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MPs: Carbon price too low

MPs have slammed the European Union’s carbon Emissions Trading Scheme (ETS) for failing to ensure that the price of carbon is set high enough to keep emissions down.

“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 Commons Environmental Audit Committee chair Tim Yeo.

“The recession has left many big firms with more carbon allowances than they need and carbon prices have collapsed,” said Yeo.

“If the Government wants to kick start serious green investment, it must 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,” he said.

The Committee also want to:

  • Push for the EU to adopt a European target that more closely reflects the climate change science, and to adopt a tighter cap for the EU ETS;
  • Press the EU to improve how it responds to recession driven reductions in demand and review regularly whether the cap needs to be tightened;
  • Auction as many allowances as possible, instead of giving them away for free;
  • Encourage other 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.

The Committee’s report also examined ways to link the EU ETS with other similar schemes without driving down the price of carbon further. They suggest a carbon ‘exchange rate’ could be appropriate to give markets a level playing field.

Yeo 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.”

The price for a tonne of emitted carbon is currently €13.10 (£11.50), but some have suggested that an effective price for carbon to ensure emissions reduction is closer to £100.

Readers' comments (2)

  • Oh this is a good one...

    "Push for the EU to adopt a European target that more closely reflects the climate change science..."

    And which version of the science would that be? The politically motivated, taxable version or the politically unpalatable, non-taxable version?

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  • Has the Committee got this right? My understanding of the situation is that the "carbon price" has fallen because the recession has caused industry's energy consumption to be less than predicted when the current Emissions Trading Scheme was set up. If and when energy demand rises as the economy recovers, the "carbon price" will be pushed up again because of the market in emission allownances at the heart of the Scheme - incentivising energy efficiency exactly as intended. The Scheme is deliberately designed to run over a period of years with a fixed cap on the trade-able allowances, precisely so that industry can have the confidence needed to make strategic investment decisions of the kind that are critical to medium and long-term emission reductions.

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