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The EU’s Emissions Trading Scheme (ETS) is failing to deliver much needed investment in low carbon technologies, says a report from UK MPs.

The report from the House of Commons Environmental Audit Committee is calling for the Government to introduce a minimum carbon price of €100 per tonne of CO₂ to bolster investment.
Current carbon prices have collapsed to around €15 per tonne, exacerbated by the recession.

In the first phase of the scheme (2005-2007), the cap set for emissions was too low and carbon allowances were over allocated. In fact, according to the report, emissions increased by 38 million tonnes during that period and still remained below the cap.

The second phase (2008-2012) was supposed to tighten up allocations, but big firms were given free emissions credits on the basis of business-as-usual projections before the economic collapse. Thanks to the downturn, many businesses have found themselves with more allowances than they need.

“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,” says the Committee chair Tim Yeo.

The Committee is concerned that plans for the third phase of the scheme will not be sufficient to redress the balance. An analysis by the National Audit Office indicates that offset credits could be used to meet up to 50% of required cuts in carbon emissions between now and 2020.

In some cases, says the report, businesses might be able to meet all their required targets during Phase II without making any actual cuts to emissions themselves.

The Committee wants to see the Government push for a tighter cap for the EU ETS and review it regularly so that it can respond to economic recession. The report also recommends auctioning as many allowances as possible and encouraging the use of reserve prices.

“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,” says Yeo.

For further information:
www.parliament.uk/eacom
www.publications.parliament.uk/pa/cm/cmenvaud.htm
www.nao.org.uk/publications/0809/eu_emissions_trading_scheme.aspx

Related stories:
UK Parliamentary report calls for more action on emissions (11-Jan)