UK businesses face erious disruptions' if the UK leaves the EU Emissions Trading System (EU ETS) before the end of the current phase in 2020, a trade body has warned.
In a letter to climate change minister Nick Hurd, the International Emissions Trading Association (IETA) pointed out that if the government met its timetable for Brexit, the UK would leave the EU in March 2019.
However, if the UK left the ETS, its businesses would risk losing access to emissions registry accounts, IETA said, making it difficult to meet existing emissions trade contracts with EU counterparts and settle open trades, IETA said.
The organisation is concerned that the UK would not have time to implement parallel provisions for emissions trading before the end of phase three. Many companies in the UK and Europe trade two to three years in advance in order to hedge compliance costs. Contracts worth tens of millions of pounds and many jobs in the carbon market would be at risk, it said.
Carbon trading is an important instrument for enabling energy and industrial firms in the UK and Europe to meet their climate targets at the lowest possible cost, IETA said. The body strongly recommended that the UK should agree a transitional phase for the UK’s participation for the remainder of phase three with the EU to prevent ‘serious negative impacts’ to meeting the UK’s carbon budget, UK operators’ financial performance, and the overall environmental objective of the carbon market.
After phase three, the UK should closely align its overall climate policies with the EU, including rules governing phase four of the EU ETS, it said.
Last week, Hurd said that the UK was analysing alternatives to the EU ETS. Giving evidence to the parliamentary Business, Energy and Industrial Strategy committee on how leaving the EU could affect energy and climate change policy, Hurd said that the UK remained ‘very active’ in negotiating reform of phase four of the ETS, and that EU partners were still seeking its input.
If the UK remained part of the trading system, however, it would have to accept the jurisdiction of the European Court of Justice (ECJ), as the court handles disputes under the scheme. Prime minister Theresa May has vowed that the UK will leave the remit of the ECJ after Brexit.
‘We would need to continue to support decarbonisation. Is the ETS the best way of doing this? There’s a strong argument that it is, but there may be other options for us to look at. We’re analysing alternatives,’ Hurd told the committee.
