The European power sector is concerned about the potential impact of a UK exit on the functioning of Europe’s carbon market. An amendment tabled to address this issue, adopted by the European Parliament earlier this week, could lead to automatically voiding the UK’s ETS allowances if it does not remain part of the EU ETS.
“Whereas the amendment may have been tabled with the right intention, there is a risk of unintended consequences for the functioning of the carbon market,” said EURELECTRIC Secretary General, Kristian Ruby. “We urge policymakers to consider carefully the potential impact that such a measure might have on market operations and further Brexit negotiations,” he said.
In the absence of concrete proposals on the table to regulate the future relationship between the UK and the EU ETS, EURELECTRIC welcomes the effort to address the potential negative impact of Brexit on the EU ETS. However, under the current circumstances, the adoption of such a measure is premature and could limit the flexibility available to the Brexit negotiating teams to engage on an important element of the negotiations.
Policymakers must provide clarity on Phase III and IV of the EU ETS as soon as possible, to ensure that the market remains liquid, to maintain investors’ trust in the trading system, and to avoid any potential abuse of the system. Uncertainty over the UK’s participation in the EU ETS beyond 2019 is causing issues in the market now. We therefore repeat our call for clarity on the UK’s continued participation in the EU ETS for the duration of Phase III to be provided by this October.
“The EU ETS is fundamental to the overall functioning of the European energy market,” Ruby said. “A prospective UK exit from the EU ETS will have significant effects on market participants’ behaviour, with impacts on related markets such as electricity. To avoid these negative impacts, measures chosen by policymakers must avoid any unintended consequences for the European companies which are covered by the EU ETS in the run-up to Brexit and beyond.”