BRUSSELS (Reuters) - The European Parliament adopted a plan on Wednesday to guard the carbon market in case of a breakdown in Brexit talks, which some lawmakers fear would pummel the price of tradable emissions permits.
Lawmakers voted 601 to 69 in favor of the bill, part of a move to extend the exemption of international flights from the EU’s cap-and-trade system pending the adoption of last year’s United Nations deal on tackling aircraft emissions.
The amendment would void all permits to pollute in the EU’s Emission Trading System (ET), which charges power plants and factories for every tonne of carbon dioxide they emit, issued by a country leaving the bloc from January 2018 onward.
It calls for the protection of “the environmental integrity of the EU emission trading system” in response to worries that Britain could fail to reach at least a transitional trade deal with the EU before its scheduled exit in March 2019.
With Britain the bloc’s second-largest emitter of greenhouse gases and its utilities among the largest buyers of permits, the bill seeks to prevent a mass selloff if British companies suddenly find themselves out of the market.
“We are just making sure that in a worst-case scenario, if the talks go wrong and if the UK is out of the bloc, then at least we don’t end up with an additional oversupply on the market,” said Bas Eickhout, a green member of parliament.
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.
Any changes must be agreed by EU member states and the European Commission.
Having had a say in how the ET is shaped, most analysts believe Britain will remain part of the system, following a similar path to Norway. Despite not being an EU member, Norway has companies that participate in the scheme.
Slow progress in Brexit talks, however, has stirred fears of a messy break-up that could leave British businesses with little legal clarity on emissions.
To implement the measure, EU politicians said country markers would have to be attached to EU carbon allowances - creating a potential divergence in prices between EU and British permits. There is currently no differentiation by issuing country among allowances.
Analysts said they expected a drop in appetite for buying British permits, pushing up EU allowance prices.
A British government spokesman said the UK was considering all possible options for its future participation in the ET.
Reporting by Alissa de Carbonnel and Julia Fioretti; Editing by Dale Hudson