British power generators and heavy industries will continue to pay at least £18 a tonne (US$22) for carbon dioxide emissions permits for the rest of the decade.
Since 2013, the UK has put a surcharge on the market price under the EU emissions trading system, which is around the €5/t ($5) mark.
In his Autumn Statement on Wednesday, Chancellor Philip Hammond signalled an intention to continue to make polluters pay while the government negotiates an exit from the EU.
“The government is committed to decarbonising the economy while limiting costs on bills, and will continue to engage stakeholders as it develops an emissions reduction plan,” said Hammond.
“To provide certainty to businesses, the government confirms it is maintaining the cap on Carbon Price Support rates at £18 t/CO2, uprating this with inflation in 2020-21. The government will continue to consider the appropriate mechanism for determining the carbon price in the 2020s.”
Originally intended to rise steadily year on year, the UK’s carbon floor price was frozen at £18 in response to an industry backlash. As EU carbon prices stagnated, manufacturing lobbyists like EEF complained a widening gap with the continent would make them uncompetitive.
Other business groups, including power utilities, urged the chancellor to maintain the top-up rate, to create certainty for investment.
With the government planning to trigger formal Brexit talks by the end of March 2017, it is unclear whether the UK will continue to take part in the EU ETS.
It is one of the reasons investors in clean energy are taking their money elsewhere, consultancy EY said in its latest annual renewable energy country attractiveness index. The UK fell to 14th place, behind Morocco.
Jonathan Marshall, analyst at the Energy and Climate Intelligence Unit, said Hammond’s statement did not offer much reassurance.
“Considering the long-term nature of energy investments, clarity more than three years into the future is vital for the industry,” he said.
“The sector was looking to see the fate of the carbon tax beyond the end of this decade… This statement is likely to see investment in new capacity continue at glacial pace.”
Wildlife charity WWF-UK expressed disappointment there was no mention of green growth. “Priorities should have included stronger support for renewables through the Industrial Strategy, and backing for a robust emissions reduction plan,” said advocacy director Trevor Hutchings.