UK carbon scheme ‘not learning from EU’s errors’

11 Feb 10
The chair of an influential MPs’ panel on the environment has claimed that a new carbon emissions trading scheme covering much of the public sector could prove to be ineffective.
By David Williams

11 February 2010

The chair of an influential MPs’ panel on the environment has claimed that a new carbon emissions trading scheme covering much of the public sector could prove to be ineffective.

Tim Yeo, chair of the Commons environmental audit select committee, said important lessons had not been learnt from the European Union Emissions Trading Scheme, which had so far failed to stimulate green industries or reduce emissions.

The committee’s February 8 report, The role of carbon markets in preventing dangerous climate change, outlined weaknesses in the EU scheme.
 
Under the trading scheme, organisations have to buy carbon allowances to cover their emissions. But the MPs found that the allowances were priced too low to encourage investment in low-carbon technology. They said a reserve price should be introduced for carbon credit auctions, to ensure prices did not drop below a minimum level.

The report also found the recession had led to a faster reduction in carbon outputs than the EU scheme would have caused on its own, because its cap on allowances was not strict enough.

Yeo told Public Finance that the UK’s Carbon Reduction Commitment scheme, which will cover all Whitehall departments and most larger local authorities when it begins this April, could be improved by taking into account the shortcomings of the European scheme. But he said it was ‘not encouraging’ that the CRC’s starting price of £12 a tonne for carbon emissions was comparable with the EU scheme.

Yeo added that giving out free allowances to protect certain industries had undermined the market price of carbon in the EU scheme, but this had not been taken into account with the CRC, which will use the European scheme as a safety valve.

‘There are some lessons which have not been applied, so we can’t be certain that the CRC will work better,’ he said.

Yeo also cautioned that, although the recession had helped manufacturers reduce emissions, the fiscal squeeze would not automatically have the same effect among public bodies.

But he said he was broadly supportive of the CRC and the concept of carbon trading in general.

‘The momentum is behind it all right,’ he said.

Yeo’s comments came as the Green Alliance think-tank published research suggesting that £12bn could be wiped off the national debt over four years by introducing a range of green measures.

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