EU carbon market fails to deliver green investment, MPs warn

8 February 2010

The European Union (EU)’s flagship Emissions Trading System (ETS) is failing to deliver vital green investment after a collapse in carbon prices magnified by the recession, UK MPs have warned.

The Environmental Audit Committee has called on the UK government to consider measures that would guarantee a minimum price for carbon such as a new carbon tax.

The Committee heard calls for a carbon price of €100 a tonne of CO2 or higher in order to drive urgently needed investment in green technologies and energy efficiency. Current prices, which remain nearer to €15 a tonne, are too low to pull through the required investment, said the Committee.

‘Emissions trading should be helping us to combat climate change, but at the moment the price of carbon simply isn’t high enough to make it work,’ said Tim Yeo MP, chair of the Environmental Audit Committee. ‘The recession has left many big firms with more carbon allowances than they need and carbon prices have collapsed. If the Government wants to kick-start serious green investment, it must now step in to stop the price of carbon flat-lining. Ministers should seriously explore the possibility of a carbon tax and must press the EU to tighten up the overall caps in the Emissions Trading System.’

The EU Emissions Trading System is central to the UK’s efforts to cut emissions, but is currently failing to reduce carbon dioxide levels, according to the report. It also said the cap on emissions in the first phase running from 2005 to 2007 was too weak and allowances were over-allocated whereas caps in the second phase running from 2008 to 2012 were supposed to be tighter, but have been seriously undermined by the impact of the recession.

Big companies were allocated free emissions allowances on the basis of business-as-usual projections made before the downturn and as economic activity has slowed as a result of the recession, many firms have found themselves with more carbon allowances than they need, said the report.

Moves to tighten the EU ETS in its third phase, due to start in 2012, may improve the scheme’s effectiveness, but the Committee is worried that the use of offsets and the banking of surplus credits from the second phase could continue to undermine it, said the report.

The report said that a National Audit Office paper commissioned by the Environmental Audit Committee for the inquiry showed that offset credits could be used to meet up to 50 per cent of the cuts in overall emissions imposed by the caps over the period 2008 to 2020. It added that evidence given to the Committee suggests that in some cases companies could meet all of their required cuts for the second phase without making any actual emissions cuts themselves.

The Committee has also called the government to push for the EU to adopt a European target that more closely reflects the climate change science, adopt a tighter cap for the EU ETS, press the EU to improve how it responds to recession driven reductions, auction as many allowances as possible, encourage European countries to increase the use of allowance auctions with reserve prices and encourage more low-carbon power generation and tighter regulation on high-carbon power.

Tim Yeo MP, chair of the Environmental Audit Committee, said, ‘Only a global effort will make a real difference in tackling climate change. Other countries outside Europe are developing emissions trading schemes, and these need to be joined up. The government and the rest of Europe should actively push for this, while ensuring that in doing so action is taken to at least maintain the carbon price.’

In the Committee’s report, which reviews the prospects for linking the EU ETS with other emissions trading schemes, it said Europe should take care that in moving to a global emissions trading scheme it does not undermine the effectiveness of the EU ETS or weaken the carbon price. The Committee said if the EU ETS is merged with other schemes with more generous emissions allowances, or more generous subsidies for low-carbon emitters, then terms of trade some sort of carbon exchange rate could be needed to ensure a level playing field. The Committee cautions however that the Government with its European partners would need to ensure that schemes are not merged without such an exchange rate being carefully calibrated.

The Environmental Audit Committee was ordered to consider to what extent the policies and programmes of government departments and non-departmental public bodies contribute to environmental protection and sustainable development.

Copyright © 2010 NewNet

Tags: carbon prices, energy efficiency

This story was published on Monday, February 8th, 2010 at 5:24 pm and is filed under Europe, Features, energy efficiency, policy. You can follow any responses to article entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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