The UK Government has opened a consultation on a proposed UK carbon emissions tax with public submissions due by 29 September 2020.

The UK will no longer be participating in the EU Emissions Trading System (EU ETS), as of 31 December 2020. To enable the UK to meet its carbon reduction targets from 1 January 2021, the Government has proposed the establishment of a UK Emissions Trading Scheme (UK ETS), which would be preferably linked to the current EU ETS (as has, eventually, been done by Switzerland’s greenhouse gas emissions trading system). Subject to the success of negotiations on a linked UK/EU ETS, the UK has proposed an unlinked UK ETS or a proposed UK carbon emissions tax, by way of an alternative.

The carbon emissions tax would be intended to align with the EU ETS in regards to emissions monitoring, reporting and verification and apply to regulated installations currently participating in the EU ETS that exceed their annual tax emission allowance.

While the enabling legislation for such a tax was first introduced under the UK Finance Act 2019 (as amended), which sets out the basic structure of the proposed tax, much of the operational detail was left to be subsequently outlined in secondary legislation.

The current consultation seeks feedback on a number of these more detailed aspects of the proposed carbon emissions tax, which have not yet been legislated for, including in relation to tax emission allowances, payments to reward decarbonisation, the carbon emission tax rate in 2021 and 2022, payment to the HMRC, views on its practicality, and concerns or suggestions about its operation.

The consultation also seeks submissions on future considerations for a potential UK carbon emissions tax, including broadening the scope of the tax to capture additional emissions (including emissions from the aviation and shipping industries) and incentivising negative emissions in the long term.

For more information on the proposed carbon emissions tax and taking part in the consultation process, the consultation paper is available here.

In the event that the UK Government decides to implement the UK carbon emissions tax, given the impending departure of the UK from the EU ETS, we are likely to see secondary legislation introduced before the end of 2020, with further legislation in 2021 and 2022.

As of the time of writing, the UK Government is still negotiating the possibility of a linked ETS with the EU.

Public submissions must be submitted to the HMRC (as specified in the consultation paper) by 29 September 2020.

Please refer to our separate blog post on the proposed UK ETS, “UK Emissions Trading Scheme (ETS) details, available here.