Britain risks losing out in carbon debate if it exits EU

BRUSSELS/LONDON (Reuters) - Should Britain vote to leave the European Union it would be relegated to the sidelines over important carbon market reforms vital to safeguarding EU environmental targets over the next decade and beyond.

The Conservative Party's victory in general elections this month means Britons will be asked to vote on whether to leave the club of 28 EU nations possibly as early as next year.

That's some time off, but EU policy and environmental planning is long-term work, with efforts under way already to set targets for 2030 and beyond.

Analysts also see the referendum driving high volatility on the EU Emissions Trading System (ETS) where carbon trades as analysts weigh the impact on carbon policymaking.

"Once we have a date for the referendum, we will start seeing opinion polls and even they could move the carbon market," said Mark Lewis, analyst at Paris-based financial services group Kepler Cheuvreux.

Leaving the EU would not force Britain out of the EU ETS but it would leave the British powerless over setting ETS rules.

"They would probably get a worse deal if they have to rely on their allies to negotiate on their behalf," Christian Egenhofer, a senior fellow at the Centre for European Policy Studies, said. "It would all depend on what kind of bilateral deal the British could negotiate."

That's the position non-EU Norway finds itself in as it participates in the EU ETS but has no power over setting ETS rules.

Norway's Norsk Hydro, for instance, has found itself defenseless against efforts to boost carbon prices, which drive up costs for the energy intensive aluminum producer.

To date, Britain has been active in shaping the carbon market in which UK utilities such as Centrica and SSE participate.

For example, Britain, along with Germany, led efforts to broker a deal with member states this month to get ETS reforms started in 2019, two years earlier than countries such as Poland had wanted.

Future debates which Britain could struggle to steer include how many carbon allowances are on the market and steps to mitigate the impact on utilities and industry for the next trading phase of the ETS, which begins in 2020.

Britain needs a higher carbon price to justify its investment in building new nuclear plants, which generate energy without producing carbon dioxide.

A higher price is seen as an important lever as the British government looks to persuade utilities and industry to move to greener, low-carbon energy. It has pledged to cut emissions by 80 percent by 2050 based on 1990 levels.

Britain has imposed a carbon tax of 18.08 pounds ($28.54) per tonne that users must pay in addition to buying allowances on the EU ETS which cost around 7.60 euros ($8.68) for every tonne of carbon they emit.

Britain is forecast to generate 17 billion pounds from auctioning carbon allowances by 2025.

Most carbon analysts say Britain could retain its carbon tax and stay in the EU ETS in the event of it leaves the EU.

They note Britain's new energy minister Amber Rudd is committed to getting a strong deal on tackling climate change at U.N. talks in Paris this year.

Britain is "the strongest advocate of the EU ETS" and there was no reason for it to withdraw, said Matteo Mazzoni, analyst at Nomisma Energia in Italy.

(Additional reporting by Nina Chestney in London; editing by Jason Neely)