The UK Treasury has outlined its contingency plans for carbon emissions tax in the event of a no-deal Brexit. In this scenario, the UK will introduce a £16-per-tonne carbon emissions tax to replace the current EU Emissions Trading Scheme (EU ETS). The Treasury stated that this new tax would apply to each tonne of carbon dioxide created above the emissions allowance, based upon each installation’s free allowances under the EU ETS.

Importantly, this will not be replacing the current domestic carbon tax, the Carbon Price Support. With the Carbon Price Support recently frozen at £18.08 until 2021, this means that the Total Carbon Price in the UK from April 2019, in the event of a no-deal Brexit, will rise to around £34-per-tonne.

A Volatile Market

The statement by The Treasury was designed to give some clarity to the UK power market at a time of great uncertainty for the industry. Whilst welcomed by many major businesses, it is still only one step. Much like other major industries in the UK, the power market will be waiting anxiously for the Brexit negotiations outcome; although they shouldn’t wait for this to put plans into action. By being proactive and streamlining supply chains in advance, businesses will be better prepared whatever the Brexit outcome. At ERA, we use our industry-specific expertise to help businesses improve their procurement strategies – contact us today to see what savings we could make for your business.

Pulled by a variety of stakeholders, from environmental groups to manufacturing organisations, the price of carbon emissions has fluctuated in recent years, and many expect it to continue to do so.

If the UK were to leave the EU ETS without a contingency in place, the Total Carbon Price would fall by the current amount set by the EU – around £16 – to the current UK ‘carbon floor’ of around £18. Research indicates that such a drop would significantly increase the amount of coal used in power production between 2018 and 2027.

Some manufacturing and power production groups have frequently called for a scrap of the carbon price floor, stating that the tax is unfriendly for business and reduces the industry’s ability to compete internationally. However, in the government statement outlining this no-deal contingency, they re-enforced their commitment to being the leading major nation in the ‘fight’ against climate change. Since 2008, the government has been working towards legally binding targets for carbon emission levels with the aim of reducing 2050 emissions by 90% of 1990 levels. The government has set itself five-yearly targets to make sure it is progressing to this objective, and while it is currently on track to outperform the third carbon budget in 2022, it is projected to fall short of expectations for 2027.

The £34-per-tonne figure in the event of a no-deal is much higher than environmental experts believe is necessary to combat the use of coal. It is also considerably higher than previous Treasury targets. It has been suggested that this sharp rise in Total Carbon Price is to make sure that the carbon emission targets are met, whilst also promoting Britain to international countries as a place for eco-friendly business. This is evidenced further by the government’s first ever ‘Green Great Britain’ week in October, an industrial strategy intended to grow this side of the power market.

To Save or Compete

The question that anti-carbon tax groups are asking is, at a time when Britain will become less competitive as a result of leaving the European Union, can the industry afford to hold itself back? Those questions have been answered in large parts by this announcement, making it clear that the government intends to focus on its carbon emission targets ahead of industry competitiveness (perhaps in a bid to avoid any political backlash from failing to meet environmental objectives).

However, it is worth noting that an exit deal with the EU is looking more likely, as evidenced by Theresa May’s recent business engagements. Unfortunately, this suggests the likelihood of future changes to the UK’s Total Carbon Price is also possible, meaning that many power companies will still be left in the dark until a deal is finalised.

Whilst Brexit negotiations continue to cause uncertainty, it is also creating many opportunities for proactive businesses to re-evaluate their current supply chains ahead of April 2019. At ERA, we have specialists with countless years of experience in dedicated business sectors, from facilities management to business energy procurement and many more in between, that are ready to help you streamline your business. With millions saved by our clients each year, contact us today to see what savings we can make for you.