Draft Greenhouse Gas Emissions Trading Scheme (Amendment) Order 2026

Claire Coutinho Excerpts

Tuesday 27th January 2026 General Committees

[Claire Coutinho (East Surrey) (Con)]

It is a pleasure to serve under your chairmanship, Sir Desmond. I am sure that Members will have been hanging on to the Minister’s every word, but they may not have made it through the dense forest of governmentitis, so let me be very clear: the measures in the instrument, which will be imposed from 2027, will reduce the supply of free allowances, thereby increasing the carbon tax in this country. That is explicitly stated in the Government’s impact assessment.

Free allowances have been the mechanism that we use to protect businesses such as cement and steel from being undercut by cheaper imported products from countries that do not charge carbon taxes. That has meant that those businesses have not faced higher costs from the tax, and therefore, neither have consumers. Because of the CBAM, the protection is being moved to a tariff placed on imports at the border, which means the free allowances in the domestic UK market are being phased out. Members should be clear that that means the carbon tax will now start to be charged on the production of goods produced for the British market that otherwise had been protected by free allowances, and British consumers will face higher prices as a result.

What does this mean in practice? The carbon tax is paid by industrial businesses such as gas power stations, oil refineries and food manufacturers. The Government make them pay a tax for every tonne of carbon they release during their production. Naturally, those taxes are passed straight through to consumers in higher prices, so if the Government increase the carbon tax they increase the price of basic goods like electricity, petrol and sugar. The Government know that, because in the impact assessment for this legislation they admit exactly that: higher carbon taxes will be passed through to consumers as higher prices—it is in paragraph 18.8 for any Members who are checking. That means higher energy, food and petrol prices.

The Government insist that they need to do this because they have decided to link the UK carbon tax scheme to the EU’s. That was their decision—it was a political choice—and that alone has doubled our carbon tax since the start of last year. We are not talking about a slight increase; we are talking about a tax that has more than doubled in less than a year because of choices made by this Labour Government. Families across the country will have less money in their pockets, not because of an act of God or events outside the Government’s control but because of an active policy choice made by Labour Ministers. Doubling the carbon tax has increased electricity bills alone by £4 billion.

In fact, the carbon tax imposed by the Government now accounts for over £100 per year, or over 12%, of the average electricity bill. The increase is costing the wider British economy an extra £5 billion a year, and the legislation that Labour Members will vote for today will pile more costs on to consumers. The Prime Minister recently said that his priority is the cost of living, but across his Government hundreds of decisions like today’s are raining down more regulations and higher taxes, which are pushing costs up. These are policies that will push rents up, that have driven food prices up and that are landing on people’s energy bills.

The impact assessment accepts that today’s policy will push up energy bills but, extraordinarily for a Government who say that their priority is the cost of living, it does not give a figure of by how much. That is why the Prime Minister will fail and it is why this Labour Government are failing. There is no appetite, or accountability, in his Government for even understanding what these policies will mean for the consumer, let alone trying to act in the consumer’s interest.

[Sadik Al-Hassan (North Somerset) (Lab)]

Will the right hon. Member give way?

[Claire Coutinho]

If I am wrong and the Labour party has an assessment for what the order will do to energy bills, perhaps the hon. Member can give us the numbers. I suspect that he will not be able to, but I will happily let him try.

[Sadik Al-Hassan]

You referred to paragraph 18.8 of the impact assessment.

[Sadik Al-Hassan]

Thank you, Sir Desmond; I appreciate that, and it is a pleasure to serve under your chairship. Paragraph 18.8 says that the figures in the impact assessment

“should be treated with caution”

because they are

“at the upper end of estimates”.

Does that mean we should “treat with caution” everything the right hon. Member has said?

[Claire Coutinho]

I think what the hon. Gentleman is saying is that the impact assessment makes it clear that consumers will face higher costs. The question I am putting to him is what that will mean for people’s energy bills. I suspect that is something that his constituents would be concerned about. Given that he does not have an answer, he should ask of his Government what it will mean for people’s energy bills.

[Sadik Al-Hassan]

Will the right hon. Member give way?

[Claire Coutinho]

I will make some progress, unless the hon. Member has an answer on energy bills.

[Sadik Al-Hassan]

I can answer that quite clearly. The word “can” is written in paragraph 18.8; it does not say “will”. I think the right hon. Member’s assumption that these figures—which, as it is written quite clearly, only may lead to price increases—should surely be one for the Minister to answer in a minute.

[Claire Coutinho]

It is absolutely extraordinary that the hon. Member does not accept that a higher price of carbon imposed on the production of goods in this country will raise costs. The cost of the carbon tax now accounts for—rather than pointing to the document, it is worth him listening to what I have to say—£100, or 12%, of someone’s electricity bill. That is clearly a cost that has been passed through. If Labour Members cannot understand that taxes on businesses get passed on to consumers, I am afraid I cannot help them in this debate. Make no mistake: this is a massive burden on consumers and businesses.

