Reuters reports that proposals to link EU and UK ETS unlikely to gain Brussels approval without fresh safeguards
Hopes that the UK's planned national carbon market could be linked with the EU's Emissions Trading Scheme (ETS) received a blow this week, following reports Brussels was reluctant to approve ties between the two schemes without firm guarantees that the move would not undermine its carbon market.
Citing sources familiar with the on-going Brexit negotiations, Reuters reported that the UK's new proposals to potentially link its planned ETS with the established EU scheme had received a luke warm welcome in Brussels.
Earlier this month, the UK government published plans for a new UK ETS that would come into effect next year when the current transition period ends and UK firms officially leave the EU carbon market.
The proposed scheme largely emulates the EU cap-and-trade scheme, however Ministers said it would be more ambitious than the current scheme and would become the first carbon market in the world to adhere to a net zero emission reduction trajectory.
The government also signalled that it would be interested in integrating the two schemes so as to allow carbon allowances to be traded across the UK and EU markets "if it suits both sides' interests".
Advocates of such an approach argue that a larger carbon market would help reduce the overall cost of decarbonisation and ensure higher levels of liquidity in the market.
However, Reuters reported that officials in Brussels are concerned that the UK scheme could undercut the bloc's carbon market, undermining the EU's decarbonisation efforts.
"The EU's priority is making sure the EU-UK arrangement doesn't disrupt the functioning of the EU ETS," one official told the news agency.
The UK has highlighted how there is a precedent for non-EU states operating in conjunction with the EU ETS given that Switzerland has a carbon trading link with the bloc.
But another EU source told Reuters that the UK and Switzerland are "different cases entirely". "The UK would be much more of a threat to our own ETS if they are linked without stronger safeguards," they were quoted as saying.
The UK is currently proposing a more ambitious emissions cap under its scheme, which should in theory lead to higher carbon prices.
However, those plans are yet to be confirmed and the EU is also considering tightening its emissions cap in the future. As such EU diplomats fear that without formal mechanisms and safeguards for aligning the two schemes the UK could end up with lower carbon prices that would then serve to undermine the integrity of the EU ETS if allowances are allowed to be traded between the two markets.
Consequently, the talks over integrating the two schemes are widely expected to face the same stand-off over 'level playing field' requirements that continue to hamper the increasingly fractious negotiations.
Business leaders are increasingly concerned the UK could crash out of the EU single market at the end of this year without the promised trade deal, given the latest round of talks are understood to have made negligible progress.
The EU is calling for stronger safeguards the UK will not undercut its environmental, labour, and other standards. But the UK government has repeatedly rejected any proposals for so-called level playing field provisions, arguing that such moves would impinge upon UK sovereignty and dilute the entire purpose of the Brexit project.
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