UK puts forward Emissions Trading System with 5% reduction in carbon caps

Proposals for UK ETS which will replace the EU's framework when Brexit transition period ends

The UK has unveiled proposals for its own Emissions Trading System (ETS), which will replace the European Union’s framework when the Brexit transition period ends at the end of this year

Britain’s Department for Business, Energy and Industrial Strategy (BEIS) has unveiled the UK-wide ETS, which will put a cost on carbon pollution to encourage companies to reduce greenhouse gases they emit in a bid to reach the UK target of net zero carbon emissions by 2050.

The ETS will set a cap – which is 5% lower than current EU standards – on the total amount of emissions that can be emitted from certain sectors, but BEIS said it plans to go “even further” by reducing the cap over time so that total emissions decline.

Unlike the European scheme the British ETS would have a fixed auction reserve price, set at £15 a tonne of carbon dioxide.

The British ETS will also include a cost containment mechanism to prevent price spikes.

The government document said: “In years one and two of a UK ETS the Cost Containment Mechanism will have lower price and time triggers, providing a mechanism by which the UK government can decide whether to intervene sooner should very high prices occur.”

Around one-third of UK emissions and nearly 1,000 UK factories and plants are currently covered by the EU ETS but will be taken over by the UK system, the document added.

The department of BEIS also said it would be open to considering a link between a UK ETS and the EU ETS “if it suits both sides’ interests”, but this was subject to ongoing Brexit and trade negotiations.

“This is subject to the ongoing trade negotiations between the UK and EU,” the government said.


Natalie Kenway

Natalie is editor in chief at MA Financial covering ESG Clarity, Portfolio Adviser and International Adviser. She was previously global head of ESG insight for ESG Clarity and has been an investment journalist...