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BREXIT: Carbon Emissions Tax

In a ‘no deal’ scenario, the UK would cease to participate in the EU ETS from exit day. HMRC propose to introduce a tax on carbon dioxide emissions (and other greenhouse gas emissions on a carbon equivalent basis) produced by UK stationary installations currently in the EU ETS. This includes: power generators; certain large industrial premises and manufacturers, including food processing plants; certain public sector facilities; and those small emitters and hospitals that are subject to simplified reporting arrangements.

The new tax will be introduced from 1 April 2019, with the first tax period ending on 31 December 2019. The tax would be known as Carbon Emissions Tax and collected by HMRC annually, with the first payment due in 2020.

All current participants in the EU ETS who are UK permit holders operating stationary installations currently in the EU ETS would be set an annual emissions allowance for the purposes of the tax. For permit holders outside the simplified reporting scheme this would be based on the allocation of free EU Allowances (EUAs) that would have been allocated to installations under Phase 3 of the EU ETS.

For those in the simplified reporting scheme, agreed emissions targets. Installations would continue to report their activities annually under the existing Monitoring, Reporting and Verification (MRV) scheme and, as at present, this information would establish how many tonnes of greenhouse gases they emit during the reporting period. All emissions that exceed the annual allowance would be taxed on a carbon equivalent basis at a rate for 2019 of £16 per tonne.

If the UK secures an implementation period, it would remain a member of the EU ETS during that period. HMRC confirm that they are continuing to develop options for long-term carbon pricing, including remaining in the EU ETS; establishing a UK ETS (linked to the EU ETS or standalone) or a carbon tax.

Hammad Baig can assist with issues arising out Carbon Emissions Tax and Environmental Taxes.


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