Ministers scrapped a carbon tax and promised to break the gas-power link. The change that matters is happening quietly, through renewables.
When the Treasury binned the Carbon Price Support in April and floated measures to decouple gas from electricity prices, the market braced for a wholesale reset of the energy system. That reset is not coming. Gravis Capital Management reads the announcements as tinkering with a system that was already moving, not a rebuild.
Why scrapping the carbon tax changes little
UK generators pay two carbon costs: the Carbon Price Support, fixed at £18 per tonne since 2018, and the UK Emissions Trading Scheme, which averaged £53.15 in the first quarter of 2026. Together, they make up about 30% of the wholesale power price.
Removing the CPS tidies the system. It will barely touch bills. Cheaper power lifts gas generation, which lifts permit demand, while the emissions cap tightens. The trading scheme absorbs most of what the tax gives up. The total carbon cost still has to fund net zero, so it is not built to fall.
Europe is the quiet driver
The move pulls the UK closer to the EU ahead of the Carbon Border Adjustment Mechanism in 2027, which will price carbon into imported steel, cement and aluminium. The two trading schemes are converging. The UK price rose almost 50% to about £65 a tonne last year, and the gap to Europe has closed to around £9.
The gas-link fix is untested
DESNZ offered two levers. The Electricity Generator Levy rises from 45% to 55% on 1 July, but bites only above roughly £82 per megawatt hour, a level forward prices rarely reach outside a crisis. The second lever counts for more. Wholesale Contracts for Difference would let legacy low-carbon generators swap market exposure for a fixed, inflation-linked price. The strike prices, the auctions and the treatment of nuclear are all still blank.
That vagueness is the problem. Retrospective changes spook capital, as they did last year when the Government switched subsidy indexation from RPI to CPI without warning. With the next CfD auction pulled forward to July, nerves are understandable.
Gas is already loosening its grip
Here is what the headlines miss. Decoupling is happening without the new measures. When the US-Israel war with Iran began, the daily cost of gas generation rose 42%. In the 2021-23 crisis, it more than quadrupled. Britain now sources 47% of its gas from Norway and 1% from the Middle East, and demand has fallen 20% in three years.
Gas set the power price about 90% of the time in the early 2020s. It is closer to 60% now and could reach 15% as renewables and nuclear connect. The AR7 auction locked in a record 14.6GW of new low-carbon capacity.
The system is cleaning itself up through investment, grid upgrades and diversified supply. The policy noise, for all the coverage, is doing the least work of anything in the room.
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