Scrapping carbon pricing would hit British exporters with billions of pounds of extra taxes and lock them out of key overseas markets, as well as deterring investment in the UK – while also failing to cut energy bills.
That’s the conclusion of a new report by Energy UK, which shows that any bill savings from scrapping carbon pricing would be more than wiped out by increasing the cost of gas for electricity generation, industrial use, and domestic heating, alongside increased CfD top-up payments.
In addition, British companies exporting to the EU would face an extra £10 billion of taxes from carbon border charges over the next ten years, while facing similar and increasing issues with the growing number of countries adopting carbon pricing systems – which already amounts to around 63% of global GDP.
The report stresses that by setting clear and consistent signals, carbon pricing has driven investment in clean energy, manufacturing, and infrastructure across the UK. Low-carbon sources of power regularly set new records and now provide well over half of our electricity generation – with investment in wind generation having delivered a net benefit of over £100 billion to UK customers between 2010 and 2023.
Domestic carbon pricing consists of the UK Emissions Trading System (ETS) – which requires sectors like power generation, heavy industry, and shipping to purchase allowances for every tonne of C02 they emit – and the Carbon Price Support (CPS), which is a carbon tax levied only on fossil fuel generation.
UK emissions have fallen by more than 50% since 1990 while GDP has grown by 69% over the same period. As carbon pricing has been in place for much of this time, it emphasises that decarbonisation and economic growth can go hand in hand.
Having played a major role in phasing out coal, the CPS will be discontinued in 2028, allowing UK and EU time to link their respective ETS and avoid the costs and disruption that could otherwise follow its removal. The report also again underlines the multiple benefits of UK/EU ETS linkage such as boosting economic growth and competitiveness, market stability and liquidity, and potentially lower carbon prices.
Adam Berman, Energy UK’s Director of Policy and Advocacy said:
“Carbon pricing has had a transformative effect on the UK’s economy, enabling investment in clean energy and industrial processes while maintaining economic growth. It’s that investment that will boost our country’s energy security and reduce our dependence on gas, which is once again pushing up bills for households and businesses.
“It is an illusion that cutting carbon pricing would have any enduring benefit for UK competitiveness. Energy UK analysis highlights that scrapping carbon pricing would drive up gas prices in the UK, increasing energy bills, and exposing British exporters to billions in new taxes.
“Being out of step with the rest of the world on carbon pricing isn’t just a matter of symbolism. From the EU to India and China, major trading blocs around the world are introducing both carbon pricing and carbon border adjustments. A UK which abandons carbon pricing is a UK increasingly locked out of key markets, driving investment elsewhere, and leaving others to reap the rewards of clean industrial growth.
“Carbon pricing is a powerful tool, but it isn’t a silver bullet. The Government should look at how it can do more to support industrial decarbonisation and electrification, and how ETS revenues would be better targeted. But scrapping carbon pricing would be a self-destructive step, its supposed benefits would quickly prove to be a mirage, and it would only ensure that the UK economy falls further behind in the race to secure the industries of the future.”
Notes to Editors
About Energy UK
Energy UK is the trade association for the energy industry, representing companies investing billions of pounds to secure our country’s current and future energy needs.
From growing start-ups to major electricity generators, grid and infrastructure developers and energy suppliers, our members are driving change across power, heat, transport and flexibility.
We provide a collective voice for the sector working with governments, regulators, charities and other organisations to provide crucial insight that shapes policy, offers solutions and promotes best practice. Our broad view across the whole system supports evidence-based positions which are not tied to particular technologies, and are focused on delivering strategic benefits for people, businesses and the economy.
We champion initiatives such as our Vulnerability Commitment, which pushes suppliers to go beyond regulation to support customers with additional needs, and TIDE, the industry’s drive for greater inclusion and diversity. Through our Young Energy Professionals Forum, we support the development of future leaders. We are equally committed to our team and are proud to be recognised as a Platinum Investors in People employer.
