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Britain is likely to leave the European Union's Emissions Trading System (ETS) after Brexit and set up its own equivalent system.
This would imply that Britain would stand by its international obligations to cut carbon emissions and would avoid UK firms from gaining a competitive advantage. But the move could hit the price of carbon permits in the European Union (EU) as Britain is currently a major buyer.
Earlier, London and Brussels had agreed to a draft deal over the terms of Britain leaving the bloc on March 29. That included a transitional period until Decenber 31, 2020. Meaning, Britain would likely remain in the ETS until then.
Official documents showed Britain would, after Brexit, continue to take the necessary measures to meet its commitments under the Paris Climate Agreement.
These include:
1. Implementing a system of carbon pricing as effective as the one’s that are currently in place under EU law
2. Establishing a scheme for greenhouse gas emission allowance trading within the Community
Britain is the second-largest emitter of greenhouse gases in Europe and its utilities and industries are among the largest buyers of permits in the ETS. The permit charges power plants and factories for every tonne of carbon dioxide (CO2) they emit.
The benchmark European carbon contract had reduced earlier in the day by more than 5 percent at 18.68 Euros/tonne.
Britain's carbon price is currently made up of two levies, a domestic carbon tax set at 18 pounds ($23) per tonne, paid by electricity generators on top of obligations under the ETS, which forces companies to surrender one carbon permit for every tonne of CO2 they emit.
In a separate document, on Britain’s future relationship with the EU, it was said that Britain would consider “cooperation on carbon pricing by linking a United Kingdom (UK) national greenhouse gas emissions trading system with the Unions Emissions Trading System.”
The International Emissions Trading Association (IETA) welcomed Britain's intention to use a trading scheme for carbon pricing rather than a tax.
“A market would bring the benefits of being able to guarantee the delivery of internationally agreed climate targets at the lowest cost,” said IETA EU Policy Director Simon Henry.
Prime Minister Theresa May faces a battle to get the draft Brexit deal approved by British lawmakers, and it could yet fail after two senior ministers quit over the deal's terms.
Without a Brexit deal, Britain would automatically leave the ETS and replace its costs with a carbon tax set at 16 pounds a tonne.
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