The British government is working on the development of a new carbon emissions tax to replace the European Union (EU) Emissions Trading Scheme (ETS). UK domestic power generation companies currently have to pay £18/tCO2 (€20/tCO2) for their emissions as per the UK carbon floor policy on top of the EU carbon allowances, which currently stand close to £15/tCO2 (€17/tCO2). The two levies cost UK power companies around £33/tCO2 (€37/tCO2) for their emissions.
If an agreement is signed with the European Union, the United Kingdom will remain a member of the EU’s ETS scheme until at least 2021. The current £18/tCO2 tax would remain frozen in 2020 and 2021. The government would then introduce a carbon tax set at the level of the ETS and would increase it steadily in future years.
If Brexit negotiators fail to strike a proper agreement with the EU before the end of March 2019, the United Kingdom would leave the EU ETS. The government would then introduce a £16/tCO2 (about €18/tCO2) domestic carbon tax, which would apply to stationary installations currently in the EU ETS. It is expected to help the country achieve its carbon pricing commitments via a domestic economy-wide tax system.
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