Incentivising net zero—an analysis of the government’s carbon emissions tax consultation

Incentivising net zero—an analysis of the government’s carbon emissions tax consultation

Environment analysis: Simon Tilling and Stephen Lavington, partner and senior associate respectively in Burges Salmon’s environment and climate change team, discuss the government’s recent carbon emissions tax consultation

What is the background leading up to this consultation?

The Carbon Emissions Tax (CET) was first announced in the 2018 budget as a contingency measure in the event of a no-deal Brexit. Had the UK left the EU with no deal it would have immediately ceased participation in the EU Emissions Trading Scheme (EU ETS). In those circumstances, the UK government would have implemented CET to ensure the continuity of carbon pricing across the UK.

In accordance with the EU-UK Withdrawal Agreement, the UK will remain part of EU ETS until the transition period for leaving the EU ends on 31 December 2020. The government has already stated its intention to continue carbon pricing (which forms an essential part of meeting its ambitious 2050 net-zero target) and so will need to implement a replacement regime.

As outlined in the 2019 consultation, on ‘The Future of UK Carbon Pricing’ and the government response document published on 1 June 2020, the preferred alternative to the EU ETS is a UK emissions trading scheme (UK ETS).

If it is not possible to put a UK ETS in place (either on a standalone basis or linked with the EU), the current intention of the government is to implement CET. This consultation paper details the government’s proposals for the operation of CET, building on the legislative framework for the tax already contained in the Finance Act 2019 (FA 2019).

What provisions have already been made in FA 2019 with regard to the carbon emissions tax?

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