Why are the Government doing this? Who benefits? The Treasury will see an extra £1.8 billion in tax revenue because it has doubled the carbon tax. Through this legislation, by reducing free allowances, it will rake in even more from ordinary families who are already struggling. That is in fact the entire point. The aim of the carbon tax is to gradually increase costs for British industry until businesses have no choice but to spend hundreds of millions of pounds they do not have at the moment to decarbonise their production, or shut down and move abroad. The fact that companies are choosing to do the latter means that there will be no reduction in global emissions because those businesses are just moving elsewhere. There will be fewer jobs in Britain, and more businesses in countries that have more polluting regimes—so more carbon in the atmosphere overall.

Page 68 of the Minister’s impact assessment says that the carbon tax would be £25 lower by 2030 if the Government did not make the changes we are discussing today. As the Government have admitted, higher carbon taxes feed through to consumers in higher energy bills and higher costs. The Minister is asking us to approve legislation that, by his own assessment, will hurt industry, fuel inflation and make people poorer. When defending alignment, Ministers point to a Frontier Economics report that says that alignment will save £800 million, but that is supposedly saved over five years, and completely ignores the costs that higher carbon prices impose on the wider economy. To be clear, they are imposing a £5 billion tax rise on the economy every year, in the hope of saving just £160 million a year. That is incoherent to say the least.

When I asked the Department how increasing the carbon tax affects consumers and businesses, its response was that the Government were

“not able to comment on current prices and price movements”

because they do not dictate the market. That is total nonsense. They can and should forecast what this will mean for prices, and how much our constituents will pay in extra costs on their bills. All I am asking is for Ministers to be open about the costs, admit they are imposing them on businesses and the public, make the argument as to why they are justified to do so and then let the public decide. I do not think that that is too much to ask.

I ask the Minister these questions: what is his assessment of how many jobs will be lost because of higher carbon taxes? How many more domestic industries will be replaced by foreign imports, which we are already seeing in gas, steel, chemicals and refineries? Does he accept that reducing free allowances through this legislation will increase energy bills? His own impact assessment says that reducing free allowances will increase carbon prices by £25 per tonne, so will he publish an assessment of what that increased cost will add to people’s household bills?

The world is getting more dangerous, and our raw industrial power is hard power. The Government should not be making our industry even less competitive with soaring carbon taxes, and making us more reliant on foreign imports, just as the world is becoming less safe. It is the wrong measure for the wrong time, and for those reasons we will oppose it today.

--- Later in debate ---

[Chris McDonald]

I thank everyone for their contributions to the debate, which was considerably more fulsome and energised than is usual for a 4.30 pm Committee. I am incredibly grateful, because Members in all parts of the Committee made a number of points, giving me the opportunity to clarify some details of the workings of the scheme.

The shadow Secretary of State, the right hon. Member for East Surrey, said that it was a very dense report with a lot of governmentitis. I know that she understands the details of this subject well, because she is the former Secretary of State, but I appreciate that it is technical, and it behoves all of us to try to explain as clearly as possible what the draft order means.

I will start by addressing some of the specific points in the draft order and then talk a bit more generally about some of the points that Members have raised. I appreciate the concerns on both sides of the House about the impact on industry and the risk, when we are decarbonising industry, of deindustrialisation. I know that this concern is sincerely felt by everybody in this room, even if we might differ at times on what we think the best approach is. That is why we have been so careful to consult industry on these measures, as I outlined in the long catalogue of dates in my opening speech. We have consulted carefully with industry and made sure we have listened to what they have said.

Some of the issues here run quite broadly around industrial competitiveness. Possibly one of the main points to recognise is that it is important through the whole decarbonisation process that industry manages to maintain access to its key markets, and clearly one of the key markets is the EU. That is where we come to the discussion about linking the EU ETS and the UK carbon border adjustment mechanism with the EU to enable our UK industries to continue to trade there. Negotiations with the EU started in November, but I want to be clear that they will only conclude in this way if it is in the UK interest to do that. We will continue to consult with UK industry on that matter too.

In relation to points made by my hon. Friend the Member for Stoke-on-Trent Central, the ceramics industry made three specific requests during the consultation. We managed to adopt requests to include ceramics on the carbon leakage list, no tiering of free allocations, and greater engagement with the ceramics sector, which is why we set up the UK ETS working group. My hon. Friend asked me specifically if we could reallocate free allocations from other sectors to ceramics. That is not possible within the current rules, but that does not mean that I am not aware of the issues surrounding the ceramics sector. We can use the UK ETS group to look at ETS issues, but we should also look more broadly at the concerns of the ceramics sector. I look forward to starting that conversation over dinner with my hon. Friend and the ceramics industry later this evening.

