UK Emissions Trading Scheme: Business and Regulations Impact Assessment (BRIA)

8. Consumer assessment

The impact of these changes on consumers is hard to quantify. For the firms involved, the carbon price is one of a number of factors which will impact the price of their products. The costs associated with decarbonisation, as well as the cost of allowances and the proportion of their allowances received for free, will vary across sectors. This is particularly true when examining industry.

For the power sector, the UK ETS compliance costs could be passed on to consumers. While electricity generation in Scotland is primarily driven by renewables, 57% in comparison to only 36.2% in England in Wales in 2021, the costs to Scottish consumers of electricity are determined by the GB electricity market.^[23] As a result of the national pricing model for electricity, UK ETS compliance costs and the mix of power generation will be one of many factors determining the end price. It has therefore not been possible to determine the exact scale of the impact of UK ETS compliance costs on wholesale prices but it is expected to be minimal given the current costs associated with fossil fuels. In general, a higher carbon price would be expected to increase the marginal cost of electricity generation from fossil fuel generators. In the short-term, these higher costs may be passed onto consumers’ energy bills. However, the medium and long-term, energy bills may be decreased where the UK ETS contributes to faster power sector decarbonisation.

Aviation is recognised as a sector that is harder to decarbonise relative to the other UK ETS participants. Aircraft operators could respond to a higher carbon price by investing in sustainable aviation fuel, technological and operational efficiencies. While UK ETS compliance costs may be passed onto consumers via higher airfares, compliance costs will be one of many factors determining airfares, including the costs of aviation fuel and other operational costs. It is therefore not possible to model exactly how they may be passed onto consumers.