Emissions rise from a coke manufacturing facility. (Photographer: Andrew Harrer/Bloomberg)  

Coal Pollution to Surge in U.K. If Brexit Comes Without Deal

(Bloomberg) -- Britain’s pollution levels would probably rise if the country crashes out of the European Union without a deal, breaching a key pledge Prime Minister Theresa May has made to rein in emissions.

That’s the conclusion of Bloomberg NEF, which forecasts that burning coal would increase in the first quarter of next year if there’s a no-deal Brexit. Without a deal, Britain would also exit on March 29 the EU’s carbon market, which the government in London has said it will replace with a tax on emissions.

The problem is the carbon market uses a calendar year, so it’s misaligned with with Britain’s end-of-March fiscal-year system, creating a three-month gap with a lower carbon price. Further, U.K. polluters would have an incentive to sell off their carbon allowances because they won’t need them in the future. That could cause carbon and power prices to sink, encouraging the burning of coal across the region, according to Jahn Olsen, an analyst at the London-based researcher.

“The only way the Treasury can fix this problem is to avoid a hard Brexit,” Olsen said in an interview.

Coal Pollution to Surge in U.K. If Brexit Comes Without Deal

May’s government has pledged to cut pollution and encourage renewables in its effort to meet targets in the United Nations Paris Agreement on climate change. It will introduce a tax on carbon of 16 pounds ($21) a ton to replace the ETS in the event of no deal. British polluters also pay 18 pounds a ton under the U.K.’s carbon floor support program, which will remain in place even during the three months.

“We are deeply committed to domestic and international efforts to tackle climate change, and this will not change in the event of a No Deal exit from the European Union,” Treasury said in a statement.

Olsen said utilities would burn more coal in the first quarter of 2019 if no deal looked likely. That’s the coldest part of the year, when demand for energy peaks. The result would be an additional 6 million tons of carbon emissions, which is about the same annual emissions of a small country like Lithuania or a large power plant like the English one run by Drax Group Plc, according to Bloomberg NEF.

Without a Brexit deal, the U.K. would automatically leave the EU’s Emissions Trading System, which would mean Britain would not sell or give out additional allowances to its emitters after the 2018 compliance year.

The outcome would be higher coal generation, as more expensive natural gas plants fall out of favor, according to BNEF. And that means power prices will probably be lower.

That’s a good thing for households and industry as average temperatures may be below normal across the northern two-thirds of Europe in the December to February period, according to a forecast by the Weather Co. on Monday.

©2018 Bloomberg L.P.