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SSE, Drax and Orsted call for ‘robust approach’ on carbon pricing

Sajid Javid. Image: Richter Frank-Jurgen.

Image: Richter Frank-Jurgen.

Energy companies Orsted, SSE and Drax, along with non-profit climate change think-tank Sandbag, have together written to Chancellor of the Exchequer Sajid Javid, urging him to “maintain the UK’s robust approach on carbon pricing.”

This follows uncertainty surrounding Brexit and the carbon pricing mechanisms the government will commit to.

“Providing certainty and stability is crucial when the Government sets the Carbon Price Support (CPS) rate for April 2021 and beyond,” the letter says.

It praises the Powering Past Coal Alliance and net zero commitment, calling the UK a leader in its efforts to meet the Paris Agreement. However, “this leadership should continue at the first ‘Net Zero Budget'” it says.

This is particularly pressing in the run up to COP26 in Glasgow, in November 2020, and the heightened pressure for the UK to show it is committed to reducing emissions.

A Drax spokesperson said: “Robust carbon pricing is one of the most effective tools to enable a zero carbon, lower cost energy future and it’s vital that the UK government continues to support it so we can meet our Paris Agreement climate targets.

"Since the carbon floor price was introduced in the UK in 2013, coal use has fallen by around 80% and capacity from renewables has more than tripled.”

The CPS for the year FY19/20 is £18, and has already been set at the same rate for FY20/21. However, the CPS for FY21/22 is still yet to be set. This is where there is concern, with the companies worried that the UK government may reduce its rate to assist energy intensive industry in the wake of Brexit.

SSE stated that doing so would undermine the confidence of low carbon investors in the long term direction of the UK on carbon pricing and "increase uncertainty at a point of turbulence for UK businesses.”

The FY21/22 year would begin in April 2021, just four months after the UK is due to finish its implementation period with the EU. This further increases the need for clarity as to carbon pricing.

Sandbag CEO Phil MacDonald has warned that Brexit has thrown the UK’s carbon pricing into "chaos".

“With the UK suspended from the EU carbon market, businesses can't know how much they will be paying for their emissions. We're calling for the government to give some clarity about carbon pricing after Brexit, so that businesses can make the investments needed to take the country to net zero emissions.”

Further concern surrounds the Carbon Emissions Tax (CET) rate for 2020 should the UK leave the EU without a deal, which may still be a possible outcome. This will replace the EU Emissions Trading System (ETS) in the event of no deal, and has been set at £16 per tonne for 2019, compared to today's EU price of above £22 per tonne.

“To minimise the potential divergence between the CET and the EU ETS over 2020 it is vital that the CET is set a level for 2020 that is comparable with recent EU ETS pricing,” the letter warns.

MacDonald has warned that this proposed post-Brexit carbon tax is “a significant step down in ambition".

“We would like the government to commit to a tax level that at least equals the EU average price for the preceding year,” he says.

This is not the first time the industry has called on the government to provide clarification on carbon pricing, with SSE CEO Alistair Philips-Davies writing to Prime Minister Boris Johnson in July, highlighting the importance of CPS.

“It will continue to play a key role in the long-term effort to reach Net Zero, and a commitment to a strong UK carbon price post 2021, would be an important signal of intent from the Government at a time when we are looking to cement our position as a world leader in the fight against climate change," Philips-Davies' letter said.

Similarly the Committee on Climate Change wrote to the government in August, calling carbon pricing “essential” but not enough to "provide sufficient decarbonisation" in isolation.

The letter penned by Orsted, SSE, Drax and Sandbags finishes by urging speed in the clarification of CPS post-Brexit, if the country is to meet it’s net-zero target.

“Further clarity on the UK’s carbon pricing future following a successful linking agreement between a UK ETS and the EU ETS to be in place for 2021 should be provided as soon as is practicable.”

The Chancellor is yet to respond.

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