UK To Scrap Carbon Tax On Power By 2028 As Coal Exit Reshapes Energy Policy

UK to remove Carbon Price Support levy from April 2028 after coal is fully phased out of the power grid
Electricity pricing reforms align with broader EU efforts to shield households and industry from volatile energy costs
Carbon pricing remains through the UK Emissions Trading System, with permits trading near £49 per tonne

The British government has confirmed it will abolish its Carbon Price Support levy on electricity generation from April 2028, marking a significant shift in the country’s approach to carbon pricing and energy policy. The decision follows the complete removal of coal from the UK’s power mix in 2024 and reflects a broader recalibration of how governments balance decarbonisation with rising energy costs.

The levy, introduced in 2013, was designed to make fossil fuel power generation more expensive and accelerate the transition away from coal. It added £18 per tonne of carbon emissions on top of the UK’s Emissions Trading System. Officials now argue that the policy has fulfilled its purpose and that maintaining it risks adding unnecessary costs to consumers and industry at a time of heightened global energy volatility.

“I am today confirming to the House that Carbon Price Support will be removed from April 2028,” the government said. “CPS has done its job and is no longer fit for purpose.”

From Coal Elimination To Market Reform

The UK’s coal phase out stands as one of the fastest among major economies. Coal once generated nearly 40 percent of the country’s electricity but has now been reduced to zero following the closure of the Ratcliffe on Soar power station in Nottinghamshire.

Analysts point to the Carbon Price Support as a central driver of that transition. Tom Cantillon, Senior Analyst at the Energy and Climate Intelligence Unit, said: “The Carbon Price Support has been a quiet success story of UK carbon pricing, driving coal from generating nearly 40 per cent of UK electricity generation to zero in a little over ten years.”

With coal gone and renewable capacity expanding, policymakers argue that the UK Emissions Trading System alone is sufficient to maintain decarbonisation momentum. The ETS caps emissions across power, heavy industry and aviation, with companies required to purchase permits if they exceed limits. Those permits are currently trading at around £49 per tonne.

The government added that the system now has a tighter cap, reinforcing incentives for cleaner generation without the need for an additional tax layer.

Balancing Climate Policy With Cost Pressures

The timing of the policy shift reflects mounting concern over energy affordability. Despite a recent drop in the UK energy price cap, geopolitical tensions, particularly linked to conflict involving Iran and disruptions in the Strait of Hormuz, are expected to drive prices higher in the coming months.

Forecasts suggest household bills could rise by more than 13 percent in July, adding roughly £220 annually, with further increases possible later in the year. While the removal of the Carbon Price Support is a long term measure targeting generation costs, short term relief remains limited.

At the same time, the government is expanding support for industry. The British Industrial Competitiveness Scheme will be extended from 7,000 to 10,000 manufacturers, offering electricity bill reductions of up to 25 percent by exempting firms from certain green levies. Officials say removing the Carbon Price Support will help offset the cost of these subsidies across the wider system.

Europe Moves In Parallel To Shield Consumers

The UK’s decision sits within a broader European effort to manage energy price volatility while maintaining climate targets. The European Commission is preparing proposals to reduce electricity taxes and grid charges, including eliminating taxes for vulnerable households and cutting costs for energy intensive industries.

Implementation across the EU will depend on national governments, but the direction of travel is clear. Policymakers are attempting to maintain political support for decarbonisation by reducing the immediate cost burden on households and businesses.

What Executives And Investors Should Watch

For corporate leaders and investors, the removal of the Carbon Price Support signals a shift toward streamlined carbon pricing frameworks. The UK is consolidating its reliance on the Emissions Trading System, reducing policy overlap while maintaining a market based approach to emissions control.

At the same time, the move highlights a growing tension between climate ambition and economic resilience. Rising energy costs are forcing governments to recalibrate how transition policies are implemented, particularly in sectors exposed to global competition.

The UK maintains its Clean Power 2030 target, aiming to largely decarbonise the electricity system within the decade. Officials argue that reducing reliance on volatile fossil fuels remains the most effective long term hedge against price shocks.

As global energy markets remain unstable, the UK’s approach offers a case study in policy evolution. Carbon pricing remains central, but its structure is being reshaped to reflect a post coal system and a more politically sensitive energy landscape.