The UK’s benchmark carbon price surged by more than 8% on Monday after the UK and the EU agreed to link their emission trading systems in the first major reset of trade relations since Brexit.
The UK’s government announced on Monday that the UK has secured a new agreement with the EU post Brexit, which will include “closer co-operation on emissions through linking our respective Emissions Trading Systems.”
This, the UK government says, will improve the UK’s energy security and avoid businesses being hit by the EU’s carbon tax due to come in next year – which would have sent $1 billion (£800 million) directly to the EU’s budget.
However, the carbon prices as part of the current UK Emissions Trading Scheme (UK ETS) are lower than the EU carbon allowances.
Linking the UK ETS with the EU Emissions Trading System could result in higher UK carbon prices, analysts say.
The EU launched the ETS in 2005, becoming the world’s first carbon market. After exiting the EU, the UK launched its own carbon trading scheme.
After the pledge to link the EU and UK trading systems was announced, UK benchmark carbon prices jumped by 8.4% to $80 (£52.40) per metric ton early on Monday.
Industrialists in the UK had criticized the UK’s carbon prices and trading scheme weeks before the EU-UK deal and the surge in UK carbon prices.
Sir Jim Ratcliffe, the owner of chemicals giant Ineos, criticized last month the UK carbon tax policy, saying that it additionally burdens UK businesses.
The high carbon taxes have made Ineos pause green energy projects, he added.
“This is not just INEOS, this is a reality for British manufacturers up and down the country: carbon emissions taxes and excessive energy costs are squeezing the life out of the sector,” Ratcliffe said in April.
By Charles Kennedy for Oilprice.com
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