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European Union gears up to make emissions-trading system Brexit-proof

The European Union has formulated a proposal that would make its emissions-trading system – considered to be the largest in the world – immune to possible supply unrest in the event the UK removes itself from the region’s carbon market as part of Brexit.

The European Parliament is set to vote on the proposal that would keep companies and airlines in the EU Emissions Trading System using carbon allowances issued by the U.K. from 2018 should the country decide to leave the cap-and-trade program,.

The provision, to be backed by four political groups, will be forwarded as part of an amendment of the bloc’s carbon market law to update rules on aviation.

Prior to the vote, the draft law will be examined and scrutinized by members of the EU Parliament after the assembly’s plenary session in Strasbourg, France. The Brexit-related arrangement will be submitted as a joint amendment sponsored by the Christian Democrat, Socialist, Liberal and Green groups.

The EU carbon market enforces emission quotas on around 12,000 facilities owned by manufacturers and utilities, and mandates those that go over their caps to purchase permits from businesses that discharge less. It also covers aviation under a law that is being reviewed following a global deal to cut pollution by airlines.

Prices in the EU market lost almost 70% over the past nine years as an economic crisis sliced industrial output and imports of United Nations carbon credits irritated a surplus of permits. Emitters must hand over allowances to match the previous year’s emissions by the end of each April.

The changes made to the emissions-trading law needs to be ratified by the European Parliament and member states before it can be implemented. The Brexit-related amendment would keep British emitters from selling permits issued by the U.K. from 2018 or bought at auctions held by its government if their obligations under the EU market were to become void.

The proposed legislation orders the European Commission to draft a separate measure in order to apply the provisions. It can be done through an update to the EU regulation on carbon registry.

While the UK has yet to decide on whether it would stay in EU’s ETS after the country has completed Brexit, a government official with reliable information on the matter relayed in December it would prefer to remain in the cap-and-trade system.

The reasoning of Prime Minister Theresa May’s office is that the benefits of being in the EU-ETS are far more superior to those of withdrawing, said the official, who requested anonymity. Should the U.K. remain in the European emissions market, it would increase demand and keep spare allowances from exacerbating a glut.



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