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Which way for the UK’s carbon pricing policy?

The EU ETS is on the cusp of the biggest reform since its establishment in 2005. Will it be extended to new sectors? What adjustments are required to enable a net-zero consistent trajectory? How will it function alongside a Carbon Border Adjustment Mechanism? 

Discussions about the future of the EU ETS are notable for the absence of one key actor: the UK. Emissions trading has hitherto played a key role in Britain’s climate strategy, and has helped the UK to achieve the highest average decarbonisation rate of any G20 country in the 21st century.  

Yet the UK is also on the cusp of major reform. Brexit gives the government a chance to introduce a uniquely ‘British’ carbon pricing regime. The big question is, will it be an ETS or a carbon tax?

In mid-October, I gave evidence to a UK Parliamentary Select Committee on this question. The witnesses at this hearing were unanimous in their view that a linked UK-EU ETS was the best solution. Given how little the UK’s proposed ETS design differs from that of the EU ETS, there should be no two emissions trading systems anywhere in the world that are easier to link. 

But the reality is that the Brexit negotiations are a deeply politicised environment, and linking the EU ETS and with a prospective UK system has not even been discussed in detail. The negotiations are fluid, and this may change over the coming weeks, but the truth is that even the UK’s decision about which carbon pricing system to choose is political.

With just weeks left until a decision, the IETA machinery has swung into action. Letters have been sent, officials contacted, conversations had with MPs and Peers (last week’s hearing in the House of Lords echoed IETA’s views), and strategy aligned with other trade associations and companies.

It’ll eventually be down to a Cabinet sub-committee to decide whether emissions trading will live on in the UK post-Brexit. For a country that established the first national multi-sector ETS in 2002 and has been a strong advocate for international carbon markets ever since, it will be a great shame if the UK opts for a less effective carbon tax.

While the jury is out on which policy alternative the UK will choose, the debate has acted as a reminder to all of us about just how important carbon pricing is. In a conversation last week with a British politician, I was asked why an ETS is the right choice for the UK. My response was that it was the only way the UK would reach net-zero, which means it is hardly a choice at all.

Adam Berman
EU Policy Director, IETA

For more information about IETA and our work, check out www.ieta.org

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IETA Member's Corner

How is Biofílica involved in the carbon market?

At Biofílica, we are motivated by the vision of making ecosystem conservation an economically viable activity for their respective and true owners, be they traditional communities, farmers or even state and federal governments. To reach the scale necessary for this challenge, mainly in the colossal Amazon rainforest, engaging in the carbon market is key to making this possible. Unfortunately, in Brazil and in many other countries in the tropics, deforestation was and still is used to ensure the possession and land title of these areas. Changing this historical dynamic is not a trivial challenge. That is why we understand that a large market for environmental services, shaped by best practices and certifications and that pays a fair value to companies and communities that invest in these alternatives, can be the only viable alternative at this critical moment for humanity.

Why did you join IETA?

IETA does an excellent job of promoting the development of carbon markets and other climate solutions. The network has organizations from a wide range of countries and backgrounds that, working in collaboration, have the power to catalyse ideas, technologies, markets and solutions.

Initiatives around Natural Climate Solutions is still at an incipient stage. Being part of IETA is an opportunity for Biofílica to learn more about this topic and contribute with our 13 years of practical experience in Brazil, which under any premise is the country with the most opportunities to develop these mechanisms. In addition, it is also our intention to facilitate access and dialogue with the Brazilian government with the most modern and current information on the carbon markets in order to recover the time lost in recent years.  

Plínio Ribeiro 
Co-founder and CEO, Biofílica

IETA Publications

Carbon leakage is a clear threat to the EU’s target of reaching climate neutrality by 2050. The imposition of a Carbon Border Adjustment Mechanism has the capacity to address carbon leakage, safeguard the competitiveness of European industry, and encourage global climate ambition. This paper sets out IETA’s vision of how such a mechanism should be designed.