EU said to draft for Brexit-proof carbon market

The European Parliament will vote tomorrow on a proposal that would prevent companies, airlines using carbon allowances

BRUSSELSThe European Union (EU) is preparing to make its emissions-trading system immune to a supply turmoil that may happen if Brexit talks fail and the UK leaves the world’s largest carbon market.

The European Parliament will vote tomorrow on a proposal that would prevent companies and airlines in the EU Emissions Trading System (ETS) using carbon allowances issued by the UK from 2018 if the country falls out of the cap-and-trade programme, according to a draft document obtained by Bloomberg News. The provision, to be sponsored by four political groups, will be submitted as part of a revision of the bloc’s carbon market law to update rules on aviation.

Before the vote, the draft law was to be discussed by members of the EU Parliament yesterday after the assembly’s plenary session started at 5pm in Strasbourg, France. The Brexitrelated provision would be submitted as a joint amendment sponsored by the Christian Democrat, Socialist, Liberal and Green groups.

The EU carbon market imposes emission quotas on around 12,000 facilities owned by manufacturers and utilities, and forces those that exceed their caps to buy permits from businesses that emit less. It also covers aviation under a law that is being revised following a global deal to cut pollution by airlines.

Prices in the EU market lost almost 70% over the past nine years as an economic crisis cut industrial output and imports of United Nations carbon credits aggravated a surplus of permits. Emitters must hand in allowances to match the previous year’s emissions by the end of each April. Allowances are sold at government auctions throughout the year and permits given for free are handed to emitters usually around February each year.

The revision of the emissions-trading law needs to be approved by the European Parliament and member states to enter into force. The Brexit-related amendment is a contingency plan to avoid a massive sale of allowances issued to the UK emitters for free or sold at auctions by the country’s government if its emission-reduction obligations under the ETS expire.

The proposed legislation mandates the European Commission to draft a separate measure in order to implement the provisions. It can be done through an update to the EU regulation on carbon registry, which would spell out the details on how the contingency plan would work. — Bloomberg