The government has announced it is no longer auctioning or issuing any new EU Emissions Trading System (ETS) allowances until further notice.
In fresh guidance published on its website, the Department for Business, Energy and Industrial Strategy (BEIS) said emissions from 1 January 2019 onward will not be covered by the carbon pricing mechanism if the UK leaves the EU without a withdrawal agreement.
BEIS said generators currently participating in the scheme should nevertheless continue to comply with regulations on the monitoring, reporting and verification of greenhouse gases, as in the event of a no-deal Brexit these rules will underpin a new fixed-rate carbon tax set at £16 per tonne.
The tax, which was first announced in October, would not come into effect until 1 April 2019, leaving a three-month gap during which there would be no price on carbon emissions in the UK. The scheme to compensate energy-intensive industries for indirect carbon costs would remain in place.
BEIS also reiterated that the compliance deadline for 2018 has been moved to before the UK’s planned departure from the EU on 29 March. Liable generators will need to report their emissions for the year by 11 March (previously 31 March) and surrender the corresponding allowances by 15 March (previously 30 April).
In the absence of the change, the EU said it would consider any allowances issued in the UK from 1 January 2018 onward invalid for compliance.
BEIS said although UK auctions have now been suspended it still remains possible to purchase allowances for 2018 through the European Energy Exchange auction platform, as well as on the secondary market.
The department additionally warned that if Britain withdraws from the mechanism generators will lose access to ETS accounts registered in the UK. It said those wishing to retain any unspent allowances should therefore consider opening an account in another member state and transferring them over.