UK businesses are paying 10 per cent more than their EU counterparts to trade their emissions following Brexit.
As a result of the government’s refusal to link the UK carbon market to the EU’s, British firms pay more than £75 per tonne of CO2, while EU businesses pay up to €85 (£71), the Guardian reported.
Post Brexit, prices have hiked because the UK carbon market is significantly smaller than the EU one and doesn’t have enough liquidity in its emission trading scheme to cover all industrial sectors.
“UK companies are paying substantially more than they are in the EU. The big problem for the UK market is liquidity, and the fact that it is new,” Redshaw Advisors’ head of trading Tom Lord told the outlet.
“The EU has a historic surplus [of permits] to fall back on, but the UK has pent-up demand and only a drip-feed of supply.”
“Given that the UK wants to trade with the EU, and the EU wants to trade with the UK, it would make sense for companies to be on the same carbon footing,” added Lawson Steele, Berenberg’s joint head of carbon and utilities research.
Higher emission trading costs are not the only disadvantage to hamper UK businesses. Compared with continental firms, UK companies are also paying higher prices for energy – around £35MWh more.
To relieve business from such an economic onus, politicians have called on to go back to being part of the EU’s carbon market, urging the government to reconsider the position before 18 January, when it will release new permits on the market.
“The UK needs ambitious climate policies, but they will always be better if we work together with international partners,” said Lib Dems’ leader Ed Davey. “The Conservatives’ failure to do this is now hitting British business at the worst possible time, as energy-intensive firms are struggling with sky-high gas prices.”
“It’s clearly irrational, inefficient and the result of the destructive Brexit ideology to try to run an independent UK carbon trading system with all its additional costs, inevitable inconsistencies and opportunities for gaming the market,” added Green Party MEP Molly Scott Cato.
A BEIS spokesperson told the Guardian that, while not leaning massively towards it, Whitehall has not entirely scrapped the possibility to rejoin the EU’s carbon market.
“The UK ETS Authority is considering whether to take any appropriate action under the cost containment mechanism [to release more permits on the market] and will announce its decision no later than 18 January to provide certainty to the market,” they said.