Britain's Post-Brexit Carbon Market Looks Just Like Europe's

(Bloomberg) -- Despite its efforts to leave the European Union, the U.K. is planning a carbon copy of the EU's emissions market.

It's one more example of how Brexit will lead to duplication and more bureaucracy as the U.K. will have to replicate the structures that until now the EU has taken care of. Functions such as regulatory bodies that have been efficiently pooled must be replicated in Britain as it opts to take back control of its laws and borders.

“We propose that the scope of a U.K. emissions trading system match that of the EU emissions trading system both in respect of sectors and greenhouse gases covered,” the British government said in a document published Thursday night seeking views from industry.

In the case of carbon markets, the U.K. has a compelling reason for copying Europe -- making its permits fungible with the existing system of pollution rights may lower the cost of going green. It's handy to be able to tap foreign markets where emission reductions might be cheaper, which is one of the positives of carbon trading over taxes, according to economists.

“Even though we leave the EU, it's logical to link back into that carbon market,” said Matthew Farrow, executive director of the Environmental Industries Commission, a business group whose members include the U.K. units of French utility Suez and Johnson Matthey Plc.

Britain's Climate Change Act, its plans for zero emissions in 2050 and extra measures being prepared to improve air and water quality mean the country is looking like it will be a “good place to invest,” Farrow said.

The U.K.'s Brexit fallback position on carbon pricing if it can't negotiate a link with the EU may be to raise a carbon tax.

Britain's plan to set up measures to cut greenhouse gas to “net zero” by 2050 will require potentially high emission costs during the next three decades in order to discourage fossil-fuel use, according to the Committee on Climate Change, which advises the government.

Carbon prices of 361 euros ($403) a ton may be needed to encourage some of the needed emission cuts, the panel estimated. That's 14 times the market price in the EU trading system.

“I'm a big fan of a high carbon price, but price and price alone is unlikely to get us to the rapid change we need,” said Chris Stark, chief executive officer of the committee, in an interview. “Well-played regulatory policy can help reach the objective.”

--With assistance from Jessica Shankleman and Emma Ross-Thomas.

To contact the reporters on this story: Mathew Carr in London at m.carr@bloomberg.net;Jeremy Hodges in London at jhodges17@bloomberg.net

To contact the editors responsible for this story: Reed Landberg at landberg@bloomberg.net, Andrew Reierson, Lars Paulsson

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