport tax at the Treasury, said the first payments would be collected in 2020 if it is introduced in the event of no-deal Brexit.