The United Kingdom is set to impose a £16 per ton tax on carbon if it leaves the European Union without a deal on October 31, according to government plans.
If the UK leaves the EU without a deal, it will also leave the EU’s Emissions Trade System (ETS), the centrepiece of the bloc’s efforts to meet European countries’ emissions reduction obligations. The cap-and-trade system requires power plants and industries to purchase permits to emit more carbon than they are allocated for free in the system.
In the event of no-deal, the UK would replace the ETS with a carbon tax “to help meet the UK’s legally binding greenhouse gas reduction commitments under the Climate Change Act,” the governments no-deal preparedness guide states. “The tax would apply from November 4 2019 to all stationary installations currently participating in the EU ETS”.
The tax would differ from the EU’s cap and trade system because it would be a set amount rather than creating a market for buying and selling permits to emit. A flat rate of £16 would be applied to each ton of carbon dioxide emitted over and above the free allowance the installation would have received under the EU ETS.
But while a tax might sound more onerous than a market, analysts say that this tax approach will mean an easier ride for companies in the UK than in the EU – potentially distorting the European carbon market and putting the UK at risk of failing to meet its emissions reductions targets.
The price of carbon in the EU ETS is currently around £26 per ton. The UK’s rate would be £10 cheaper.