Warning over Emissions Trading Scheme prices

A fall in the price businesses must pay for emitting carbon through the UK Emissions Trading Scheme (ETS) could undermine investment in green technologies, a report has warned.

The National Audit Office (NAO) said there has been a “successful” transition to the UK ETS from its EU equivalent and that overall carbon emissions reduced by 11 million tonnes between 2021 and 2023 in the sectors the scheme covers.

However, it cautioned that the relatively low price of carbon in the scheme may have limited incentives for industry adoption of low-carbon technologies.

The scheme raised £17.8 billion in revenue for the government from 2021 to 2025 through the auction of allowances, each equal to 1 tonne of carbon dioxide.  Despite initially exceeding the price in its EU equivalent, the price of carbon within the UK Scheme has decreased since 2023 and remains lower than EU carbon prices.

Gareth Davies, head of the NAO, said the ETS plays a key role in the UK’s progress towards its net zero goals.

“But to fulfil government’s ambitions to expand the UK Scheme, the Authority must ensure that the Scheme is combining with other policies to create sufficient incentives for industry to invest in low carbon technologies and for organisations.”