Rebecca Gaskill talks Carbon Emissions Tax


THE ANNOUNCEMENT of the Carbon Emissions Tax consultation is important news for the over 1,000 UK participants in the EU ETS.

The consultation seeks responses to the proposed Greenhouse Gas Emissions Trading Scheme Order 2020, which will replace the EU Emissions Trading Scheme.

The government are assessing the UK’s long-term approach to carbon pricing, including whether to:

  • Continue participating in the EU ETS
  • Implement a UK ETS
  • Implement a carbon emissions tax

The government has indicated its preference to introduce a UK ETS linked to the EU ETS “if it suits both sides’ interests”.

However, the potential for the UK ETS to link to the EU ETS is subject to ongoing Brexit negotiations.

The Order will take effect from 1 January 2021 and will apply to all of the UK. It will cover the same greenhouse gases (GHGs) and sectors as the EU ETS. The Order will provide an opt-out of the UK ETS for hospitals or small emitters.

The UK ETS’s cap will initially be set 5%, which will be reduced annually, so that it remains 5% below what the UK’s national share of the Phase IV EU ETS cap would have been each year.

This will be temporary until the Committee on Climate Change provide advice on the Sixth Carbon Budget in December 2020 and the appropriate UK ETS cap level.

The government will also consult on the appropriate trajectory of the cap for the remainder of the UK ETS’s first phase within nine months of the CCC’s advice, to align with net-zero by 2023.

The government aims to give UK ETS participants at least one year’s notice of any changes to the cap and participants must apply for a GHG emissions permit, as well as surrender allowances, each year.

Rebecca Gaskill, ICON’s Policy and Business Impacts Analyst

When the Finance Act 2020 comes into force, the government will enact secondary legislation governing the auction of emissions allowances and market support mechanisms.

Both “main scheme installations” and “small emitters” under the EU ETS would become a taxable person under the carbon emissions tax and would be liable to pay the carbon emissions tax and on 31 March each year on each tonne of CO2 above their allowance for the previous calendar year. This would apply even if there were a change of permit holder within this period.

The Consultation seeks views on how the tax may evolve in the future, in order to help deliver the UK’s net-zero target it suggests potentially broadening the scope of the tax after 2021.

It also seeks views on how the tax might support the emergence of new negative emissions technologies and industries.

The consultation is open until 29 September. More information can be found here