Energy tax - carbon price support and carbon pricing following EU exit

The measure

The total carbon price is made up of the EU emissions trading system (ETS) price and the carbon price support (CPS) rate. The government will freeze the CPS rate at £18 per tonne of carbon dioxide for 2020/21. Thereafter, the government will seek to reduce the CPS rate if the total carbon price remains high. 

In the event of a ‘no deal’ EU exit scenario such that the UK departs from the EU ETS in 2019, the UK would introduce a (new) carbon emissions tax applying to all stationary installations currently participating in the EU ETS. A rate of £16 would apply to each tonne of carbon dioxide emitted above an installation’s emissions allowance. 

Who will be affected?

Businesses currently participating in the EU ETS regime and energy generators that use fossil fuel which is subject to the CPS rates of climate change levy will be affected by any future changes.

When will the measure come into effect?

There are no changes to the CPS rate for 2020/21. In subsequent years, the CPS rate will only change in response to a continuing high carbon price. 

In the case of EU ETS, whether a new replacement regime is implemented will depend upon the relevant terms of the UK’s EU exit.


Our view

These measures appear to be focussed on maintaining the status quo for those business sectors directly affected by EU ETS and electricity generators that use fossil fuel. Stability in these areas is welcome, but the government has been able to provide only short term comfort at this stage.