The UK government has unveiled proposals for a nationwide Emissions Trading System (ETS) to replace the current EU scheme.
The new ETS – designed by the UK, Scottish and Welsh governments and Northern Ireland executive – will largely replicate the cap-and-trade EU system that Britain is set to leave at the end of the year.
However, it includes plans to to reduce the existing emissions cap by 5%, going further than the EU, with the cap falling again to match the UK's net-zero emissions commitment once the new scheme is up and running.
The Department for Business, Energy & Industrial Strategy (BEIS) said that the ETS draws on the best of the current system, while ensuring it has greater flexibility to work in the best interests of the UK.
Energy Minister Kwasi Kwarteng said: “The UK is a world-leader in tackling climate change, and thanks to the opportunities arising as we exit the transition period, we are now able to go even further, faster.
“This new scheme will provide a smooth transition for businesses while reducing our contribution to climate change, crucial as we work towards net zero emissions by 2050.“
Emission trading schemes work by setting a cap on the total amount of greenhouse gases that can be emitted from certain sectors, with this reduced over time so that total emissions fall.
After each year, every covered company must surrender enough carbon allowances – each representing tonnes of carbon dioxide – to cover all its emissions, or face additional fines of up to £100 per allowance.
Carbon allowances can be bought at auction and traded, and these markets determine their cost, or the carbon price, with around 1,000 UK factories and plants currently covered by the EU scheme.
The BEIS said that the UK would be open to considering a link between the EU ETS if it suits both sides' interests, but that this is subject to the ongoing trade negotiations.
“This is good news for the industry, introducing a UK ETS scheme and a strong carbon price provides clarity, shows commitment to continuing to work as partners with Europe on carbon prices post-Brexit, and highlights the government's commitment to achieving net zero,“ commented Dr Nina Skorupska, chief executive of the Association for Renewable Energy and Clean Technology.
“Whilst a great first step, we urge the government to go further and faster, expanding the carbon price beyond the power sector into heat and transport as seen in other countries and setting a carbon price in line with net zero by the end of the year to further incentivise a green recovery.“
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