Link UK, EU ETS ahead of Cop 26: Industry

The UK and EU should link their respective emissions trading systems (ETS) as soon as possible and before this year's UN climate summit (Cop 26), according to calls from a group of over 40 industry bodies.

Negotiations to link the UK and EU ETS "should begin as soon as possible", 42 industry groups — including the International Emissions Trading Association (Ieta), Confederation of British Industry, and European Federation of Energy — said in a joint letter addressed to UK prime minister Boris Johnson this week.

In particular, a linkage ahead of the Cop 26 summit, due to be held in Glasgow in November, would reinforce the UK and EU's climate leadership position, the groups said. It would also "display UK commitment to Article 6 of the Paris Agreement", finalising the framework for which will be a "key outcome" of the event.

Advantages of linking the two systems include "liquidity, price discovery, and the ability to attract abatement from across Europe rather than just the UK," according to the letter.

"It would also create a level playing field in terms of carbon pricing, avoiding competitive distortions, and leading to aligned cost implications for industry across the UK and the European Economic Area."

The signatories sent a similar letter to European Commission president Ursula von der Leyen.

The UK announced late last year that it would set up a domestic ETS in place of its EU ETS membership, which terminated on 31 December. The EU and the UK are formally committed to giving "serious" consideration to linking their respective systems as part of their trade and co-operation agreement, but there is no obligation.

Ieta's EU policy head Adam Berman said earlier this year that there was hope that a link agreement could be reached by the time of Cop 26, although he warned that it could not necessarily be applied to 2021 emissions as this would have to be done retrospectively.

Ieta has previously called a UK-EU ETS link "a necessity, not just an option", viewing it as the most cost-effective tool with which to reach net-zero emissions by 2050.

Concerns have been raised that a standalone UK ETS would suffer from low liquidity, including by carbon consultancy Redshaw Advisers, who last year called the problem an "own goal" for the system.

By Victoria Hatherick