— Parties not obliged to link carbon markets but will consider doing so
–U.K.-EU carbon link seen announced in November
–WTO signals tension on climate coming
By Mathew Carr
Dec. 25-28, 2020 — LONDON: The Brexit trade agreement between the EU and the U.K. includes reciprocal commitments not to reduce the level of environmental or climate protection.
Disputes on climate, environment and trade is “not subject to the agreement’s main dispute resolution mechanism but will instead be governed by a bespoke Panel of Experts procedure.”
Disputes between nations are set to become more common as climate and energy policy impacts trade and countries offer incentives to their companies to make the transition away from fossil fuels more rapidly.
The EU’s planned carbon border adjustment mechanism (CBAM), which some argue is inconsistent with World Trade Organization rules, may be about boosting the region’s economy rather than protecting the environment, according to discussions last month.
“Some members pointed out that the EU’s intention to use the CBAM as a new budgetary source for powering the EU’s economic recovery after COVID-19 suggested that this measure was not aimed at climate protection but rather at economic objectives, including fiscal and protectionist ones.“
But the EU says it’s CBAM is simply needed because other nations have not embraced climate protection ambitiously enough. Should that change, the CBAM might not be needed, it says.
The Brexit trade deal doesn’t mention the CBAM.
The U.K. and EU committed not to weaken climate and environment laws “in a manner affecting trade or investment between the Parties” vs the levels at the end of the Brexit transition (that is December 2020), according to the main deal document published by Downing Street (see below for link).
That includes “by failing to effectively enforce its environmental law or climate level of protection.”
The parties would honor reciprocal commitments to cross-economy greenhouse-gas-emission reduction targets. “The Agreement gives both Parties the freedom to set their own climate and environmental policies in the way most appropriate to achieve our world-leading domestic aims,” the summary document said.
The U.K. is seeking to cut emissions by 68% by 2030 vs 1990 levels, while the EU is targeting a 55% drop.
“The domestic supervisory bodies of the U.K. and EU will cooperate to ensure effective enforcement of their respective environmental and climate laws,” they said.
The Brexit trade agreement makes clear both parties will have their own systems of carbon pricing to help fulfil their respective climate goals. Britain will leave the EU carbon market, the world’s biggest, at the end of the month and set up its own emissions trading system.
“The Parties have agreed to cooperate on carbon pricing in future and consider linking their respective systems, although they are not under any obligation to do so,” according to the deal, which needs to be endorsed by lawmakers.
The linking between the EU and the U.K. carbon markets could be announced at UN climate talks in November in Glasgow, said Ian Duncan, who was Parliamentary Under Secretary of State for the Department of Business, Energy and Industrial Strategy from July 2019 to February 2020.
International climate negotiations could slow progress for a U.K.-EU link.
As could attempts to tighten the EU system:
The agreement “affirms the parties’ existing commitments to a range of international conventions and other commitments in the area of labour, environment, and climate, in a way that is standard in free trade agreements. This includes committing the parties to the effective implementation of the Paris Agreement.”
See this section: “The Parties shall work together to strengthen their cooperation on trade-related aspects of climate change policies and measures bilaterally, regionally and in international fora, as appropriate, including in the UNFCCC, the WTO, the Montreal Protocol on Substances that Deplete the Ozone Layer, done at Montreal on 26 August 1987 (the “Montreal Protocol”), the International Maritime Organisation (IMO) and the International Civil Aviation organization (ICAO). Such cooperation may cover inter alia:
— policy dialogue and cooperation regarding the implementation of the Paris Agreement, such as on means to promote climate resilience, renewable energy, low-carbon technologies, energy efficiency, sustainable transport, sustainable and climate-resilient infrastructure development,
emissions monitoring, international carbon markets …”
On compensating industry for the cost of climate policy, the full Brexit trade deal document said:
“If compensation for electricity-intensive users is granted in the event of an increase in electricity cost resulting from climate policy instruments, it shall be restricted to sectors at significant risk of carbon leakage due to the cost increase.”
Carbon leakage is the notion that factories close down or lower production in regions with tight climate measures, only to boost output or expand in areas where environmental rules are more lax.
The EU said in a “questions and answers” document the agreement provides for the possibility to apply unilateral rebalancing measures in the case of significant divergences in the areas of labour and social, environment or climate protection, or of subsidy control, “where such divergences materially impact trade or investment between the parties.”
Those measures might apply for example in a situation where one party significantly increases its levels of protection related to labour or social standards, the environment or climate, which may entail an increase in the costs of production and hence a competitive disadvantage.
“In such cases, a party would be able to adopt measures to rebalance the competitive advantage of the other party,” the EU said. See this: https://ec.europa.eu/commission/presscorner/detail/en/QANDA_20_2532
On airlines and carbon pricing, the deal said: “Aviation shall be included within two years at the latest, if not included already. The scope of the Union system of carbon pricing shall cover departing
flights from the European Economic Area to the United Kingdom.”
Some commentators see the U.K.’s global influence eroding – the nation is currently influential on climate policy:
For short story on UK emissions cap:
One on how Britain hopes to lead the world:
(Updates Friday afternoon with context, picture. Updates Saturday with some text from the complete trade document, outside voices, updates Sunday with WTO, updates Monday with examples from the EU.)