Proactive Investors - Industry body Energy UK has led calls for the UK to rejoin the European Union’s emissions trading scheme following a sustained decline in carbon prices in the former.
According to climate group Ember, UK carbon prices sat at £38.60 per tonne late last week, compared to €79.65 (£69.51) in Europe.
This comes after prices of carbon per tonne have increased by almost 65% in Europe but fallen by 14.7% in the UK respectively since early May 2021.
Given the idea of carbon offsets, which emitting companies have to purchase in each area, is to encourage firms to cut emissions, Energy UK argued the price decline could hamper Britain’s decarbonisation efforts.
“A falling and volatile domestic carbon price threatens to deter clean investment at the very moment we need it most,” deputy director Adam Berman said.
Alongside this, it “could end up costing British companies billions of pounds simply for trading with their largest export market”.
Energy UK urged the government to re-sign Britain up to the EU’s scheme in order to minimise risks of emitters being encouraged by lower prices.
Calls also came ahead of Europe’s introduction of the carbon border adjustment mechanism, which will ultimately see companies taxed on production emissions by the continent if they haven’t paid such a price elsewhere.
Energy UK estimated that UK firms could lose out on around half a billion pounds a year from such taxes come 2026, while losses may stretch to £3 billion for the Treasury.
“Linking our carbon pricing regime with the EU’s would exempt UK companies from these costs and remove the problems caused by the disparity between the two,” Berman added.
“It would also stabilise and strengthen our carbon price.”
Having introduced the world’s first emissions trading scheme in 2002, the UK later joined a new wider EU market, but left in 2021 following its departure from the bloc.