The UK’s declining and volatile carbon prices have raised concerns about their impact on clean energy investment, lost Treasury revenue and potential carbon taxes.

The UK is experiencing the consequences of its declining and unpredictable carbon prices, which have the potential to deter investments in clean energy, result in significant revenue losses for the Treasury and lead to substantial tax bills for UK companies exporting to Europe by 2026.

Energy UK has released an analysis that underscores the impact of plummeting carbon prices in the UK during 2023.

It highlights the potential repercussions if this issue remains unaddressed, particularly as the EU prepares to introduce a carbon border adjustment mechanism next year.

Over the past six months, the UK’s Emissions Trading Scheme has generated over £1 billion less in carbon prices compared to the previous year’s levels.

If low carbon prices persist, the Treasury could face a loss of £3 billion in annual revenue, Energy UK estimates.

Additionally, from 2026 onwards, UK companies exporting to the EU may be subject to approximately half a billion pounds in carbon taxes as a result of the CBAM, even for energy exported from carbon-free sources like wind, solar and nuclear.

Adam Berman, Energy UK’s Deputy Director, said: “A falling and volatile domestic carbon price threatens to deter clean investment at the very moment we need it most and could end up costing British companies billions of pounds simply for trading with their largest export market.

“Linking our carbon pricing regime with the EU’s would exempt UK companies from these costs and remove the problems caused by the disparity between the two schemes.

“It would also stabilise and strengthen our carbon price, sending a powerful signal to bring forward investments in homegrown clean energy that can cut bills, reduce emissions and bolster our energy security.”