Hard exit from EU emissions trading could damage global climate action, experts warn

Energy experts appearing in front of BEIS select committees warn it is crucial UK remains part of European Emissions Trading System

MPs have today heard stark warnings of the risks associated with withdrawing the UK from the European Emissions Trading Scheme (ETS), with one expert arguing continued membership of the scheme post-Brexit is crucial to global efforts to tackle climate change.

Hitting back at suggestions the UK should withdraw from the EU ETS as part of the Brexit negotiations, Michael Pollitt, professor of business economics at the University of Cambridge warned of the potentially damaging impacts of such a move.

“If we are serious about being a global leader on climate, and if Europe is similarly serious, we cannot be seen to be leaving the EU ETS of our own choice, and we should do everything to stay a member of it,” Pollitt told the Business, Energy and Industrial Strategy (BEIS) Select Committee today. “One hopes that the rest of the EU can see the value of that, because I think if we have a hard exit from that it could seriously undermine global efforts on climate, and it certainly will undermine our role in global leadership on climate solutions.”

Separately, Nina Skorupska, chief executive of the Renewable Energy Association (REA), warned of the knock-on effect an exit from the EU ETS could have on the UK’s own carbon budgets. “Many of you will be aware that our carbon budgets and the way that we account for them and describe them are predicated on the EU ETS and our role in that,” she said. “So we have to be able to account for our own carbon emissions. What will happen when we leave?”

Currently, the UK’s carbon budgets under the Climate Change Act are calculated using the Net UK Carbon Account. This means that part of the UK emissions budget covered by the EU ETS – which includes emissions from power and energy-intensive industries – is set by the UK share of the EU ETS cap, rather than actual emissions from these sectors.

The government’s climate watchdog, the Committee on Climate Change (CCC), has warned if the UK leaves the EU ETS then accounting for UK carbon budgets would need to change and likely adjustments would have to be made to existing carbon budgets.

Experts also warned any UK withdrawal from the EU ETS and wider climate targets set by the trading bloc would not just impact domestic climate change efforts. The UK’s departure will also force EU Member States to up their national commitments in order to stay in line with commitments under the Paris Agreement, explained Antony Froggatt, senior research fellow at Chatham House.

He suggested the requirement for some countries to adopt more ambitious carbon targets if the UK leaves the ETS could provide the government with some leverage at the upcoming Brexit negotiations. For example, the UK to exchange continuing participation in the EU ETS with ongoing participation in EU effort-sharing arrangements to curb greenhouse gas emissions.  

“The UK has through its domestic legislation higher emission cuts than the EU average,” he explained. “In some ways it’s a negotiating tactic or opportunity for us in terms of remaining within the ETS – if we are to leave then other Member States will have to increase their national contributions if they are to maintain [the bloc’s] Paris pledge. So there is a strong argument from a European perspective for us to remain in the ETS.”

There is a precedent for the UK remaining in the ETS once it has left the EU, given both Norway and Iceland take part in the carbon market as non-EU states.

However, the experts’ staunch defence of the EU ETS as a vital mechanism for climate action in Europe stands in stark contrast to comments made by the British Ceramic Confederation (BCC) at a BEIS Committee hearing last month. The BCC’s technical director Andrew McDermott said then that the UK should withdraw from the ETS when the third phase of the initiative comes to a close in 2020, arguing the carbon market provides “perverse incentives” that stifle the growth of key industries such as construction.

The government is yet to provide any indication as to whether it wants the UK to remain in the ETS. However, some expert fear Prime Minister Theresa May’s insistence that post-Brexit EU courts will not have any jurisidiction in the UK could complicate any attempt to remain within the ETS.