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EU Carbon Market Slumps Most Since 2014 as Brexit Sparks Doubts

Mathew Carr and Ewa Krukowska, Bloomberg

Carbon prices in the European Union’s emissions market, the world’s biggest, plunged the most in 27 months as the U.K. vote to leave the 28-nation bloc triggered uncertainty about the future of the cap-and-trade program.

Benchmark permits to discharge carbon dioxide dropped as much as 17 percent after the referendum, in which voters backed “Leave” by 52 percent to 48 percent. The U.K. is the EU’s second-biggest emitter after Germany.

“I can’t believe we jumped off the bridge,” Trevor Sikorski, an analyst in London at Energy Aspects Ltd., said by telephone. “There’s some really big decisions about which policies the U.K keeps and which ones it ditches. There’s a world of uncertainty ahead of us.”

Britain’s capital hosts the ICE Futures Europe exchange, which handles almost all the trading of EU emission allowances. Permits for December in the EU Emissions Trading System, Europe’s key policy tool to fight climate change, fell as low as 4.69 euros ($5.19) a metric ton on ICE, before trading at 5.01 euros a ton at 11:25 a.m. in London. They have declined 40 percent this year.

Norway Deal

Britain may opt to stick with the ETS, depending on political agreements it decides to pursue with the EU, Sikorski said. That might put it on a footing with Norway, Iceland and Liechtenstein, which are a part of the EU carbon market without membership in the bloc.
Tomas Wyns, a researcher at the Institute of European Studies at the Brussels Free University, also said that would be the easiest scenario for the U.K. to avoid starting its own instruments to achieve domestic climate goals.

“If there’s political will to stay in the ETS, it can be done through an agreement similar to the one with Norway,” he said in an interview. “The carbon market falls under environmental legislation, so that shouldn’t be overly complicated.”

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