The government has made the first steps towards designing and implementing its own emissions trading scheme (ETS), paving the way for carbon pricing aligned to that of the European Union to continue post-Brexit.
In a consultation published yesterday by the Department for Business, Energy and Industrial Strategy (BEIS), the government has confirmed that its proposed method for carbon pricing after Brexit would be the establishment of a UK ETS which is “at least as ambitious” as the EU’s.
This would, BEIS has said, provide a smooth transition for business sectors it would apply to.
The preferred arrangement would also see the UK secure a linking agreement with the EU ETS, a matter which BEIS said would create a larger carbon market and deliver more cost-effective emission reduction opportunities for UK businesses.
However the government has also stressed the need to assess alternative options should it fail to reach an agreement with the EU, with the government considering an entirely standalone domestic ETC, a carbon tax similar to proposals already set out by HM Revenue & Customs, or participation in Phase IV of the EU ETS.
The consultation itself spans four chapters, the first three of which discuss the potential inner workings of either a UK ETS that is either linked to the EU alternative or standalone. The fourth chapter examines what the UK’s legal obligations would be should it look to implement and participate in Phase IV of the existing EU ETS.
Crucially, the consultation states that BEIS envisages that any UK ETS would match the scope of the EU scheme in terms of sectors and greenhouse gases covered under it, a decision reached to ensure that the UK scheme can be linked, while also questioning how that scope could expand in the coming years.
Other considerations included with the consultation are;
- Mechanisms designed to respond to significant imbalances in demand and supply, as well as price volatility;
- Following the EU approach of distributing allowances through auctions;
- An opt-out scheme for small emitters and hospitals, as well as an exemption for ultra-small emitters, and;
- A range of proposals and considerations surrounding the aviation sector, particularly prescient given its inclusion in this week’s net zero report from the Committee on Climate Change.
Published at the same time as the consultation is a letter addressed to Lord Deben, chairman of the Committee on Climate Change, requesting the body’s advice on various design elements of a prospective UK ETS and its future operation.
Interested parties have until 11:45pm 12 July 2019 to respond to the consultation.