A smaller, but none-the-less important, part of the Government’s “reset” with the EU is that it makes a commitment to joining the single market for electricity, the EU’s carbon trading scheme (ETS), and tariffs on carbon-unfriendly goods (the CBAM).

The direction of travel has been towards some sort of alignment for a while, but the degree of oversight given to the EU has raised a few eyebrows, as has the likely rise in carbon pricing. The counter argument is that closer co-operation and linking the UK’s and EU’s ETSs will improve energy security and avoid the EU’s carbon tax due to come in next year. The UK devised its own ETS in 2021 and is developing its own version of a CBAM.

Politically the moves create several issues for the government, in part due to the degree of aligned the “reset” brings and the lack of control, but also most directly the carbon pricing could load energy bills just at a point where there appears to be some movement to reduce energy costs.

---