UK unlikely to remain in EU carbon market - EU policymaker

By Susanna Twidale

LONDON (Reuters) - Britain is unlikely to remain in Europe's carbon market following its exit from the European Union, the European Parliament's lead carbon policymaker said on Thursday.

Britain has a legally binding target to cut emissions of harmful greenhouse gases, such as those produced by fossil-fuel-based power plants, by 80 percent from 1990 levels by 2050.

Leaving the scheme would raise questions about how Britain plans to meet its targets. Several utilities said the scheme offered an important policy signal to encourage their investment in renewables and low-carbon electricity production.

"I don't think it will have a future in the EU ETS after the UK leaves (Europe)," Scottish Conservative Ian Duncan, who is shepherding reforms of the EU ETS through the European Parliament, said on a webcast on Thursday.

"Were the UK to be part of a system over which it could have no influence. I think that would be very difficult," he said.

Britain is the second-largest emitter of greenhouse gases in Europe and as a result its utilities and industry are among the largest buyers of permits in the EU's Emission Trading System (ETS), which charges power plants and factories for every tonne of carbon dioxide (CO2) they emit.

EU lawmakers are currently working on reforms of the market that will reduce the share of free carbon permits handed out after 2020 as part of an effort to fix oversupply in the market and boost prices.

Rules of the ETS are also enforced by the European Court of Justice, and industry experts said it would be hard for British Prime Minister Theresa May to justify staying within the scheme.

"Staying in the EU ETS sounds a lot like being half in and half out, which May seemed to be ruling out as a principle," said Trevor Sikorski, head of natural gas, coal and carbon research at consultancy Energy Aspects.

May signalled last month, when outlining Britain's plans to leave the European Union, the country would exit the EU single market and the legal jurisdiction in Britain of the European Court of Justice would end..

Companies in the power sector such as E.ON (EONGn.DE) and Centrica (CNA.L) have urged Britain to remain in the scheme.

"It is better to have robust carbon pricing across Europe rather than paddling in our own canoe," Paul Hallas, Regulation and Strategy Director, Centrica, told members of Britain's cross-party Business, Energy and Industrial Strategy (BEIS) Committee earlier this week.

BEIS said the issue remains part of the Brexit negotiations.

"We are carefully considering the implications of a range of options for future UK participation in the EU ETS, as part of delivering a wider settlement in the best interests of the UK," BEIS told the Committee in a written submission.

(Additional reporting by Nina Chestney and Alissa De Carbonnel; editing by Susan Thomas)