Tackling climate change is one of the defining challenges at this time and the is positioning itself as an international leader in that fight. Reaching net zero by 2050 will require the UK to go much further than the progress made between 1990 and 2018, when the UK reduced its emissions by 43% while growing our economy by more than two thirds. An essential driver of this progress has been the UK’s deployment of carbon pricing. In the power sector alone, carbon pricing has reduced the share of coal-based power generation from 40% in 2012 to 2.1% in 2019. Taken together, de-carbonisation in the power sector has accounted for almost 78% of the reduction in the UK’s carbon emissions between 2012-2018.
The UK has confirmed it would be open to considering a link between any future UK Emissions Trading System (ETS) and the EU ETS (as Switzerland has done with its ETS) if it suited both sides’ interests. This position is unchanged. If it is not possible to agree with the EU the terms of a linked emissions trading system, the UK will implement either an unlinked UK ETS or the Carbon Emissions Tax to set the carbon price from 1 January 2021, in order to help meet its legally binding carbon reduction targets. De-carbonisation and economic growth are not mutually exclusive. This consultation sets out the government’s proposal for how the Carbon Emissions Tax would balance the UK’s environmental, economic, and fiscal priorities.
Under the terms of the Withdrawal Agreement, the UK will remain a participant in the EU ETS until the end of the Transition Period, and UK participants must fulfill their obligations to surrender allowances by 30 April 2021.The outline of a UK ETS was outlined on 1 June 2020 and further legislation to provide the powers to establish a UK ETS that could be linked to the EU ETS was included in Finance Bill 2020 alongside updates to the Carbon Emissions Tax legislation in Finance Act 2019.
The government remains committed to maintaining the Single Electricity Market on the island of Ireland and understands the importance of carbon pricing to this market. It will aim to ensure that carbon pricing does not hinder the effective operation of the market after the Transition Period and therefore emissions would not be taxed under this scheme.
- Do you agree that the Carbon Emissions Tax rate should be set using EU ETS price data?
- Do you have any views on the methodology and process for setting tax emission allowances?
- Do you agree that, if the Carbon Emissions Tax were to be introduced, a mechanism should be introduced to reward de-carbonisation?
- For the longer term, do you think other payment methods should be made available (e.g. a transfer involving the Business Tax Account)?
- Do you have any views on how, in the years after 2021, a Carbon Emissions Tax could drive de-carbonisation in sectors beyond those that would be subject to the tax at introduction?
- Do you agree that the government should explore the case for tax incentives to support negative emissions technologies?
We are formulating our response to the consultation and would welcome any thoughts you may have on the proposed areas of improvement. The consultation closes on 29 September 2020. To have your say, please email the compliance team at email@example.com or to discuss this further please call Melanie Kendall-Reid on 01252 87 87 22.