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UK proposes introduction of carbon tax for emission prices in no-deal Brexit scenario

The UK government is planning to introduce a carbon tax to apply across the UK in order to meet carbon emission pricing commitments, should there be no deal with the EU over the terms of Brexit.16 Oct 2018

In the latest in a string of technical notices published to prepare for a no-deal scenario, the government said it would initially meet existing carbon pricing commitments through the tax system, starting in 2019. The new carbon price would apply across the UK, including in Northern Ireland.

The technical notice focused on the implications of the UK leaving the EU’s Emissions Trading System (ETS). The ETS applies to power stations, oil refineries and manufacturers as well as to aviation.

Participating operators are required to develop plans to monitor their emissions in accordance with the European Commission’s Monitoring and Reporting Regulation, and produce annual emissions reports. Operators receive or buy emissions allowances, which they can trade if needed, and must surrender enough allowances to cover their emissions at the end of each year.

UK-based organisations currently participating in the ETS would be excluded from doing so after a no deal Brexit, and the government said it would remove legislative requirements relating to the surrender of emissions allowances.

It would retain current monitoring, reporting and verification arrangements in order to maintain continuity.

Environmental law expert Georgie Messent of Pinsent Masons, the law firm behind Out-Law.com, said: “The UK government has been a very strong supporter of the EU ETS and has also used various other mechanisms to try to drive carbon reduction and energy saving commitments from UK corporations."

“The suggestion of a carbon tax instead of the EU ETS is reflective of the government’s move away from cap and trade schemes and towards direct taxes. On the positive side, as the EU ETS has been so oversupplied with EU allowances, a carbon tax in the UK may actually be a more effective driver of behavioural change in the long term. We do however need certainty for UK operators as soon as possible,” Messent said.

The dates for companies to report emissions and surrender allowances for the 2018 compliance year were brought forward to ensure there was no impact from a no deal scenario. However the government said any ETS allowances issued for the 2019 year could not be used by UK operators to meet 2018 compliance obligations.

The government said leaving the EU made no change to its “deep commitment” to tackle climate change and the UK’s Climate Change Act would be unaffected by Brexit.

“The UK will remain a party to international climate change agreements and its commitment to them will remain as strong as ever and will be unaffected by EU exit. The UK will therefore continue to take ambitious steps to reduce greenhouse gas emissions, and the UK’s Clean Growth Strategy highlights our policies and proposals for doing so,” the notice said.

The publication of the technical notice comes in the wake of a UN report which called for “unprecedented change” to keep global warming to 1.5 °C. This week UK energy and clean growth minister Claire Perry wrote to the independent Committee on Climate Change asking for its advice (2 page / 174KB PDF) on ways to reduce carbon emissions.