Government indecision on the UK’s post-Brexit emissions trading arrangements is preventing energy companies from preparing for the risk of a “no deal” departure, the Business, Energy and Industrial Strategy (BEIS) Committee has warned.
The committee’s chair, Darren Jones, has written to energy minister Kwasi Kwarteng to express concern that the government is still to announce a replacement for the EU Emissions Trading System (ETS).
The government has said its preferred option is for a UK ETS linked to the much bigger EU market but has also published proposals for a standalone scheme or a tax on carbon emissions.
In the letter, Jones wrote that there is a “lack of clear messaging” from the government on the carbon pricing regime it intends to deliver when the transition period ends in just 10 weeks’ time.
He said the failure to settle on one option is “especially surprising” given the joint decision announced between the government and the devolved administrations earlier this year to establish a UK ETS and the subsequent efforts to develop the legislation necessary to deliver this.
“The current uncertainty about the new carbon pricing regime is preventing manufacturers and energy companies from being able to act on the prime minister’s recent instruction to prepare for a ‘no deal’ scenario on 1 January,” said Jones.
“It is hindering businesses in their abilities to hedge against the risks of price fluctuations and to plan for future liabilities, and it is undermining the case for new investments, with knock-on effects for the competitiveness and carbon-intensity of British industry.
“Further, the government’s apparent indecision on carbon pricing comes at a time when industrial energy prices in the UK are amongst the highest in Europe;,when UK industry as a whole is being asked to undertake major investments in order to deliver on the Net Zero goal, and when the wider effects of Brexit and Covid-19 present very substantial additional uncertainties which businesses must manage if they are to remain viable.”
The letter follows the BEIS Committee’s public hearing last week at which Energy UK chief executive Emma Pinchbeck branded a standalone UK ETS “the worst of all worlds”.
Jones pressed Kwarteng on when and how the government intends to announce its decision on the future carbon pricing regime, including any provisions and target dates for legislation and taxes.
He also asked when operational details of the chosen scheme will be provided to businesses so that they can prepare for its adoption and for the BEIS department to set out any concerns about how a UK ETS will be linked to the EU ETS such as “perceived incompatibilities”.