U.K. Said to Prefer Staying in EU Carbon Market After Brexit

  • Permit system covers 1,000 U.K. factories, power plants
  • Britain has slashed emissions by 35 percent since 1990

The U.K. would prefer to remain in the European Union’s Emissions Trading System after the country has completed its withdrawal from the 28-nation bloc, according to a government official with direct knowledge of the matter.

The thinking of Prime Minister Theresa May’s administration is that the benefits of being in the EU-ETS are better than withdrawing, said the official, who asked not to be named because Brexit talks haven’t begun. Should Europe’s second-biggest emitter remain in the emissions market, it would shore up demand and prevent spare allowances from exacerbating a glut, according to Bloomberg Intelligence.

The EU program regulates 45 percent of the EU’s heat-trapping gases and caps greenhouse gas emissions for about 1,000 industrial installations in the U.K., including power stations, oil refineries and steelmakers. Remaining in the trading program would give continuity to businesses, according to the official.

May has signaled she’ll trigger formal Brexit talks by the end of March.

The U.K. Department for Business, Energy and Industrial Strategy declined to comment on post-Brexit arrangements.

“While the U.K. remains a member of the European Union, existing rules apply,” the department said in an e-mailed statement. “Until we leave the EU we will continue to participate in negotiations on EU 2030 climate legislation,” including the next phase of the Emissions Trading System.

Least Cost

The government’s global warming adviser, the Committee on Climate Change, said in October that the ETS may be the “least-cost approach” to regulating emissions, “without creating competitiveness challenges for industry.” It advised strengthening some policy previously set at EU level after Brexit, including remaining in or replicating the trading program.

Read More about Implications of U.K. Exiting Carbon Market

There are already precedents for non-EU members to participate in the ETS: Iceland, Liechtenstein and Norway all do so.

“The U.K. remaining in the the EU emissions trading system will be good for demand in the market,” said Elchin Mammadov, an analyst in London with Bloomberg Intelligence. It will also probably prevent a big supply of allowances coming to market as British factories, power stations and airlines would have sold spares ahead of leaving the market.

EU carbon allowances for December fell 2.8 percent to 4.48 euros ($4.76) a metric ton on the ICE Futures Europe exchange in London at 9:15 a.m. They’ve lost 46 percent this year.

Britain has been a leader in pushing the EU to adopt more ambition in the fight against climate change, as well as to tighten the rules of the emissions-trading program. The country has cut emissions by 35 percent since 1990. In 2008, it enshrined in domestic law some of the most stringent targets in the world to fight climate change. The birthplace of the industrial revolution, it’s also one of the countries most responsible for global warming.

Under that Climate Change Act, ministers are required to keep Britain on track to reduce emissions by 80 percent between 1990 and 2050, using a succession of five-year “carbon budgets.” Its nationally-binding goal for 2030 is to reduce greenhouse gases by 57 percent, making it one of the biggest potential contributors to the EU’s overall 40 percent reduction target.

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