The future of carbon pricing: Consultation response

A joint submission to the UK Government by the Grantham Research Institute on Climate Change and the Environment, the Institute for New Economic Thinking at the Oxford Martin School, and the Environmental Change Institute

This written evidence was submitted on 12 July 2019 to the joint consultation into ‘The future of carbon pricing’, being carried out by the UK, Scottish and Welsh Governments, and the Department of Agriculture, Environment and Rural Affairs in Northern Ireland. More information about the consultation can be found at: www.gov.uk/government/consultations/the-future-of-uk-carbon-pricing 

Headline issues

• Carbon pricing must be a key component of the plans to deliver on the UK’s recently adopted net-zero emissions target. The authors therefore welcome the UK’s post-Brexit commitment to carbon pricing that is at least as ambitious as the current pricing mechanisms.
• The authors recommend that the UK government pursues efforts to assess the impact of a likely reduction in the number/volume of transactions and the associated increase in transactions costs in a standalone UK emissions trading system (ETS). This assessment may well conclude that a standalone UK ETS is a sub-optimal solution.
• In the authors’ view, a standalone UK ETS, even one with latitude to increase scope, is likely to be a very costly option for the UK. This would therefore be a less preferred option than a carbon tax. However, both a carbon tax and a standalone ETS raise competitiveness issues that may need to be addressed using measures such as border carbon adjustments, tax exemptions or free allowances.