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1. Overview

This report, by Vivid Economics, accompanies advice from the Committee on Climate Change about the future of the EU’s Emissions Trading System (EU ETS). The Committee’s advice, in the form of a letter and accompanying annex, was sent to the UK Government, national Governments in Scotland and Wales, and senior officials in Northern Ireland in August 2019.

Vivid Economics’ work represents the conclusions of Vivid Economics alone and not the conclusions of the Committee.

2. Key findings

The report presents a number of findings on the future of carbon pricing in the UK:

• Market based mechanisms such as carbon pricing should continue to play a central role in an effective climate policy mix in the UK.
• UK carbon pricing can be designed to meet climate objectives and provide price incentives to spur emissions reductions given the choice of instrument is less important than how it is designed.
• Achieving net zero emissions while supporting broader competitiveness and domestic policy objectives is possible under all carbon pricing policy scenarios
• Achieving net zero emissions places a greater emphasis on the role of carbon pricing to achieve a deeper decarbonisation of the economy and further supplementary policies to overcome non-price barriers.

It then makes a series of recommendations for policy design.