Until the end of 2020, the power generation sector and heavy industry were both regulated by the same scheme, but the UK set up its own scheme at the start of 2021 as a result of Brexit.
The UK scheme is underpinned by the same principles as the EU scheme and is based on the same assessments of the same issues.
However, the main difference is the greater ambition of the UK scheme, with an overall number of allowance set at a level 5% lower than it would have been if the UK had remained in the EU scheme. This would not change if the schemes were linked.
For regulated UK industry, the establishment of a new standalone scheme has added huge fiscal uncertainty caused by the small pool of allowances to be traded, and uncertainty over the actions of traders looking to hedge their requirements for future years.
CPI, CEPI and over 40 other industry bodies and business associations have argued that a link to the well-established and liquid EU scheme would enable allowances for either scheme to be used for compliance, which would help to smooth the potential for price volatility.
A letter to the Prime Minister co-signed by the various bodies and associations said: “We welcome the commitment to ‘serious consideration’ which the UK and EU have given to linking their respective carbon pricing systems in the Trade and Cooperation Agreement (TCA) and believe that linkage negotiations should begin as soon as possible.”
CPI represents the UK’s paper-based industries, comprising paper and board manufacturers and converters, corrugated packaging producers, makers of soft tissue papers, and collectors of paper for recycling.
CPI director general Andrew Large said: “The new UK scheme has been designed to allow linkage to the EU scheme and we need politicians from both sides to step up and show their commitment to address climate change is undiminished by Brexit.
“We need to move towards a genuinely global price for carbon – a fracture between the UK and EU is counterproductive.”
Between 2008 and 2020, the UK papermaking sector reduced direct emissions of fossil carbon dioxide by 51%, with emissions falling from 3.2 million tonnes to 1.6 million tonnes. Allowing for production changes, the amount of fossil carbon dioxide released per tonne of production fell from 640kg to 430kg over the same period.
