Tag: Brexit

U.K. Government Split Over Carbon Market After Brexit

(Bloomberg) —



a man wearing a suit and tie: Rishi Sunak


© Bloomberg
Rishi Sunak

U.K. Chancellor Rishi Sunak’s Treasury is locked in a battle with Alok Sharma’s Business Department over how to ensure polluters pay for their emissions after Brexit.

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The Treasury is pushing to replace the European Union’s cap-and-trade system with an economy-wide carbon tax, which would come into effect after Britain exits the bloc in January. The Department for Business, Energy and Industrial Strategy is drawing up a new emissions-trading system to start in January similar to the EU program that the U.K. currently participates in.

One person familiar with the debate predicted that an ETS was a likely option, and a hybrid is also being considered. A decision is expected soon. It is likely to be announced by Dec. 12, when Prime Minister Boris Johnson will co-host a United Nations meeting on climate action, where he is expected to reveal a new 2030 climate pledge and encourage other countries to set their own goals to bring net emissions to zero.

But with just a little over two months to go before the U.K. leaves the EU and no deal agreed, businesses and traders are becoming increasingly concerned over the lack of certainty for how they’ll be charged for their pollution and whether the U.K system will be linked to the EU’s ETS.

“We’re really running tight on time if they want to implement an ETS,” said Jahn Olsen, analyst for BloombergNEF. “A tax has a lot of obvious disadvantages.”

The U.K. is still negotiating to find a way that could tie a U.K. cap-and-trade system to the EU ETS — if it does opt for that system. But if no deal can be struck, BEIS officials say a standalone U.K. ETS would be just as effective. The EU ETS is the world’s biggest carbon market.

Some of the U.K.’s biggest emitters are lobbying against a carbon tax, saying it would put them at a competitive disadvantage to EU rivals. They’re more comfortable with an ETS, since they’ve had to deal with the EU system since 2005. Olsen said a standalone U.K. ETS would probably initially deliver a lower carbon price than a tax because there would be an oversupply of allowances at first since the economy is in recession and the number of certificates issued in the system would probably be set for more normal times.

An oversupplied ETS in the U.K. may mean companies could buy carbon allowances around 15 pounds ($19.60) a ton, Olsen said. That’s lower than the average of 24 euros ($28) a ton in the EU system over the past year.

“The proposed carbon emissions tax is much less flexible than an Emission Trading Scheme and will lead to an unnecessarily higher tax burden for British steel companies,” said Frank Aaskov, energy and climate change policy manager for the U.K. Steel industry group.

READ MORE: Why Pricing Carbon Is Still More Theory Than Reality

Under the terms of the Withdrawal Agreement, the U.K. will remain in the EU

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U.K. Government Split Over How to Charge Polluters After Brexit

(Bloomberg) —



a man wearing a suit and tie: Rishi Sunak


© Bloomberg
Rishi Sunak

U.K. Chancellor Rishi Sunak’s Treasury is locked in a battle with Alok Sharma’s Business Department over how to ensure polluters pay for their emissions after Brexit.

Loading...

Load Error

The Treasury is pushing to replace the European Union’s cap-and-trade system with an economy-wide carbon tax, which would come into effect after Britain exits the bloc in January. The Department for Business, Energy and Industrial Strategy is drawing up a new emissions-trading system to start in January similar to the EU program that the U.K. currently participates in.

One person familiar with the debate predicted that an ETS was a likely option, and a hybrid is also being considered. A decision is expected soon. It is likely to be announced by Dec. 12, when Prime Minister Boris Johnson will co-host a United Nations meeting on climate action, where he is expected to reveal a new 2030 climate pledge and encourage other countries to set their own goals to bring net emissions to zero.

But with just a little over two months to go before the U.K. leaves the EU and no deal agreed upon, businesses are becoming increasingly concerned over the lack of certainty for how they’ll be charged for their pollution and whether the U.K. system will be linked to the EU’s ETS.

“We’re really running tight on time if they want to implement an ETS,” said Jahn Olsen, analyst for BloombergNEF. “A tax has a lot of obvious disadvantages.”

