UK consultant Richard Folland of Climate and Energy Associates sets the scene for how the upcoming Brexit negotiations will impact the EU ETS.

In the light of the big issues that are dominating the Brexit negotiations – the economy, migration and settlement, the Irish border – the question of whether the UK should or will remain a member of the EU Emissions Trading System is hardly first-order. But it matters: to UK companies who are participants; and to the EU, for whom the ETS is still (just about) a primary instrument of decarbonisation.

The British Government has at various times over the last 12 months said, delphically, that it is considering its options vis-a-vis the ETS. But ultimate intentions remain shrouded in mystery. So where do things stand?

We should first lay out what we know:

• the Government has admitted that pulling out is an option;
• the Government has also announced that it will set out options on the UK carbon price floor (its trajectory, possibly its future) at the autumn budget, which will probably be in late November/early December. This is particularly relevant to the UK “go it alone” option;
• there is an emerging view from much of business that it would be too disruptive for the UK to leave the ETS on “Brexit Day” in March 2019, but – if it is to leave – that should coincide with the end of Phase III in December 2020, which is likely to be within the Brexit transitional period;
• the uneasy state of negotiations right now, with the European Commission complaining about lack of progress and the subject of the future relationship between the EU and the UK unlikely to get on to the agenda until October at the earliest (and that is the optimistic view);
• this matters because a key factor relating to UK ETS membership will be whether the UK continues to be part of, or have access to, the EU Internal Energy Market.

Applying a crystal ball to Brexit is a mug’s game. But, against this background, we can safely say that this climate of uncertainty on ETS will prevail for a while yet, at least until year-end. This is hardly giving business the “clarity” which the Prime Minister likes to talk about. But there may be helpful domestic pointers: apart from the Budget, there will be other government announcements in the autumn – the (final) publication of the Clean Growth Plan, the Helm review on energy costs, the response to the consultation on the Industrial Strategy (a priority for the UK’s climate ministry, the Department for Business, Enterprise and Industrial Strategy- BEIS).

Clarity on the ETS matters to a whole swathe of business and the economy, and a reasonable conclusion would be that stakeholders should keep up the pressure in London and Brussels for answers; otherwise the issue risks being elbowed out of the crowded agenda.

**DON’T MISS IT: Richard Folland will convene a panel of experts to discuss Brexit and the EU ETS at Carbon Forward 2017, Europe’s premier carbon market conference & networking event, is being held in London on Sep. 26-28. Click here for the agenda or to book your tickets.**

FACTFILE:

• The UK is the EU ETS’s fourth biggest emitter, accounting for around 9% of the ETS’s total verified emissions of 1.75 billion tonnes of CO2 in 2016.
• Many experts think the UK, regardless of Brexit, will likely choose to remain part of the EU carbon market in light of the potential costs of leaving, the country’s progressive position on climate issues, and its strong role in establishing and reforming the 12-year old market.
• But the UK’s hardline approach to leaving the EU has upped the chances that British emitters will also exit the bloc’s carbon market, with the government’s recent track on separate but energy-related issues suggesting it could move away from emissions trading altogether.
• Carbon Pulse’s EU ETS dossier includes a comprehensive section on what Brexit means for the UK and the EU ETS.