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European Union Wants to Prevent a Collapse of Carbon Prices After Brexit

The European Union is now trying to prevent a mass sell-off of carbon permits in the wake of Brexit — Great Britain’s systematic departure from the bloc in two years.

The concern is that Britain, which is Europe’s second biggest CO2 emitter and whose utilities are the biggest buyers of the permits, will seek to dump their trading allowances before their departure. That would have the effect of sending the prices of those permits on a downward spiral. If that happens, companies would find it cheaper to buy the permits to pollute rather than to make investments in modern emissions controls.

According to Reuters, the European Parliament wants to prevent such a move and lawmakers there will vote on it this week. The measure proposes to void all permits issued by countries that leave the 28-member voting bloc.

“It cannot be excluded that many of the responsible people in the U.K. government obviously have unrealistic assumptions,” European People’s Party (EPP) spokesman Peter Liese said in a statement, in the Reuter’s piece. “That’s why we have to prepare for a hard Brexit.” “The amendment is important to make sure that, in the case of a hard Brexit, neither the UK will have any advantages nor the European Union will suffer from any disadvantages.”

Europe began its emissions trading scheme in January 2005 with 27 participating nations. Prices have fallen in the EU’s carbon market from about $30 a ton in 2011 to about $5.29 a ton today. Such a small cost means that utilities have little incentive to wean themselves from dirtier sources.

That’s because the European Union started off by giving away too many credits, say experts. Now, the EU has a surplus of carbon allowances.

Under cap-and-trade, governments set pollution limits and then credits are either auctioned or allocated to industry. Those companies that are able to exceed the expectations can either bank their allowances for future use or sell them to other businesses that are unable to meet their obligations. As the ceilings come down, overall emissions then fall.

The context, of course, is the concern that the approaches taken by the Trump administration will deflate the goals of those companies that would try to reduce their carbon emissions to comport with the goals of the Paris climate accord. To that end, many multinational companies have said that they are committed to reducing their greenhouse gases under any set of circumstances.

Here in this country, nine states in the Northeast are proposing to increase their greenhouse gas reduction goals by 30%, relative to 2020 levels. The Regional Greenhouse Gas Initiative (RGGI), which formed in 2009, would do so through a cap-and-trade system. (New Jersey has opted out.)

“With (the) announcement, the RGGI states are demonstrating our commitment to a strengthened RGGI program that will utilize innovative new mechanisms to secure significant carbon reductions at a reasonable price on into the next decade, working in concert with our competitive energy markets and reliability goals,” said Katie Dykes, chairwoman of the Connecticut Public Utilities Regulatory Authority and current chairwoman of RGGI.

High tech giants such Apple, Amazon, Intel, Microsoft and Facebook support a carbon-constrained economy and have vowed to get all of their energy from renewable sources. Representatives of manufacturing trade associations are concerned, however, it such regulations would raise the cost of production and hurt their ability to compete. 

According to RGGI, CO2 emissions arising out of the power sector in the Northeast are already 50% less than in 2009. The money raised from selling credits — $2.7 billion — is plowed into a fund that invest in new technologies to control pollution levels.

In California, meanwhile, its state assembly voted in August to extend its cap-and-trade program until 2030 — eventually gaining the support of the business community. It did lose the support of some environmental groups, though, because it has to woo oil and gas interests.

 

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