The U.K. is still negotiating to find a way that could tie a U.K. cap-and-trade system to the EU ETS — if it does opt for that system. But if no deal can be struck, BEIS officials say a standalone U.K. ETS would be just as effective. The EU ETS is the world’s biggest carbon market.

Some of the U.K.’s biggest emitters are lobbying against a carbon tax, saying it would put them at a competitive disadvantage to EU rivals. They’re more comfortable with an ETS, since they’ve had to deal with the EU system since 2005. Olsen said a U.K. ETS would probably have excess allowances at first since the economy is in recession and the number of certificates issued in the system would probably be set for more normal times.

An oversupplied ETS in the U.K. may mean companies could buy carbon allowances for around 15 pounds ($19.60) a ton, Olsen said. That’s lower than the average of 24 euros ($28) a ton in the EU system over the past year.

“The proposed carbon-emissions tax is much less flexible than an Emission Trading Scheme and will lead to an unnecessarily higher tax burden for British steel companies,” said Frank Aaskov, energy and climate change policy manager for the U.K. Steel industry group.

READ MORE: Why Pricing Carbon Is Still More Theory Than Reality

Under the terms of the Withdrawal Agreement, the U.K. will remain in the EU ETS until the end of the transition period at the end of this year, and U.K.

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Fear sets in that Boris Johnson’s Brexit government is ill equipped to handle a pandemic | World

However, this reliance on (and success of) his Brexit persona, as opposed to his previous incarnation as the liberal-conservative Mayor of London, means that combative, confrontational style of politics is a must in the DNA of any government he leads.

Observers fear that taking this flavor of politics from the campaign trail to government might make central government too thinly stretched and chaotic for handling the dovetailed crises of a pandemic and Brexit.

CNN reached out to Downing Street but a spokesperson declined to comment on the record.

Constant source of controversy

There is an immediate concern that the government’s single-mindedness on Brexit has in itself hampered its handling of the pandemic. “This government doesn’t want to be seen to need the EU in any sense, which, in my view, resulted in its choice not to participate in joint procurement schemes at the start of the pandemic,” says Menon. Earlier in the crisis, the UK opted not to work with the EU in its vaccine scheme or its ventilator procurement program.

Others suspect that Johnson’s personal investment in Brexit takes up crucial government resources. “On one hand, you have a pandemic which you could not plan for … on the other you have Brexit, which you campaigned (for) and won on and you need to give it attention if it’s going to end well,” says Salma Shah, a former Conservative government adviser.

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Boris Johnson’s Brexit government is ill equipped to handle a pandemic, some fear

It’s been another week of difficult headlines for Boris Johnson. Once again, serious questions are being asked of Britain’s Prime Minister and his administration’s approach to handling the Covid-19 pandemic and, more broadly, the style of government.



Boris Johnson wearing a suit and tie: LONDON, ENGLAND - OCTOBER 05: Prime Minister Boris Johnson speaks to a member of staff as he visits the headquarters of Octopus Energy on October 05, 2020 in London, England. The prime minister and Chancellor of Exchequer Rishi Sunak visited the British "tech unicorn" - a startup company valued at more than USD$1 billion - to promote the company's plan to create 1,000 new technology jobs across sites in London, Brighton, Warwick and Leicester, and a new tech hub in Manchester. (Photo by Leon Neal - WPA Pool /Getty Images)


© Leon Neal/Getty Images Europe/Getty Images
LONDON, ENGLAND – OCTOBER 05: Prime Minister Boris Johnson speaks to a member of staff as he visits the headquarters of Octopus Energy on October 05, 2020 in London, England. The prime minister and Chancellor of Exchequer Rishi Sunak visited the British “tech unicorn” – a startup company valued at more than USD$1 billion – to promote the company’s plan to create 1,000 new technology jobs across sites in London, Brighton, Warwick and Leicester, and a new tech hub in Manchester. (Photo by Leon Neal – WPA Pool /Getty Images)

Things kicked off with Johnson being criticized for sending mixed messages in a BBC interview on Sunday, in which he warned that coronavirus restrictions could last until 2021, but also that he needed to get the economy moving. Arguably sending a vague message for a public unsure of what to do as the virus spreads exponentially, he said, “What we want people to do is behave fearlessly but with common sense.”

