ETS Linkage?

Also digital trade, the trade remedies authority and medical experiments on Milton Friedman's grandson.

Over the summer I meant to write about a new Frontier Economics report that makes the case for linking the EU and UK Emissions Trading Systems.

And, tbh, I thought I had? But looking back through the newsletters it seems I didn’t, so I’m doing it now …

Post-Brexit the EU and UK have separate, unlinked, Emissions Trading Schemes (ETSs). This has some practical consequences. For example, UK exports of goods covered by the EU’s carbon border adjustment mechanism (CBAM) are not automatically exempt from the administrative requirements and may, subject to a situation where the UK carbon price is lower than the EU’s be subject to additional charges.

As included on my list of the things the EU and UK could do to improve their trade relationship, one option available is to [re]link the two schemes. This is a very obvious thing to do that pretty much everyone wants, but not without complications. One of which is that the current carbon prices of the respective schemes are now really quite different:

But Frontier Economics address this issue head-on, and well … here’s the summary slide:

The TL;DR is that the divergence in prices would sort itself out if linkage happens and that the benefits – decreased admin burdens, slower decarbonisation and reduced risk management costs – outweigh the negatives.

A couple of extra points from me: linkage also makes a lot of sense because in its absence you have a lot of questions about Northern Ireland, and in particular how CBAM should apply in respect of both goods moveing between Great Britain and Northern Ireland and Northern Ireland and Ireland. (Northern Ireland is in the UK ETS for most things, but the EU’s ETS for electricity generation … it’s complicated.)

There is also the general issue of electricity trade between the UK and EU — for some reason the EU included electricity in its CBAM and … how do you assess how carbon intensive the electricity being sent at any given time is, given the mix is constantly changing?

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The US Hates [Most] Digital Trade

I previously wrote about the fact that the Biden Administration hates digital trade. It has stopped moaning about EU digital trade barriers in its annual USTR report, stopped supporting initiatives to combat forced data localisation and forced transfer of source code, and generally just become a bit less ready to defend American tech interests internationally.

But there is an exception to this! The US still very much hates foreign countries imposing digital services taxes on its companies.

And on that note, USTR has decided to pick a fight with Canada.