Consultation on possible new carbon emissions tax

The government is consulting on the operation of the new carbon emissions tax that could be introduced after the end of the Brexit transition period, in the event no linked UK Emissions Trading System (UK ETS) is agreed with the EU

Under the terms of the withdrawal agreement, the UK will remain in the EU Emissions Trading System (EU ETS) until 31 December 2020.

The UK has made clear it is open to considering a link between any future UK ETS and the EU ETS.

However, if a link cannot be agreed, the UK will implement either an unlinked UK ETS or the carbon emissions tax from 1 January 2021.

Under the carbon emissions tax, installations currently in the EU ETS whose emissions exceed their annual tax emission allowance would become liable to pay the tax on their emissions from 1 January 2021.

The consultation sets out details on how HMRC proposes to operate the tax if it were introduced, and seeks comments on the proposals to inform secondary legislation.  The government is also consulting on some proposals for how the tax might develop.

There will be no need for businesses to register for the tax because HMRC will take information about all taxable installations from an IT system operated by regulators. Most existing penalties for failures to monitor, verify and report will continue as they currently do.

There will be new penalties introduced under the tax for any failure to pay the tax due on time and for failure to keep relevant records.

All installation permit holders will be required to report their activities and emissions annually by 31 March. In advance of the start of the tax on 1 January 2021, installations will be required to carry out the usual checks carried out at the start of a calendar year to provide a baseline for their emissions.

The paper proposes that an emissions allowance would be set for each installation covered by the tax, including main scheme installations and small emitters. Emissions above the allowance would be subject to the tax. The document sets out details on setting the emissions allowance. The government would publish a table of confirmed tax emission allowances for all permit holders covered by the tax each year, beginning in autumn 2021.

In addition, the consultation looks at possible future developments, which could include widening the scope of the scheme in order to meet emissions goals. Recognising that there may be other sectors where a carbon price could prove an effective lever to support the transition to less carbon-intensive operations, the government is inviting views and evidence about whether other sectors of the economy, for example the shipping and aviation sectors, should be covered by the tax in the years after 2021.

It is also seeking input on whether tax incentives could play a role in supporting the emergence of new ‘negative emissions’ technologies and industries and on how the carbon emissions tax, or other polices, could be enhanced over the medium term to support this.

The closing date for comments is 29 September.

Carbon emissions tax consultation

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