November 7, 2023
The UK Treasury could miss out on £3 billion ($3.6 billion) in annual revenue from carbon permits due to a sharp drop in prices in its post-Brexit emissions trading system, according to a report by Energy UK. The UK’s Emissions Trading Scheme (ETS), which mirrors the EU system, was largely aligned with the EU scheme in its early days. However, the situation changed when the UK announced plans to tighten the scheme’s cap and release more permits from a reserve. Since April, UK carbon prices have fallen by over 40%, while EU carbon prices have only declined by around 18%. Low carbon prices have implications for government revenue as polluters purchase government-issued carbon allowances, the sales of which contribute to the treasury. Energy UK also warned that the introduction of a carbon border tax in 2026 for certain imported goods to Europe could impact industries in the UK covered by the tax if the price difference between the UK and the EU persists. To mitigate potential penalties, Energy UK recommended linking the UK’s ETS with the EU’s.
Source: Reuters
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