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Government to set carbon price in 2021/22 following exit from EU ETS

Image: Climate Central.

Image: Climate Central.

A new carbon price will be set by the UK at the start of the next Parliament following the country’s exit from the EU Emissions Trading System, according to documents released for today’s Budget.

Chancellor Philip Hammond offered nothing on the issue within his speech to the House of Commons however the 68-page accompanying document states that starting 2021/22, the government will target a total carbon price and set the specific tax rate at a later date.

This will have the effect of “giving businesses greater clarity on the total price they will pay”, with further details on carbon prices for the 2020s to be set out at Autumn Budget 2017.

The future of the UK’s carbon pricing regime has been in doubt for some time, not least following the vote to leave the European Union and its established programmes for taxing carbon intensive users.

Today’s announcement will pave the way towards a domestic scheme designed to disincentivise high carbon emissions, although similar programmes to regulate high energy use has been criticised in the past for allowing the more energy intensive industries a reprieve from regulations.

Despite this news, Hammond offered nothing to update UK businesses on the state of reforms to the energy efficiency taxation landscape, first announced by Hammond’s predecessor George Osborne.

The ongoing review of the tax regime, which would see the Carbon Reduction Commitment scrapped with revenues recovered from a rise in the Climate Change Levy, was first launched in September 2015 with a consultation and has yet to be concluded.

A second consultation was expected before the end of 2016 on a simplified energy and carbon reporting framework to be implemented by April 2019 however this has yet to be launched.