UK budget: CPS carbon tax kept at GBP18/mt in 2021-22

London — The UK government will maintain the existing carbon tax rate that power generators pay for CO2 emissions in 2021-22 (April-March), it said in Wednesday's UK budget.

The Carbon Price Support -- a domestic top-up tax levied in addition to the EU's carbon price - will be held steady at GBP18/mt ($22.93/mt), according to budget documents released Wednesday by the UK Treasury.

"The government will freeze the rate of the CPS at GBP18/mt CO2e in 2021-22. Alongside wider carbon pricing policies, this will continue to encourage decarbonization of the power sector," the Treasury said.

The government also underlined its commitment to maintain a robust carbon price for the UK economy through a domestic carbon market after it leaves the EU Emissions Trading System at the end of 2020.

"The UK will continue to apply an ambitious carbon price from January 1, 2021 to support progress towards reaching net zero," it said.

"The government will legislate at Finance Bill 2020 to prepare for a UK Emissions Trading System (ETS), which could be linked to the EU ETS. The government will also legislate for a carbon emissions tax as an alternative carbon pricing policy and consult on the design of a tax in spring 2020," it said.

UK TO FOCUS ON RENEWABLES, CARBON CAPTURE

As the UK prepares to host the COP26 UN climate talks in November, the government set out a range of policies to reduce greenhouse gas emissions and protect the natural environment.

The government said it had already made significant progress in reducing carbon emissions from electricity generation, driven by the switch from coal to gas and the growth in renewable energy.

"Costs have fallen so quickly that offshore wind, onshore wind and solar are likely to be the UK's primary source of electricity in the future. However, the power generated by these renewable sources is dependent on the weather, so the UK also needs reliable low carbon power from technologies such as nuclear, gas with carbon capture and storage (CCS), and hydrogen," it said.

To do this, the government will at least double the size of the Energy Innovation Program, with exact budgets to be decided at the Comprehensive Spending Review which will conclude in July, it said.

To meet the net zero emissions target, the UK must also decarbonize industry, it said.

The Treasury set out a number of possible routes -- from using low carbon energy sources such as hydrogen or electricity, to capturing industrial emissions and storing them underground.

The heating of UK homes will need to be virtually zero carbon by 2050, replacing natural gas and other fossil fuels with low carbon alternatives -- likely to be primarily a mix of green gas, heat pumps and heat networks, the Treasury said.

"To meet this challenge, the Budget accelerates the greening of the gas grid by announcing a new support scheme for biomethane, funded by a Green Gas Levy," it said.

The Treasury will also publish two reviews this year -- one into the economic costs and opportunities of reaching net zero emissions by 2050, and the other to study the economics of biodiversity.

Other measures unveiled in the UK budget included:

• GBP532 million for consumer incentives for ultra-low emissions vehicles
• GBP500 million to support EV fast-charging networks over the next five years
• GBP304 million to enable local authorities to cut nitrogen dioxide emissions
• Office for Low Emissions Vehicles to complete comprehensive review of EV charging infrastructure
• Over GBP900 million for high-potential technologies, including nuclear fusion