British Steel’s Brexit Woes May Be Tip of the Iceberg
British Steel's Brexit Carbon Trouble Heralds Wider Problem
(Bloomberg) -- British Steel Ltd.’s carbon market bill that pushed it to seek a 100 million-pound ($130 million) government loan in the face of Brexit may be the tip of the iceberg for Europe.
Thousands of U.K. and European Union companies regularly opt to sell their free handouts of carbon permits before they’re needed, counting on borrowing from next year’s allocation to meet their pollution obligations. While the strategy’s risk has been most visible in Britain after EU officials suspended free allowances in the U.K. as part of Brexit planning, it’s set to spread across Europe.
“British Steel is a bigger case but this problem is not isolated,” said Federico Di Credico, managing director at ACT in Amsterdam. “This has been a common practice with many, many industrial players to take advantage of the fact that free allowances were simply given at an early date. It’s not possible any longer in the U.K. this year due to the Brexit drama.”
The situation in continental Europe will be even more pronounced toward the end of next year, when the carbon permit current trading period -- known as Phase 3 -- in the EU’s Emissions Trading System ends. While emitters can use Phase 3 allowances for compliance in Phase 4 that runs from 2021 to 2030, a process called banking, they can’t use the next phase’s allowances to cover discharges in the 2013-2020 period.
“It’s no surprise that the EU ETS Directive allows for banking, but not for borrowing in between phases,” said Julia Michalak, EU affairs director at the International Emissions Trading Association. “The rules are clear and should be taken into account by market participants when deciding their compliance strategies.”
For more on British Steel’s carbon-market loan talks, click here
The price on carbon in the EU flagship cap-and-trade program, which puts emissions limits on almost 12,000 facilities owned by manufacturers and power producers, almost tripled last year after an overhaul that alleviated a glut of permits. The allowances for delivery in December traded at 27.57 euros per ton on Wednesday.
To contact the reporter on this story: Ewa Krukowska in Brussels at ekrukowska@bloomberg.net
To contact the editors responsible for this story: Reed Landberg at landberg@bloomberg.net, Andrew Reierson, Rob Verdonck
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