U.K. to Set Up Its Own Carbon Trading System After Brexit

(Bloomberg) -- The U.K. will start its own carbon market at the beginning of next year to help cut emissions after Brexit.

The move announced Monday answers the long-awaited question of whether Prime Minister Boris Johnson’s government would put a price on carbon or a simple tax. It leaves open the possibility to link the U.K. emissions trading system with the larger European one at some point in the future.

An ETS will continue to put a market-based price on emissions for power and industrial installations. The rising price of carbon has been a key motivator in the power sector to switch from burning coal to less-polluting gas. The system will cut pollution and help the country on its way to achieving net zero emissions by 2050.

The U.K.’s cap and trade system will be in place from Jan. 1, 2021, the government said in a statement. Plans for the system were laid out earlier this year. It’s based mostly on the European Union version, but the U.K. said it planned to make the system about 5% tighter than its share would have been in the next stage of the European market.

That would mean about 156 million allowances handed out for 2021, according to a government document from earlier this year.

The government has said it plans to adjust its annual emissions cap to support the goal to effectively eliminate pollution by 2050. They also plan to introduce an auction price floor of 15 pounds ($20) per metric ton of carbon dioxide. The mechanism is meant to protect the U.K. carbon price from going too low in the market’s early years. EU permits currently trade for about 28 pounds.

“An ETS will provide a clear and predictable low carbon pathway for business, and opens up the possibility of linkage to other jurisdictions, which can move the world one step closer to a global carbon pricing system,” said Adam Berman, EU policy director at the International Emissions Trading Association.

The outcome of the trade negotiations between London and Brussels could ultimately decide how likely it will be for the two carbon systems to be linked. While the U.K. didn’t mention the EU’s system specifically, the government said it would be open to connecting the system internationally, though it hasn’t made any decision on potential partners.

The government is currently preparing to announce new rules about auctioning permits, mechanisms to keep the new market stable and regulate trading.

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