British heavy industrial polluters often see their carbon costs nearly cut in half if the country crashes out of the EU without any deal this autumn.
Updated guidelines released on Monday show the UK government intends to introduce a domestic tax of lb16 ($19) per tonne of CO2 emitted from power stations and industrial sites from 4 November. The aviation sector wouldn't be susceptible to the tax.
In the UK, the tax would replace the EU emissions trading plan, where permit prices have soared near to EUR30/t ($33) and therefore are forecast to continue climbing. Plus a falling pound, it enhances the prospect of the significantly lower carbon price in great britan than you are on the continent.
The tax will come into force when the UK fails to negotiate a withdrawal cope with the EU by 31 October, when it is due to leave the bloc.
The rate of lb16/t price was initially suggested through the UK government in the 2023 budget, once the EU carbon price fluctuated between EUR17 and EUR20/t and the pound sterling was stronger against the euro.
At time, the Scottish and Welsh governments objected towards the proposal on the basis it handed an excessive amount of capacity to the centralised UK Treasury.
Power generators would continue being subject to an lb18/t surcharge on top of the tax – a total rate lower than they pay at present.
Meanwhile, “the rest of the heavy industry will be left free,” Chaitanya Kumar, senior policy advisor in the Green Alliance think-tank, told Climate Home News.
A low UK carbon price risks slowing down decarbonisation of the country's industrial sector, Kumar said.
Since January this season, the EU has frozen the UK’s capability to obtain free allowances and auction carbon credits underneath the bloc’s emissions trading scheme. The UK government is forecast to lose a minimum of lb1.1 billion in revenue this year consequently, according to think-tank Sandbag.
The probability of the united kingdom leaving the EU with no deal on 31 October has significantly increased, after Boris Johnson was elected pm by Conservative Party members a week ago.
Johnson has repeatedly said he would take the country out of the EU on Halloween whether or not the bloc can agree with new withdrawal terms together with his government. The default situation is really a no-deal Brexit.
The government said the tax rate for years beyond 2023 could be set during future budget announcements, which usually occur in the autumn, however the specifics are yet unknown.
Phil MacDonald, who leads think-tank Sandbag's work on carbon pricing, told CHN there was yet no clear trajectory within the cost of the tax beyond 2023, leaving investors unable to plan.
“The carbon tax should be drawn from the annual political cycle. It's really no good for business to be subject to the vagueness the carbon tax might be changed,” he said.
MacDonald also warned the reduced tax rate could damage britain's reputation as a likely host of next year's UN climate talks.
“It wouldn't be a great search for the UK to lessen its carbon price lower than the rest of the EU. It might set a poor precedent for carbon pricing,” he said.
The move could also visit a temporary rise in coal generation in the united kingdom next year, using the possibility of coal-fired power plants returning online, Yan Qin, lead analyst at data consultancy Refinitiv Carbon, told CHN.
But the “outlook for coal in the united kingdom is gloomy”, she added, pointing to dwindling coal capacity and persisting low gas prices that would eventually offset the results of a low carbon price on coal.
Besides the looming prospect of a no-deal Brexit, the UK government is considering long-term choices for carbon pricing following a country's departure in the EU.
Its preferred choice is the creation of a UK emissions trading scheme that may be associated with the EU market, based on official documents.
The government has sought the recommendation of their official advisers, the Committee on Global warming, on the issue and a reply is expected shortly.
Even if this was the adopted option, “it couldn't be assumed that it would happen quickly,” said Kumar from the Green Alliance, adding that Switzerland has unsuccessfully tried to link its emissions trading sell to the EU's for the past seven years.
“This is less to do with the technical aspects and much more with the political ones,” he said.
