The UK government's decision to abolish the Carbon Price Support mechanism from April 2028 is being framed in some quarters as a retreat from climate ambition. The math suggests the opposite problem: the CPS was raising electricity costs without reliably reducing emissions, and the revenue it generated was too small to matter much either way.
That's not a comfortable conclusion for either side of the climate debate, but it's where the numbers point.
What the CPS Actually Does — and Doesn't Do
The Carbon Price Support is an £18/tCO2 levy on power-sector emissions, layered on top of the UK Emissions Trading System allowance price. The original logic was straightforward: if ETS prices were too low to drive coal-to-gas switching or accelerate renewables investment, the CPS would top them up to a floor that actually changed dispatch decisions.
That logic made sense in 2013. It makes considerably less sense now, for a structural reason that the House of Commons Library briefing on the mechanism captures clearly: the ETS cap fixes total covered emissions. If the CPS pushes power-sector emissions down, the freed-up allowances don't disappear — they get used elsewhere in the capped system, or they accumulate and depress the carbon price. The emissions reduction is real within the power sector; the net reduction across the ETS is substantially offset.
This is the core accounting problem with overlapping carbon instruments. You can have a carbon price floor and an emissions cap operating simultaneously, but they're pulling in different directions. The floor raises costs; the cap determines outcomes. When the cap is binding, the floor is mostly a tax.
The Revenue Argument Is Weaker Than It Looks
Fiscal revenue is the other leg of the CPS case. But the House of Commons Library research briefing from May 2026 notes that CPS rates have been frozen, and the forecast revenue for 2028–29 is around £200 million — a figure that was already declining as the power sector decarbonized. For context, that's a rounding error in UK energy policy terms. The IRA's annual clean energy tax credit expenditure runs to tens of billions of dollars; £200 million in CPS revenue doesn't move the needle on transition finance.
The more honest version of the revenue argument would be: the CPS was a useful revenue instrument when coal was still a significant part of the UK generation mix and the tax base was large. As coal exits — UK emissions have fallen roughly 54% from 1990 levels, with a 2% year-on-year fall in 2025 — the mechanism is taxing an increasingly small activity. Abolishing it in 2028 is, in a narrow sense, abolishing a tax that was already abolishing itself.
The Harder Question: What Replaces the Incentive Signal?
None of this means the CPS abolition is costless. The mechanism did provide a predictable carbon price floor for investment decisions in the power sector — and predictability has real value even when the marginal emissions impact is ambiguous. Generators planning long-lived assets care about the carbon price in 2035 and 2040, not just today's ETS spot price.
The UK's answer, implicitly, is that the seventh carbon budget and the broader UK ETS trajectory will provide that signal instead. The government's draft legislation targets 87% emissions reduction below 1990 levels by 2040, with an impact assessment claiming £1,620bn in benefits against £880bn in investment costs over 25 years. The government frames this as protection against fossil-fuel price shocks — the seventh budget document reportedly mentions energy security more than 30 times, per Carbon Brief's analysis.
Whether the UK ETS alone delivers a sufficiently stable long-run price signal is genuinely uncertain. The EU's parallel experience is instructive: the EU ETS has been volatile enough that the European Commission is designing a €30 billion instrument using 400 million existing allowances specifically to manage permit supply and avoid price collapse. The EU is essentially building a price stabilization mechanism into its ETS because the raw market signal isn't reliable enough on its own. The UK, by removing the CPS without an equivalent backstop, is betting that the ETS price will be sufficient — a bet that the EU has already decided not to take.
The Audit Verdict
The CPS abolition is defensible on the narrow economics: a mechanism that raises electricity costs, generates modest and declining revenue, and produces ambiguous net emissions reductions under a binding cap is a reasonable candidate for removal. The ERT's recent paper on ETS reform makes the broader point that carbon pricing works best when it's the primary instrument, not one layer in a stack of overlapping policies that create cost without clarity.
The real test comes after 2028. Watch whether the UK ETS price holds above levels that actually change investment decisions in gas peaking, industrial electrification, and long-duration storage — or whether, absent the floor, it drifts toward the kind of permit-price softness that's been plaguing the EU ETS and prompting Brussels to engineer its way back to a credible signal. If the UK ETS can't hold the line on its own, the CPS abolition will look less like a rational policy cleanup and more like a gap that needed filling.
