Business Outlook 2019

BUSINESS OUTLOOK 2019

3.3 EU ETS Carbon Market The EU Emissions Trading Scheme (ETS) carbon market is of increasing significance for UK producers, with companies required to ensure that they have the equivalent number of ETS permits to cover their offshore emissions. Companies are issued with a limited number of free permits and are required to buy additional permits from the market to cover any shortfall. Recent reforms to the ETS — helping to address an oversupply of available permits — led to a sharp increase in the ETS carbon price in 2018. The cost to emit a tonne of carbon dioxide (CO 2 ) increased from around €8/tonne to around €25/tonne by the end of the year, a rise of over 200 per cent. Prices in 2018 averaged €16.15 and are anticipated to remain relatively high in future, with forecasts in the range of €19/tonne and €21/tonne for 2019 and 2020, respectively.

Figure 4: EU ETS Carbon Price

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25

20

15

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EU ETS Carbon Price (€/Tonne)

5

0

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2013

2014

2015

2016

2017

2018

2019

Source: ICIS Heren

As UKCS offshore installations are not connected to the National Grid, the majority of industry carbon emissions (71 per cent) are the result of offshore power generation. OGUK estimates that the EU ETS currently costs the industry around £125 million per year, a charge which could double by 2030, even assuming lower carbon intensity as carbon prices continue to rise. Consistent with the wider climate agenda, industry will take progressively further action to reduce the carbon intensity of its operations aided by the EU ETS (Phase IV) which begins in 2020. There are a number of options for pricing carbon emissions following the UK’s withdrawal from the EU. In the event of leaving without a deal, the UK government has stated its intention to introduce a carbon tax of £16/ tonne for all emissions in excess of those which that would have been allocated in allowances under Phase IV of the EU ETS. If a withdrawal agreement is approved by parliament, the political declaration gives scope for the UK to design a trading scheme aligned to the existing EU arrangements, so that UK-issued allowances could be traded in the EU and vice versa, as is currently the case for Switzerland.

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