Things got worse, as the government was forced to admit that 16,000 confirmed cases went unreported due to a technical glitch.

Cases are rising in universities just weeks after students returned to campuses: more than 1,000 students at Newcastle University tested positive for Covid-19 over an eight-day period, along with another 770 cases at the University of Northumbria, while three universities in north England have stopped face-to-face teaching.

Concerns about the rise in cases and the testing system were not helped by a cabinet minister having to admit on Wednesday that the country is experiencing supply chain issues with a pharmaceutical company that supplies tests to the UK.

And Johnson is under fire from all sides for his approach to introducing further restrictions across the country. Criticism ranges from decisions on local restrictions being taken in central government by the PM and his close team — without consulting local leaders — to curfews not being backed by scientific evidence.



a man wearing glasses and smiling at the camera: The contempt held by Dominic Cummings for the establishment, the media and even members of Boris Johnson's party is well known.


© Peter Summers/Getty Images
The contempt held by Dominic Cummings for the establishment, the media and even members of Boris Johnson’s party is well known.

Some in his own Conservative party admit that Johnson wouldn’t be their first pick for leader during a pandemic. “His personal skillset this doesn’t play to it. He’s not a details, manager type. He’s a leader and picture painter,” says one veteran Conservative. “A situation for which there is divided opinion scientifically, politically and changing patterns on how to manage the response is difficult for him.”

A former Conservative cabinet minister agrees “he doesn’t go into the microscopic detail.” However, they ask, “where’s the surprise in that? When Boris was elected to lead this party, we needed someone with a bit of flair who could get Brexit over the line by

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Third-Quarter 2020 Market Commentary: Despite Uncertainty Around U.S. Election And Hard Brexit, Hope Springs Eternal For COVID-19 Vaccine And Government Relief

Data Source: Bloomberg

Source: PxHere

3D Note: As part of our ongoing commentary concerning the coronavirus global contagion and its impact on human and global markets, we remind readers that the situation remains fluid as evidenced by volatile market reactions to most new developments, although the pace of these reactions seems to have slowed down from March/April. In addition to our bi-monthly articles and periodic podcasts, 3D has started publishing mid-month updates to our advisor partners as we navigate through the coronavirus pandemic. Please contact us if you would like to be added to the distribution list.

Market action during the third quarter was largely uneventful despite a moderate pickup in volatility and a “pause” in the global reflation trade. The first two months saw rallies in the global reflation trade, broadly represented by growth technology stocks, emerging markets, commodities/non-U.S. currencies, and corporate credit, only to see investors back away from this trade in September due to technical reasons (e.g. over-exposed long positioning in large-cap technology stocks via call option purchases and speculative non-commercial long positioning in EUR/USD) and diminishing prospects over a second U.S. pandemic relief spending program as well as rising prospects over Hard Brexit. The end of the quarter saw elevated (i.e. buy-the-dip) risk sentiment after having peaked in mid-August, prior to the early September sell-off (we wrote about this in peak in investor sentiment in mid-August titled “Market is Euphoric”).

The furious global technology growth rally that characterized the early quarter advance spilled over into the first week of September before the “trade” unwound itself following reports of a large options “whale” (later to be revealed Softbank – Japan’s publicly-traded venture capital fund) having bid up single stock call options on key technology stocks, forcing options market-makers to buy the underlying stocks in order to hedge their positions. We mentioned this activity in our August 2020 Market Commentary, prior to media reports confirming the options trading activity.

The final two weeks of September saw a reversal of the growth technology stock sell-off amidst reports of renewed call option buying by retail investors regardless of prospects for another U.S. spending program (U.S. Treasury yields and the dollar whipsawed between diminishing prospects versus renewed prospects). Markets are being tested in the first week of October as U.S. President Donald Trump tested positive for the coronavirus.

