Documents considered by the Committee on 21 February 2018 Contents

10Linkage of EU and Swiss Emissions Trading Systems

Committee’s assessment

Politically important

Committee’s decision

Cleared from scrutiny; drawn to the attention of the Business, Energy and Industrial Strategy Committee and the Environmental Audit Committee

Document details

(a) Proposal for a Council Decision on the conclusion, on behalf of the EU, of an Agreement between the EU and the Swiss Confederation on the Linking of their Greenhouse Gas Emissions Trading Systems; (b) Proposal for a Council Decision on the signing, on behalf of the EU, of an Agreement between the EU and the Swiss Confederation on the Linking of their Greenhouse Gas Emissions Trading Systems

Legal base

(a) Articles 192(1) and 218(6)(a), TFEU; EP consent; QMV (b) Articles 192(1) and 218(5) TFEU;—; QMV.

Department

Business, Energy and Industrial Strategy

Document Numbers

(a) (38987), 11699/17 + ADD 1, COM(17) 427; (b) (38988), 11700/17 + ADD 1, COM(17) 428

Summary and Committee’s conclusions

10.1The EU and Switzerland have decided to link their respective emissions trading systems (ETSs) with each other, with the aim of expanding the carbon market as to allow more cost-effective reduction of carbon emissions. The Government has now provided analysis as to why the agreement took seven years to conclude and comments on whether the EU-Swiss model could prove a useful one for the UK.

10.2In response to queries put by the Committee, the Minister for Climate Change and Energy (Claire Perry) says that the EU-Swiss agreement is “clearly” of interest in relation to a future scenario were the UK to develop a national emissions trading system linked to other systems.

10.3The Minister offers three significant reasons to explain the lengthy negotiation period:

10.4On lessons learned for the UK in determining its future relationship with the EU ETS, the Minister says that the first two reasons should not be problematic for the UK as the respective schemes are already aligned, including aviation. As to the third, the Minister considers it is too early to tell whether the EU would have difficulties in coming to a common position. She notes that another factor influencing EU-UK negotiations would be the comparatively larger size of the UK market compared to the Swiss market. The Minister confirms that the Government is considering a range of post-Brexit carbon pricing scenarios.

10.5The Minister has provided helpful analysis in response to our queries. We remain interested in future policy design in this area and in the specific arrangements for any post-Brexit transition period, during which the position regarding bilateral agreements between the EU and third countries is under active consideration. This EU-Switzerland agreement is one such example.

10.6We will monitor developments with interest, but require no further information on these proposals. The proposals were agreed before we were able to meet following the General Election. We now clear them from scrutiny. The chapter is drawn to the attention of the Business, Energy and Industrial Strategy Committee and of the Environmental Audit Committee.

Full details of the documents

(a) Proposal for a Council Decision on the conclusion, on behalf of the EU, of an Agreement between the EU and the Swiss Confederation on the Linking of their Greenhouse Gas Emissions Trading Systems: (38987), 11699/17 + ADD 1, COM(17) 427; (b) Proposal for a Council Decision on the signing, on behalf of the EU, of an Agreement between the EU and the Swiss Confederation on the Linking of their Greenhouse Gas Emissions Trading Systems: (38988), 11700/17 + ADD 1, COM(17) 428.

Background

10.7Emissions trading systems (ETSs) are designed to reduce greenhouse gas emissions cost-effectively. They include both a cap on total emissions and the potential to trade emissions allowances so that a company that is taking steps to reduce its emissions can sell its allowances to a company that continues to emit. Linking one ETS to another expands the market and enhances the cost-efficiency of emissions trading.

10.8In December 2016 the Commission proposed the conclusion (document (a)) and the signature (document (b)) of an agreement linking the EU and Swiss ETSs. Negotiations had been lengthy due, in part, to the Swiss referendum in 2014 on the introduction of quotas for EU workers in Switzerland. Full details of, and background to, the proposal were set out in our report of 19 December 2017.

10.9The Minister indicated in her original Explanatory Memorandum that the UK took an active role in negotiating the text of the agreement. It was in line with UK objectives for global carbon markets, she said, as expanding the market and increasing the availability of emissions reduction opportunities enhances the cost-efficiency of emissions trading.

10.10The Minister subsequently wrote to explain that the Decisions were adopted on 10 November 2017, which was before the Committee was able to consider the document. Acknowledging that the Committee had not granted scrutiny clearance, the Minister reported that she nevertheless voted in favour of the proposals. Given the UK support for the proposals, and its efforts to negotiate them, the Minister did not wish to be isolated in either abstaining or opposing the agreement.

10.11At its meeting of 19 December 2017, the Committee was pleased to note the UK’s engagement in the negotiation of this agreement. Of greatest interest was the Brexit context. We sought information on:

10.12We recognised the Minister’s reasons for supporting the proposals before scrutiny clearance had been secured and we took no issue with the Government’s approach.

The Minister’s letter of 18 January 2018

10.13On whether this could be a helpful model for future EU-UK relations, the Minister says:

“[The] Government is considering the UK’s future participation in the EU ETS after our exit from the EU. As set out in the Clean Growth Strategy, we remain committed to continuing to lead the world in tackling climate change. This includes carbon pricing as an emissions reduction tool for tackling climate change whilst ensuring energy and trade intensive businesses are appropriately protected from any detrimental impacts on competitiveness. In this context, the Government is looking at a range of possible scenarios and the EU-Swiss agreement is clearly of interest in relation to a future scenario were the UK to establish a national emissions trading system linked to other systems.”

10.14As to why it took seven years to negotiate the agreement, the Minister explains that there were three significant reasons for the delay.

10.15First, there was initial divergence between the EU ETS and the Swiss ETS. Time was therefore needed during the bilateral discussion to find common ground. Consequently, Swiss policy-makers revised their CO2 Act in 2011129 to harmonise some design features.

10.16Second, the inclusion of aviation in the linked scheme was a contentious topic, reports the Minister, with Switzerland initially reluctant to include the sector. As a result of negotiations, domestic and intra-European aviation were brought under scope through further revisions to the CO Act for 2021–2030.

10.17Third, some delay was due to internal discussions and agreement within the EU. The negotiating mandate went through the standard procedures—the European Commission required the agreement of Council so it could have a mandate for the negotiations and it then renewed its mandate by updating the Council working party as needed by agreeing on common lines.

10.18On possible lessons learned with a view to the EU-UK relationship, the Minister says:

“[The] first two reasons for delay in the EU-Swiss link should not be so problematic as we are already aligned (given we are currently a member) and the aviation issue is resolved. On the third, it is too early to tell whether this would apply. As a participating Member State of the EU ETS, the UK’s starting position will be different from Switzerland (whose ETS was not fully aligned with the EU ETS). Another factor that would influence any future negotiations relating to the UK’s relationship with the EU in this area is the relative size of the UK market, which is much larger than that of the Swiss.”

10.19The Minister concludes:

“After EU exit, the UK will be free to decide the shape and form of future policy approaches to reduce emissions. We are considering a range of carbon pricing scenarios and we welcome the interest of your Committee in how the experience of the EU-Swiss negotiations can inform our deliberations.”

Previous Committee Reports

Sixth Report HC 301–vii (2017–19), chapter 3 (19 December 2017).


129 Federal Act (641.71) on the Reduction of CO2 emissions, 23 December 2011.




23 February 2018