Businesses urge EU and Britain to link their carbon markets

By Kate Abnett

BRUSSELS (Reuters) - Energy firms, businesses and traders from the European Union and Britain on Thursday urged the two sides to link their carbon markets, a move they said would help them fight climate change.

Britain quit the EU emissions trading system (ETS) at the end of 2020 as part of Brexit and has since set up a UK carbon market, with the first auction of permits due next month.

Brussels and London agreed in a post-Brexit trade deal to consider linking the schemes, which would allow UK firms to buy EU carbon permits and vice versa, but negotiations to do so have not yet begun.

"We urge the EU to start the process of linking the EU Emissions Trading System with the new UK Emissions Trading System as soon as practicable," 42 groups, many representing industries covered by the carbon markets, said in letters to the European Commission and the UK government.

Signatories included power industry group Eurelectric, the Confederation of British Industry, the European Federation of Energy Traders and groups representing metals, chemicals and ceramics manufacturers.

Eurogas secretary general James Watson said a link would create a more liquid market and avoid administrative burdens for firms with operations in both the EU and Britain.

The EU Commission would need a green light from member states to start negotiations with Britain on a link, a representative for the body said.

A UK government spokeswoman said it was considering a range of options for how the UK ETS could work with other carbon markets.

The EU plans to reform its ETS, including by expanding it to shipping, and possibly buildings and transport. Currently, the design of the EU and UK schemes is similar, but future reforms could change that, making a link more complex.

Analysts have said that without a link, permit prices in the UK ETS could rise quickly once trading begins, since there will be high demand and little supply of UK permits.

(Reporting by Kate Abnett; Additional reporting by Susanna Twidale; Editing by Jan Harvey)