EU lawmakers plan to guard carbon market from hard Brexit

BRUSSELS (Reuters) - European lawmakers will vote this week on a plan to protect the carbon market against a collapse of Brexit talks, which they fear would crash the price of tradable emissions permits.

The bill was prompted by mounting concern that Britain could fail to reach at least a transitional trade deal with the European Union before its scheduled departure from the bloc less than two years from now.

Britain is the second-largest emitter of greenhouse gases in Europe and its utilities are among the largest buyers of permits in the EU’s Emission Trading System (ETS), which charges power plants and factories for every ton of carbon dioxide (CO2) they emit.

The European Parliament’s biggest political group said it proposed an amendment to stop British business from a mass sell-off of emissions allowances if they are no longer part of the market.

“It cannot be excluded that many of the responsible people in the U.K. government obviously have unrealistic assumptions,” European People’s Party (EPP) spokesman Peter Liese said in a statement. “That’s why we have to prepare for a hard Brexit.”

EU lawmakers will vote on Wednesday on the amendment, which proposes to void all emissions permits issued by a country leaving the 28-nation bloc from January 2018 onward. Any changes would also have to be agreed by EU member states and the European Commission.

“The amendment is important to make sure that, in the case of a hard Brexit, neither the UK will have any advantages nor the European Union will suffer from any disadvantages,” the EPP said.

The EU is in the midst of work on carbon market reforms, championed by Britain, to reduce the share of free permits handed out after 2020 and shore up prices.

Having had a say in how the system is shaped, most analysts believe that Britain will remain part of the system, following a similar path to Norway, which has companies that participate in the scheme despite the country not being an EU member.

Slow progress in Brexit talks, however, have stirred fears of a messy break-up that could leave British businesses with little legal clarity on emmissions.

A British government spokesman said the UK is considering all possible options for its future participation in the ETS.

“To avoid any cliff-edge as we move from our current relationship to that future partnership, people and businesses in both the UK and the EU would benefit from an implementation period to adjust in a smooth and orderly way to new arrangements,” he said.

“We recognize that to plan effectively, scheme participants will want an early understanding of the terms of the future UK-EU partnership and how it might affect the ETS.”

Reporting by Alissa de Carbonnel in Brussels and Susanna Twidale in London; Editing by David Goodman