London (June 23) — IETA has joined with The European Federation of Energy Traders, the Association of European Energy Exchanges, and Eurogas in calling on the UK government to clarify its plans for carbon pricing after the country leaves the EU Emissions Trading System (ETS).
The British government last month published plans for a UK ETS to start in 2021, and indicated that it would shortly elaborate plans for a Carbon Emissions Tax as an alternative option.
The alternative plans currently do not offer the long-term predictability and visibility of carbon pricing beyond 2020, meaning companies are not able to properly hedge their carbon price risk, the associations said in a letter to Alok Sharma, the Secretary of State at the Department for Energy, Business, & Industrial Strategy.
“It is … unclear to us whether A: The Government is deciding between an ETS or Tax, B: The Government is proposing [a tax] as a back-up in case of issues with an ETS, [or] C: The Government believes that an ETS will not be ready by 2021, and therefore an interim Tax is required,” the associations said.
“We therefore urge the UK Government to provide clarity on the following matters as soon as possible:
The approach to carbon pricing in the UK post-Brexit and a timeline indicating the main actions foreseen for the development and implementation of the given approach. Should a linked UK ETS be the chosen option for the future, what would be the milestones to have it established by 1 January 2021?
The approach to Carbon Price Support in the UK beyond 31 March 2022.
The Carbon Emissions Tax rate for 2021, and the methodology to set it for the coming year as well as future rates in the event that it is introduced.”
“The British Government has given plenty of detail on how a UK emissions trading system might work, but it has not yet made clear whether an ETS will be ready to start next January, nor whether it intends to impose a tax as an interim measure,” said Adam Berman, EU Policy Director at IETA.
“Business needs clarity on this as a matter of urgency, so that planning and resources can be directed early enough to ensure compliance with the measures introduced in 2021."
“We strongly urge the Government to ensure that the new UK ETS will be ready by the end of the transition period, and to prioritise work on a linking agreement between the UK ETS and EU ETS.”
The letter also recommends that the UK remain part of the EU ETS until such time as a UK ETS can be established and linked to the EU market.
“The UK and the EU should endeavour to agree a temporary linking arrangement under the terms of the Transition Period in the Withdrawal Agreement,” the four groups said.
“In the event that the linking of the two systems cannot be agreed and/or implemented initially, the UK should maintain an ETS that is strongly aligned with the EU ETS in order to be able to agree the linking of the two systems in the future.”
The full text of the letter to the Secretary of State can be found here.