Carbon News

Monday 08 February 2010

The Environmental Audit Committee called for a higher price of carbon to drive investment in green technologies

A collapse in the price of carbon has meant that "vital" investment in renewables is not being delivered by the EU's Emissions Trading System, MPs have warned today (February 8).

A report by the Environmental Audit Committee calls for a minimum carbon price of at least €100 (£88) per tonne of carbon dioxide in order to drive urgently needed investment in green technologies and energy efficiency.

It considered the current price of around €15 (£13) to be too low to pull through the required investment and suggested a carbon tax as a possible mechanism to guarantee a minimum price for carbon.

The EU's cap and trade system works in a similar fashion to the Renewables Obligation - large emitters of carbon dioxide report their emissions annually and are obliged to submit emission allowances to the government equivalent to their emissions in that year.

To reduce emissions, governments are meant to ensure that the total amount of allowances issued is less than the amount that would have been emitted. Allowances are obtained for free from governments and Tim Yeo, chair of the committee, said that there were too many to cut emissions effectively.

He proposed auctioning as many allowances as possible, rather than handing them out.

He said: "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. 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 step in to stop the price of carbon flat-lining."

The report also proposed linking up schemes in countries outside the EU to create a global system. Australia and the USA are both examining introducing similar schemes.

Mr Yeo said that only a global effort would make a real difference in tackling climate change.

"Other countries outside Europe are developing emissions trading schemes, and these need to be joined up," he said.

"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."

CBI

The Confederation of British Industry (CBI) agreed that there was uncertainty about whether the trading scheme would be sufficient to encourage future low carbon investment, but was unsure as to whether a floor price was the right response.

John Cridland, CBI deputy director-general, added that renewables already have support mechanisms to encourage investment.

He added that much would depend on international agreements following Copenhagen.

"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," he said.

"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."