In 2021, large carbon emitters found their compliance costs dramatically increased as a result of the change from the EU Emissions Trading Scheme (ETS) to UK ETS. And while there may be less of a financial imperative for smaller industrials to cut carbon right now, over the next three to five years many more businesses will start to see increased costs from inaction. The longer they wait, the more they will pay in direct costs such as higher energy bills and carbon taxes, and indirect costs, including reputation and lost business. Ultimately, the cost of doing nothing could be very high indeed.

For companies looking at the cost levers that will provide the financial imperative to decarbonise, carbon taxes and energy price volatility represent the two biggest risk factors.

By adopting the Committee on Climate Change’s (CCC) advice on the Sixth Carbon Budget, the Government has committed to reduce the UK’s net emissions by 78% by 2035, against a 1990 baseline, and it has made it clear that it wants carbon pricing to be one of the levers to drive net zero. Under the UK ETS, power plants and other high emitting corporates will be charged for every tonne of CO2 they emit over a specified limit. Companies can trade emissions by selling excess reductions to other companies that have failed to meet their limits. In time, many more companies will fall under the UK ETS as outlined in the Government’s Hydrogen strategy as the Government is committed to expanding the reach of the scheme.

With carbon prices increasing, businesses with high emissions must decide whether to buy permits now or defer for a later date. The third option is to invest in carbon reduction and net-zero measures and reduce the risks associated with rising carbon taxes.

Companies have different motives to decarbonise. In practice, a combination of trigger points will force businesses to act. Supply chain expectations, increasing carbon costs, capital market and investor requirements, volatile energy prices and the emergence of low-regrets solutions will nudge businesses towards action. Increasingly though, businesses will change because of the overriding moral imperative to reduce their impact on the environment.

As the UK’s largest supplier of industrial gases, with proven experience in helping to decarbonise industry and mobility sectors, BOC is well placed to support your decarbonisation plans.