On the question of power and the impact of the instrument on energy bills, the important point is that the ETS applies to power that is produced from fossil fuels, not renewable energy. This Government’s policy is to pursue our clean power mission by 2030, which involves investing in the cheapest forms of power available, in onshore and offshore wind, solar power and nuclear energy. The purpose of the ETS is to incentivise that. The carbon price incentivises investment; it provides the incentive in power and in industry to invest in new green technologies.

[Claire Coutinho]

Originally, the choice was between coal and gas, but there is no coal in the system anymore; there is only gas. Even in the Minister’s clean power plans, gas is the dispatchable power in the system—there is no other choice; nothing else will keep the lights on when the wind does not blow and the sun does not shine. Even in his plans, gas will set the price 50% of the time. He is needlessly imposing a tax that inflates that price of gas to the consumer when there is no other choice available. Will he at least come up with a forecast for what this will mean for energy bills and consumers in this country, considering that they do not have another choice, even in the Minister’s plans, apart from using gas power?

[Chris McDonald]

I think what the shadow Secretary of State has outlined is exactly the success of this policy—it has driven coal out of the system in favour of cheaper power. That is exactly the point of the ETS and the industrial investment. Of course, as we said, we are pursuing our clean power mission for energy security and to lower energy bills, as well as to ensure that we also have green energy.

--- Later in debate ---

[Chris McDonald]

No, no—I have dealt with that.

The hon. and learned Member for North Antrim asked me about the issue in Northern Ireland, which is a separate electricity zone. Electricity generators in Northern Ireland have not historically received a free allocation, and in future, the free allocation rules on electricity generation will apply in the same way for the UK and EU operators, assuming that there is linkage.

I will return to the point about industry that was made by the shadow Secretary of State, among others. Clearly, the drive is to incentivise investment in industry, and that is precisely what the policy does; that is precisely the mechanism of the carbon price. It is a fallacy to assume that the investment in industry will result in less efficient or more expensive industrial products. That is certainly not the case for the steel industry, where investing in green technology results in lower production costs. The Government’s policy framework gives industrial companies a clear investment framework.

[Claire Coutinho]

I appreciate the Minister’s graciousness in understanding our concern for industry. His priority is decarbonisation, but I am sure he will understand the very real risk that it is not the case that the UK is decarbonising, because those industries are not remaining in the UK and cutting their emissions; instead, UK businesses in those industries are going abroad, often to countries that have more polluting regimes than the UK—which has some of the cleanest electricity of anywhere in the world—including places that are still powered by coal. Rather than reducing global carbon emissions, we will actually increase emissions by moving our businesses from the UK to countries that have more polluting regimes. That will mean fewer jobs in Britain for more carbon in the atmosphere. Do the Government plan to monitor whether that is happening, and if it is, will the Minister change course? Surely he would agree that such a scenario would not count as decarbonising well; in fact, it would not be decarbonising the planet at all.

[Chris McDonald]

The shadow Secretary of State and I are clearly both concerned about the same thing. I know that that concern is shared across the House, but deindustrialisation and decarbonisation need not be in competition. Sadly, under the previous Government, there was a 30% reduction in UK cement production, a nearly 50% reduction in automotive production and a 30% reduction in chemicals production. That is why, alongside the ETS policy, we published our industrial strategy; it is why I introduced the British industrial competitiveness scheme to reduce energy costs for 7,000 manufacturing businesses; and it is why we increased the supercharger to 90% for energy intensive industries.

Clearly, we recognise that energy costs have been too high in the UK for industrial businesses as well as consumers. That is primarily a result of the policy of the previous Government to leave us at the mercy of petrostates and fossil fuel dictators, on the rollercoaster of fossil fuel prices. The shadow Secretary of State said that my priority is decarbonisation. I happen to be in a place where there is a happy coincidence between energy security, decarbonisation and the lowest cost of energy. That is recognised by industry, and that is why it is Government policy.

[Claire Coutinho]

Will the Minister give way?

[Chris McDonald]

I feel I have detained the Committee for too long, so if the right hon. Member will excuse me, it would be a good idea to draw the debate—and we have had a good debate—to a close.

The statutory instrument will give certainty to the industry around benchmarks and free allocations. The free allocations reduction is specifically for those sectors that are part of the carbon border adjustment mechanism, so some other sectors will not be affected. The legislation needs to be in place for applicants to apply for their free allocations for the period to April 2026. The statutory instrument will implement the proposed improvements to the scheme.