Brexit pushes UK to begin own emissions trading system in 2021

Due to Brexit, the UK government said on December 14 it will launch an emissions trading system (ETS) for domestic industry and power generation from January 1 next year. The International Emissions Trading Association (IETA) welcomed the announcement of a new UK ETS as a bold step in the right direction toward climate neutrality.

“Choosing a carbon pricing system that can be truly aligned with net-zero sends a strong message that the UK is serious about action on climate change,” IETA EU Policy Director Adam Berman said in a statement posted on the IETA website. “Emissions trading provides multiple options for strengthening and enhancing price signal. The UK ETS will ensure both flexibility for industry and environmental certainty for policymakers,” he added.

Britain left the EU at the start of 2020 and will leave the EU Emissions Trading System (EU ETS) in less than three weeks. IETA has been one of many entities calling on the UK to implement its own carbon market mechanism.

Justin Urquhart Stewart, co-founder of Regionally, a UK Regional Investment Platform, told New Europe on December 14 the government of Prime Minister Boris Johnson is still committed to fighting climate chance and curbing CO2 emissions. “Certainly, Boris in all his unreliability, about one of the consistent things he has come out with is a level of consistency with the green agenda. Very little original he has been saying about his policies but certainly the one he has been consistent over is trying to transform the economy by way of environmental changes,” Urquhart Stewart said. “He has been overdoing it a lot but, nonetheless, I think it has been done in such a high-profile way it will be difficult for him to back down on it,” he added.

The London-based expert noted that under Johnson’s administration, the UK will show a high level of commitment to the green agenda and they want to be seen as leaders in curbing CO2 emissions because Britain’s premier sees it as a way of attracting new investments into the UK. “I don’t think he is necessarily right on that. What it will do is certainly encourage further investments into the domestic technology environmental issues which has been far more dramatic in the last few years. So, the concept he saying is right, he will be focusing much more on it, but I don’t think he quite realises where the benefit is coming from,” Urquhart Stewart said, adding that it won’t be necessarily from external investment, it will be from smaller, domestic companies taking advantage of it.

Berman reminded that UK has almost two decades worth of experience in emissions trading. “In choosing an ETS, the government have shown that the UK is willing to build on that experience and lead by example through a market mechanism that is tried and tested as the best route to economy-wide emissions reductions,” he said.

The UK has already issued regulations establishing the structure of the UK ETS, including a cap on emissions each year to 2030, and will complete more preparations in the coming days, according to a government statement.

“The UK ETS will ensure that decarbonisation occurs where it is cheapest and most efficient, providing a clear and predictable low-carbon pathway for business,” Berman said. “It also opens up the possibility of linkage to other jurisdictions, which can move the world one step closer to a global carbon pricing system,” he added.

IETA stressed that the UK government must now consult on how to increase the ambition of the ETS in line with the UK’s enhanced -68% emissions reductions target for 2030. This is likely to take the form of strengthening the mechanisms of the ETS, and possibly extending the system to new sectors. Although the Government has designed a strong ETS, one crucial element is missing and will be required to meet the revised 2030 target; a supply adjustment mechanism, the IETA explained.

The International Emissions Trading Association strongly encouraged the UK government to consider implementing such a mechanism which can reduce surplus allowances if the market becomes oversupplied. This has been shown to be an effective mechanism in the EU’s Emissions Trading System and will be critical to maintaining a robust price signal in the UK ETS.

Asked if the UK can meet its 2030 targets and decarbonisation targets by 2050, Urquhart Stewart told New Europe the UK finds itself in actually a good position because it has already run down the coal exposure significantly. He said it also depends on UK’s backing of nuclear energy. “Nuclear will still be there,” he said. “Although regarded as highly risky technically it also regarded now as being greener, obviously greener than the old fossil fuels,” he added.

Urquhart Stewart said a lot depends if the life of Britain’s old reactors can be extended and also depends on the conversation happening at the moment with French firm EDF Energy on the development of Sizewell C site in Suffolk, which could generate 3.2 gigawatts of electricity — enough to provide 7% of the country’s energy demands. “So, it could change within the next few weeks but I suspect they will go ahead with it because it would be a very simple way for them to prove their policies especially with the environmental conference in Glasgow with COPS21 next when want to be seen meeting it,” he said.

In response to the UK government confirming it will enter negotiations with EDF in relation to Sizewell C, EDF’s UK CEO Simone Rossi said, “We’re right behind Net Zero, and by investing in renewables and nuclear at Hinkley Point C and Sizewell C we’re supporting decarbonisation while creating jobs across the UK. We will continue to help our customers find affordable, low carbon ways to travel and heat their homes and businesses”.

Rossi said EDF looks forward to working with the UK government to implement its energy and climate policies, including the financing of new nuclear.

Turning to government plans to cut emissions and expand clean energy, Urquhart Stewart told New Europe the UK has a much better chance of meeting its targets because of the fast adoption of the new environmental energy controls with housing. “Britain has a very bad housing stock in terms of environmental controls, heat mechanisms and things like that., But with enough incentives from the government that could actually change quite radically and it’s a rather simple thing for them to achieve,” Urquhart Stewart said.

Britain already makes great use of wind power, he said, stressing that battery retention power is going to be crucial issue. “The politicians often say that the wind is not blowing the whole time – that is not the issue. The issue is can you actually retain the power when the wind is blowing and tidal and things like that,” he said, adding, “So, with sufficient investments and encouragement particularly in the finance sector, the UK does find itself in a position it can benefit very significantly from this”.