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UK Renewable Energy Producers Could Be Hit by the EU Carbon Border Tax

UK renewable power generators exporting electricity to the EU could be hit with the EU carbon border tax as of 2026 unless the UK and the European Union work a way to change part of the EU mechanism, British industry officials and analysts have told Reuters.

The EU’s Carbon Border Adjustment Mechanism (CBAM), commonly known as the “carbon border tax”, was launched on October 1 last year in the first transitional phase for imports of several carbon-intensive groups of products into the European Union. The first phase of the EU’s carbon import pricing legislation will not impose levies on the products—such will apply from 2026.

Under the current mechanism, power producers exporting electricity to the EU – even wind and solar power – will be subject to some form of tax.

The UK’s industry is calling for linking the emissions trading systems of the UK and the EU to avoid red tape and taxes UK clean energy producers will have to pay.

“The CBAM design also means that our homegrown clean energy from wind, solar, and nuclear sources will be forced to pay a carbon price despite being 100% clean. This sends precisely the wrong signal to international investors considering the attractiveness of UK clean energy projects,” Energy UK, an industry group said in October after the first phase of the EU carbon adjustment mechanism came into force.

Apart from undermining confidence in UK clean energy projects, a tax on power exports to the EU would also raise power prices in northern Europe, where Britain traditionally exports electricity in case of higher output at home and higher demand in Europe.

The UK and the EU have time to address the issue until 2026. If they do not agree on a deal, the current EU border tax mechanism would penalize Britain’s clean energy, analysts and industry say.

A study by AFRY Management Consulting, commissioned by a group of interconnector businesses and transmission companies, showed earlier this year that the EU carbon tax would create issues with pricing the carbon of electricity imports from Britain. This, in turn, could put at risk the development of offshore grid and cross-border infrastructure, raise barriers to low-carbon projects, and frustrate efficient market operation by unduly blocking flows that would otherwise be economic, AFRY said.

By Charles Kennedy for Oilprice.com

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