MPs say Europe’s carbon trading scheme is too generous
8 Feb 10
The latest report on carbon emissions trading from the House of Commons Environmental Audit Committee says tighter limits will be necessary in order to tackle global warming
The report examines the effectiveness of the European Union’s Emissions Trading Scheme (ETS), which sets out to reduce the amount of greenhouse gases produced by business through caps on permitted emissions. Businesses that need to emit more than their allowed level of carbon must buy unused allocations from other businesses, on the open market.
The MPs say that, even though caps have been reduced since the scheme was launched in 2005, the caps are still set at too high a level and the recession has meant that the system has become even more slack, removing the incentive for industry to invest in the technology needed to reduce emissions.
The report says caps for new entrants should be cut and more allowances should be auctioned rather than given away for free. It also calls on the UK Government to consider a carbon tax, and to look at ways to harmonise the EU ETS with similar schemes around the world.
Commenting on the report, John Cridland, the Confederation of British Industry’s deputy director-general, said: “The EU ETS remains the best way to reduce carbon emissions cost-effectively, and is currently helping to achieve Kyoto protocol and EU 2020 emissions targets.
“It's good to see the Committee backing the Government's support for emissions trading and it is right to point out that there needs to be a global response to climate change. Linking ETS schemes across the world could help, provided the integrity of the EU’s scheme is not undermined.
“We agree with the Committee that there is uncertainty about whether the EU ETS will be sufficient to encourage future investment in technologies like nuclear, but there is a debate to be had about whether a floor price is the right response. It should be remembered that many low carbon technologies, such as renewables and clean coal, have their own support schemes, with a higher carbon price that encourages new technologies to be brought to market.”
“The reason the carbon price is currently lower than expected is because the market believes the recession will make the EU’s targets easier to meet. The Committee is right to raise the option of reducing the ETS cap, but in practice this will depend on whether the EU decides to increase its 2020 targets which, in turn, will depend on international negotiations.”
Richard Gledhill, partner and head of carbon market and climate change services with PricewaterhouseCoopers, said: “It’s an ambitious report, but the challenge for the Government is that many of the really important issues cannot be decided by the UK alone.”
He added that the level of caps was not the only factor helping to depress prices in the carbon market, arguing that “uncertainty over the level of ambition in the EU and internationally [to cut emissions]” and delays in the climate change negotiations were also playing a part.
The role of carbon markets in preventing dangerous climate change: Fourth Report of Session 2009-10 is available to download from the Committee's website at www.publications.parliament.uk/pa/cm/cmenvaud.htm