UK firms are paying much more to produce carbon dioxide than EU companies because of the Tories’ refusal to link Britain’s carbon market to the bigger European market after Brexit, it has emerged.
The price differences amount to a huge competitive disadvantage compared to EU rivals amid rising energy prices and is also not beneficial to the environment, according to The Guardian.
Over the past month, UK companies have been paying, on average, a premium of about 10 per cent more than their European counterparts because Britain’s market is much smaller than the EU emissions trading scheme (ETS) which has been established for 17 years.
According to experts, the best long-term environmental and economic measure Tory ministers could adopt is a close relationship with the EU market.
Tom Lord, head of trading at Redshaw Advisors, said: “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.
“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.”
The government has no said why it has decided to operate separately from the EU, but the move suggests a ‘hard Brexit’ strategy, avoiding ties with the bloc.
Meanwhile, the Lib Dems and the Greens urged the government to link Britain with the EU’s system, as Britain maintains the bloc’s model post-Brexit, having been a part of the scheme whilst the UK was part of the European Union.
“The UK needs ambitious climate policies, but they will always be better if we work together with international partners,” Lib Dem leader Ed Davey, said, adding: “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.”
Molly Scott Cato, of the Greens, said: “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.”
A spokesperson for the Department for Business, Energy and Industrial Strategy said: “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.”
Brexit has also proven bad for the environment from a trade point of view. Analysis by the UK Trade and Business Commission found that replacing lost EU trade since 2018 with imports and exports from further afield would increase annual emissions from UK-linked shipping by 88 per cent.
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