Energy Systems Catapult has responded to a government consultation which sets out the UK government’s and the devolved administrations’ approach to UK carbon pricing once we have left the EU, and seeks stakeholders’ views on the design of a future scheme.

While firmly committed to carbon pricing as an effective tool for achieving our carbon emissions reductions targets, as set out in the Clean Growth Strategy, the UK’s future approach will be at least as ambitious as the current EU Emissions Trading System (EU ETS) and should provide a smooth transition for relevant sectors.

Key points

• We recognise the case for the government’s preferred option of creating and implementing a UK ETS that is closely aligned and linked to the EU ETS. This would ensure policy continuity for sectors, while also enabling the UK to benefit from participating in a wider carbon market.
• However, findings from the Rethinking Decarbonisation Incentives project suggests that establishing, in the near-term, a standalone UK ETS will provide the UK with the opportunity to set itself on a pathway to an economy-wide framework of carbon polices required to achieve net zero. In doing so, the UK would have the freedom to increase ambition by setting a more stringent cap, expand scope and coverage (e.g. including upstream transport and/or heating fuels), and link to other domestic and international (when the level of ambition is equivalent) carbon markets in the future. We also note the Government’s view that a standalone UK ETS would result in a sufficiently liquid market.
• We see a standalone UK ETS as an essential component in building an economy-wide carbon policy framework, which would continue to place the UK as a global leader in climate policy and ambition, following on from the landmark Climate Change Act 2008 and, more recently, adopting a net zero emissions target by 2050. The UK should aim to build a robust, well-designed, and governed carbon policy framework in the near-term, with an on-going process that seeks to develop links to international carbon markets (e.g. EU ETS) during the 2020s.