Carbon pricing is increasingly under political pressure, with recent plant closures being blamed on the costs of the UK Emissions Trading Scheme. However, these carbon costs need to be seen in the context of much larger challenges facing UK industry, including high energy prices and decades without a proper industrial strategy. The UK ETS is one of very few policies aimed at reducing industrial emissions and futureproofing the economy for a lower carbon future.

While the scheme has risks that need to be managed, particularly around carbon leakage, scrapping it would leave a multi-billion pound billion hole in government finances, undermine firms that have already taken action and see some of the lost revenue paid instead to the EU under its carbon border adjustment mechanism (CBAM). 

This briefing summarises the real drivers of industrial pressure, how carbon pricing works and where it falls short. It then explores what alternatives exist and what reforms could make the system work better for UK industry. 

For more information, contact
Roz Bulleid, research and policy director