European Carbon Trading Scheme (ETS) could lose £1.7bn worth of UK funding once Britain exits the trade bloc.
The United Kingdom is committed to providing almost €2bn (£1.7bn) worth of funding for the scheme, without which it is not yet clear how the system will survive.
Through ETS a cap is placed on total emissions and allowances are provided to member states.
Companies which fall under the remit of the scheme have to hand in an allowance for every tonne of carbon they release. They are allowed to buy and sell these allowances, which are priced to incentivise a reduction in emissions.
Ian Duncan MEP, who is the Conservatives’ European spokesman on energy and climate change and also the lead lawmaker on reforming the ETS, said there was a “serious risk” Brexit could stop the functioning of the scheme, leading to “disastrous” consequences.
“In order for ETS to work a number of funds were created to help Eastern European nations to address the challenges of modernising their Soviet-era energy generators and manufacturing companies.
“The UK is one of the major contributors to this fund and after it leaves the finance for this fund will not be there,” Mr Duncan told The Independent.
“Without it, there is a serious risk not only that the ETS stops functioning post-Brexit, but that the EU loses support for its climate change targets altogether. With Donald Trump in the White House, the consequences of this could be disastrous for global efforts to tackle climate change.”