Britain facing race to avoid $1 billion in EU carbon tax costs

Britain will struggle to link its carbon market to the EU’s in just seven months, to avoid UK companies facing the bloc’s carbon border tariff and annual bills around £800 million ($1.08 billion) from next year, market experts have said.

- SUSANNA TWIDALE KATE ABNETT

Billed as part of a “reset” in relations after Britain’s 2016 exit from the European Union, the two sides announced last month they will link their carbon emissions trading systems.

But neither side has set a timeframe or detailed the work that must be done to make this happen before January, when Europe's carbon border tax kicks in.

“It’s probably still likely to take many years before linkage takes effect. The earliest is 2028, but it's more likely to be 2029 or even 2030,” said Ben Lee, senior emissions analyst at Energy Aspects.

The UK government said a key upside of linking to the EU’s carbon market, or emissions trading system (ETS), is to avoid businesses being hit by the EU’s carbon border tariff — which, starting next year, will impose fees on the CO2 emissions associated with imports of steel, cement and other goods. The UK government said avoiding these costs would save £800 million a year.

But EU officials say to get exempted from the carbon border levy, Britain would need to have linked its carbon market to the EU's.