June 9, 2020 / 2:11 PM / a month ago

UK emissions trading link must not undercut EU carbon market: sources

BRUSSELS (Reuters) - The European Union has refused to link its Emissions Trading System (EU ETS) to any new corresponding British scheme without guarantees that it would not undercut the bloc’s carbon market, said diplomats and officials familiar with ongoing Brexit talks.

The UK presented plans this month to launch its own emissions trading system from 2021 when Brexit materializes. Britain said its system could be linked to the EU ETS one “if it suits both sides’ interests”.

Connecting the two is part of troubled negotiations between London and the bloc on post-Brexit ties regarding issues including trade, security and climate.

“The EU’s priority is making sure the EU-UK arrangement doesn’t disrupt the functioning of the EU ETS,” said an EU official.

Two other EU sources said the kind of CO2 trading link Switzerland has with the bloc was off limits for Britain.

“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,” an EU diplomat said.

Currently, Britain’s long-term emissions targets match the EU’s ambitions and its proposed new ETS would have a cap on emissions tighter by 5% than Britain’s EU quota.

But London has been unwilling to include binding climate commitments in the new EU-UK deal, while Brussels wants guarantees that one party could not gain an unfair competitive advantage through future decisions on carbon pricing - a “level playing field” principle the EU is pursuing across other policy standards from labor to state aid.

“The EU and UK need to agree rules on what would happen if the EU changed its 2030 climate target and adjusted its ETS to deliver the new target – would the UK be forced to do the same?,” said Georg Zachmann of the Bruegel think-tank.

While Switzerland amends its national ETS to follow EU rules, the UK is all but certain to reject similar terms, given that one of the main promises of Brexit was to take Britain out of the orbit of EU regulations and allow it to set its own rules.

Reporting by Gabriela Baczynska and Kate Abnett; editing by Jason Neely

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