Britain’s post-Brexit carbon pricing could cost Treasury billions – report

LONDON (Reuters) – Britain’s Treasury could lose out on 3 billion pounds ($3.6 billion) of revenue a year from the sale of carbon permits, an industry report said on Monday, after prices on its post-Brexit emissions trading system fell this year faster than in the EU.

Britain’s ETS, launched in 2021, works like the EU system it replaced, requiring manufacturers, power companies and airlines to pay for each metric ton of carbon dioxide they emit to help meet climate targets.

Britain’s ETS had mostly tracked the cost of carbon in the EU or traded above it, until April this year, when Britain announced changes, tightening a cap on the scheme but signalling that it would release more permits from a reserve.

Since then, the UK carbon price has fallen by more than 40% while the EU carbon price has fallen by only around 18%.

“Over the last 6 months, carbon prices from the UK’s Emissions Trading Scheme (ETS) have raised over 1 billion pounds less than if prices had remained at last year’s levels,” a report by industry group Energy UK said.

“If low carbon prices persist, the Treasury could lose out on 3 billion pounds in revenue per year,” the report said.

Under the system polluters buy government issued carbon allowances which are sold via near weekly auctions, with the money raised going to the treasury.

Energy UK said the imposition of a carbon border tax from 2026 on some goods being imported to Europe could impact British industries covered by the tax if the difference in prices remains.

Europe’s carbon border tax will impose fees on imports of emissions-heavy goods including steel, aluminium and cement – unless the exporting country has equal CO2 pricing policies.

Energy UK said the government should work to link its ETS with the EU’s to avoid such penalties.

A spokesperson for Britain’s Department for Energy Security and Net Zero said the ETS was a key tool in helping the country meet its climate targets and that fewer permits would be auctioned by 2027.

“We are following developments on the EU’s Carbon Border Adjustment Mechanism closely and looking at the potential impact this may have on UK businesses,” the spokesperson said.($1 = 0.8247 pounds)

(Reporting By Susanna Twidale; Editing by Peter Graff)