Rishi Sunak’s trimming of UK climate targets could cost the Treasury millions of pounds in lost taxes due to a widening gap between UK and EU carbon prices. Over the last few months the price British companies must pay for every tonne of CO2 released has fallen to less than half the equivalent in the EU. As a result, British exporters will be forced to pay the difference to the EU when it fully introduces a new carbon border adjustment mechanism (CBAM) in 2026. This time last year the UK carbon price, or ETS, hit a peak of £100 a tonne – roughly on par with the EU – but has since collapsed to £33 as the government rows back on green initiatives and fewer companies feel compelled to buy licences to pollute. Linking the two carbon taxes will be critical for export industries like steel, but will be diplomatically tricky. Over the weekend Kemi Badenoch, trade secretary, hit out at critics of Brexit for “talking down Britain”, but the reality is the government needs to quickly find a way to stop a large portion of companies’ carbon bills being diverted from Westminster to Brussels.
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