UK to lose £1.1bn in carbon-credit revenue in event of no-deal Brexit

jueves, 09 de mayo de 2019 | Trading

The UK will lose more than £1.1bn in revenue as carbon-emitting companies escape paying for the pollution they cause if the country crashes out of the EU without a withdrawal agreement in October, according to Sandbag, a climate policy think-tank.

From January, Brussels stopped providing carbon allowances, or credits, to the UK government for auction under the EU Emissions Trading Scheme, because of uncertainty around Britain’s position in the bloc.

Under the cap and trade programme, the UK government receives millions of carbon allowances each year. Roughly 40 per cent of these are given to high-emitting companies, while the rest are auctioned, with the revenue kept by the Treasury to subsidise climate policies.

The government has said that a no-deal Brexit would exclude the UK from participating in the ETS from November.

In the event of a no-deal Brexit, Westminster has said that companies would pay a UK carbon emissions tax, which is tentatively fixed at £16 per tonne, compared with purchasing carbon allowances under the ETS, which are trading near €25 (£21.50). The government could choose to increase the amount to keep it closer to the ETS price, which has increased since the contingency plan was first announced.

    A no-deal Brexit at Halloween would allow British big emitters to dodge paying for their climate pollution for most of the year
    Phil MacDonald

The government has said it would not tax companies for the period between January and October, which means it would have to forgo more than €1.3bn (£1.1bn) in lost auction revenues for the first 10 months of the year, at an average carbon price of €25, according to Sandbag.

The price of carbon under the ETS has more than trebled since the start of 2018, rising from €8.16 to €26.48, driven by higher natural gas prices and a tightening of supply by the EU Commission.

A no-deal Brexit “would cost the UK government at least €1.3bn in lost ETS auction revenue — and would allow British big emitters to dodge paying for their climate pollution for most of the year”, said Phil MacDonald, an analyst at Sandbag.

“The government must find a resolution to the UK’s carbon price chaos,” he added.

The potential funding loss comes as the government has been trying to step up its environmental commitments. Last week, parliament declared a climate emergency and the government’s main climate advisory body recommended adopting a target of net zero carbon emissions by 2050.

Yet UK companies are frustrated about a lack of clarity on how much they need to budget for carbon emissions in the coming years, according to trade groups.
Chart showing revenue from ICE auctions

Richard Warren, head of policy at the UK Steel Association, said the confusion was a “major headache” for companies.

If a withdrawal agreement is reached and Britain remains within the ETS, the UK would receive its allotted allocations for auction, and would be able to recoup the lost revenue.

“Uncertainty could be lifted if parliament could reach a compromise and vote through the withdrawal agreement,” said the Chemical Industries Association.

A business department spokesperson said: “The government is confident it can deliver a deal by October 31, and is committed to securing the best deal possible as we leave the EU to support our economy and provide certainty for businesses.

“Whatever our future relationship with the EU, we will seek to ensure that our carbon pricing approach is at least as ambitious as the existing scheme and provides a smooth transition for the relevant sectors.”

The department said it was engaging with the European Commission about the “implications” of continued participation in the ETS in the event of a no-deal Brexit, and last week launched a consultation into the future of carbon pricing in the UK.


Source: Financial Times