Brexit & the EU ETS: Greater as the sum or in parts?
New analysis by Sandbag shows that the UK Government’s current approach to Brexit makes the possibility of the UK staying in the EU carbon market unlikely in the long term. If the UK leaves, the size of the persistent EU ETS surplus would be only slightly reduced – by 230 million tonnes (about 1.5% of the Phase 4 cap). The decision on whether or not to leave the EU’s common carbon market is therefore ultimately a political one.
The report finds:
- Whether the UK should leave the EU ETS is a complex question. The answer is likely to be a matter of political choice – Sandbag’s analysis has highlighted the absence of a clear-cut solution.
- The departure of the UK would tighten the supply-demand balance in the remaining EU ETS, provided the EU27 adjusts the cap appropriately, though the eventual effects of this would likely be small. We estimate that the difference in the surplus at the end of Phase 4 will be only around 230 million tonnes (about 1.5% of the total Phase 4 cap).
- It is essential that the current EU ETS reform is strengthened regardless of whether the UK is a participant
- UK departure from the EU ETS would open up policy choices, where there would be a great deal of scope for UK innovation. The actual impact on the UK of departure would be driven largely by these choices rather than directly by the fact of leaving.
- If the UK leaves the EU ETS, linking any new UK system back into it should be avoided or strictly limited while the EU ETS remains oversupplied.
- Any changes should be timed to minimise associated disruption i.e. aligning departure with the end of Phase 3 (2020).
- The effects on international carbon markets will depend on how subsequent UK action is perceived. If the UK departs the EU ETS and subsequently pursues vigorous innovative policies, it may provide valuable models from which others can learn. This would consolidate the success and leadership demonstrated by policies such as the Climate Change Act and the carbon floor price.
Read the full report here: Brexit and the EU ETS – Greater as the sum or in parts?
Read the report annexes here: Brexit and the EU ETS – Final Annexes