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UK Government response to the future of UK carbon pricing consultation

  • United Kingdom
  • Energy and infrastructure - Clean energy


On 1 June 2020, the UK Government and Devolved Administrations set out their decisions on the design and operation of a UK Emissions Trading System (“ETS”) as a response to the consultation on the future of UK carbon pricing (the “Consultation”).

The new scheme would replace the EU ETS, which the UK will leave at the end of this year as the Brexit transition period ends. The success of the UK ETS is critical to the UK’s commitment to achieving net zero carbon emissions by 2050 and aims to “go further” than the UK’s estimated commitment under the EU ETS system.

Their decisions are set out in a document responding to chapters 1 to 3 of the Consultation (the “Response”). The Government’s response to Chapter 4 of the Consultation was released in October 2019 (available here).

The main proposals from the Response are as follows:

  • A UK ETS is intended to be established, with Phase 1 running from 2021-2030
  • The UK ETS will apply to energy intensive industries (EIIs), the power generation sector and aviation, covering activities involving combustion of fuels in installations with a total rated thermal input exceeding 20MW
  • The Government is still considering linking any future UK ETS with the EU Emissions Trading System (the “EU ETS”)
  • In a standalone UK ETS, the Government will introduce a transitional Auction Reserve Price (ARP) of £15 (nominal) to ensure a minimum level of ambition and price continuity in the initial years of the UK ETS
  • The UK ETS cap will initially be set 5% below the UK’s notional share of the EU ETS cap for Phase IV of the EU ETS
  • At this time, international credits will not be permitted in a UK ETS
  • As an alternative to the UK ETS, the Government will publish a consultation later this year on the design of a Carbon Emission Tax
  • An initial review of the UK ETS will be conducted in 2023 to assess performance during the first half of Phase 1 (2021-2025), with any necessary changes to the system to be implemented by 2026
  • A full review will be conducted from 2028 onwards to assess performance across Phase 1 (2021-2030) with any changes to the system to be implemented for 2031

The Response is available in full here.