U.K. Plans 16 Pound a Ton Carbon Tax to Replace EU ETS Market

(Bloomberg) -- U.K. greenhouse-gas polluters may see their costs for emitting carbon dioxide limited if the nation crashes out of the European Union without an agreement.

That’s the implication of a proposal by the Treasury to charge a tax of 16 pounds ($20.48) a ton on emissions if Brexit talks fail, leaving the U.K. excluded from the EU Emissions Trading System starting early in 2019.

U.K. Plans 16 Pound a Ton Carbon Tax to Replace EU ETS Market

The Treasury detailed the plans in its annual budget statement to Parliament on Monday, suggesting government ministers want to limit surging costs of energy that have been pushed up in part by rising prices in the cap-and-trade market.

Power generators burning fossil fuels like coal and natural gas currently pay 18 pounds a ton for CO2 emissions under the U.K.’s carbon floor policy. On top of that, they must pay for EU carbon allowances, which traded Monday at 16.68 euros a ton (14.83 pounds a ton). Together, the two levies cost utilities about 33 pounds a ton for their emissions.

Should Britain exit the EU without a deal, emitters will pay the 16 pounds a ton under a planned Carbon Emissions Tax to replace the EU carbon-market portion of those emissions costs, according to a government paper published Monday. The government would maintain the floor price policy too.

While the two charges together are about the same as what polluters would pay based on today’s prices, the fixed tax would prevent polluters for paying more in the event that prices surge in the EU’s emissions market. Some forecasters are expecting higher prices in the coming years. EU carbon prices will probably rise above 30 euros a ton by 2020, according to Bloomberg NEF.

“The tax would be a stop-gap measure, and the U.K. government is currently exploring long-term alternatives,” said Jahn Olsen, a power and carbon analyst at Bloomberg NEF. “A U.K. ETS is the favored long-term option of several government ministers.”

©2018 Bloomberg L.P.