As of the writing of this commentary, prospects for a second pandemic relief plan diminished despite reports of active negotiations between the White House (Treasury Secretary Steve Mnuchin) and Congress (House Speaker Nancy Pelosi). The Republican-led U.S. Senate is still resisting a negotiated plan, but the spending gap between the White House plan and House plan has narrowed with remaining differences over the level of unemployment benefits and state/local aid. The House passed a $2.2 trillion version of the plan, but the prospects for Senate passage are dim as Republican leaders claim the House version is full of “poison pills.” An estimated $2 trillion aid package could serve as a shot in

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Pound falls on reports UK could quit Brexit talks next week

Britain's Prime Minister Boris Johnson as fears grow Brexit talks could collapse. Photo: Justin Tallis/AFP via Getty Images
Britain’s Prime Minister Boris Johnson as fears grow Brexit talks could collapse. Photo: Justin Tallis/AFP via Getty Images

The pound slid on Wednesday, after a report that the UK government could pull out of Brexit talks as soon as next week if not enough progress has been made towards a deal.

Sterling had lost 0.8% against the dollar (GBPUSD=X) by mid-afternoon in the UK, trading just below $1.29. It shed 0.7% against the euro (GBPEUR=X), with the pound selling for $1.09.

The flight from sterling reflects investors fears’ Britain could face severe economic upheaval if no deal is reached. It would likely spark disruption and sudden new barriers to long-standing trade and other ties with most of Europe when the Brexit transition period expires at the end of the year.

Talks between negotiators are ongoing in London this week. The pound’s decline came after a source told Bloomberg the UK government was serious about threatening to walk out of talks over a trade deal next week.

READ MORE: Stocks mixed as US stimulus hopes endure despite Trump ditching talks

Last month UK prime minister Boris Johnson set a deadline of 15 October for reaching an agreement, in order for it to be signed off and put into place by the start of next year.

Meanwhile Britain’s chief Brexit negotiator David Frost told MPs on Wednesday that barriers had not yet been overcome on one of the key stumbling blocks of state aid policy, according to Reuters.

WATCH: Boris Johnson says he can live with a no-deal Brexit

“I feel we’re some way from a deal at the moment, if I’m honest, but we are at least having a decent discussion of this, you know, what is possible and what isn’t possible,” he said.

Ireland’s foreign minister Simon Coveney also said on Wednesday that a “landing zone was hard to envisage” at present on another thorny issue, fishing rights.

“This is a big obstacle and I don’t think the British government should underestimate the strength of feeling on fishing of many of the Atlantic member states,” he said.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said fishermen’s demands on either side of the Channel “risk skewering a Brexit deal,” hitting sterling on Wednesday.

“Throughout the Brexit process, flotillas of British boats have made regular protest appearances, demanding priority catches for the fish in UK waters. But the EU’s determination not to throw the Common Fisheries Policy completely overboard, and instead netting continued access for its boats, is casting serious doubts that a trade deal will be reached,” she said.

“The EU stance appears to be hardening, leading to speculation that negotiations will now be forced to extend into November.”

Any concessions by either side are likely to “cause a stink for domestic politics,” but negotiators will be “highly conscious” of the economic damage from failure to secure a deal, she added.

READ MORE: UK and EU agree to ‘intensify talks’

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EU launches legal action against UK for breaching Brexit deal and international law | World

Since the UK government has not pulled this legislation, the Commission has written a letter of formal notice to the UK government, the first step in an infringement procedure — something the EU commonly uses when parties breach agreements with the union.

“The letter invites the UK government to send its observations within a month and besides this the Commission will continue to work hard towards full and timely implementation of the Withdrawal Agreement. We stand by our commitments,” von der Leyen concluded.

The move, though dramatic, was expected in London. The government had previously admitted that its Internal Market Bill would breach the treaty and break international law in a “very specific and limited way.” The government claims that the bill is a safety net to ensure seamless trade between the four nations of the United Kingdom in the event of a no deal Brexit at the end of this year and hopes it won’t have to use the legislation.

The backdrop to all of this is that trade talks between London and Brussels are entering their final phase. The last formal round of talks are talking place right now and an EU summit will take place on October 15, where negotiators hope a deal will be on the table for EU leaders to approve.

Both sides say a deal is in sight, but are struggling to reach an agreement on some key issues, most notably around the UK’s ability to use state aid in order to prop up British businesses. The EU says this could give British companies an unfair advantage over EU companies. There are also disputes over fishing rights and governance.

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