The EU must repair its own carbon market by introducing its proposed Market Stability Reserve in 2017 if it wants to benefit from linking to other schemes in the future, a cross-party group of UK MPs said on Tuesday.
The Parliament’s Energy and Climate Committee, which scrutinises government policy, said the EU ETS will play a critical role in the linking of emissions trading systems worldwide.
“Before it can do this, however, it must be seen as a credible market,” the committee said in a report titled Linking Emissions Trading Systems.
“The issue of surplus allowances must be addressed urgently which is why we support moves to remove these allowances from the system as soon as possible,” it added, matching the view of the UK government, which favours a 2017 start to the MSR.
The lawmakers said a global carbon market would be the most economically efficient way to cut emissions.
This was much more likely to happen via a bottom-up network of smaller markets that gradually link together rather than a unified global process.
“We recommend that the Government ensure that, when supporting other countries to develop their emissions trading systems, it promotes designs that are compatible with the EU ETS. Aligning design elements will help improve the prospects of linking in the future. The Government should focus on engaging with China and the US as the world’s largest economies and because they have already embraced emissions trading” the report said.
The EU market was poised to begin linking with Australia’s fledgling scheme later this year – until the country’s new prime minister Tony Abbott scrapped the policy. The EU ETS is still on track to the relatively tiny Swiss scheme in the near-term.
“The provisions in the (EU ETS) law are quite open for linking”, said European Commission official Damien Meadows in the report, one of 13 witnesses from business groups, academic institutions and governmental bodies though not environmental campaigners.
Meadows said to enable linking, the following conditions would need to be met:
– robust registries and auditing and enforcement systems
– a similar ambition level, including similar limits on the amount and quantity of international and domestic offsets allowed
– the same basic environmental integrity and that a tonne of CO2 in one system is a tonne in the other system
REVENUE SURPRISE
The committee called on the UK government to assess current and future revenue from emissions trading, and to report on options for how it should be spent after hearing the government had not considered in detail the best use for it.
“We were surprised that the government had not yet considered the best use of revenue generated from emissions trading,” the committee report said.
While many EU governments earmark revenue from selling EUAs for low climate policies, the UK has long resisted so-called ‘hypothecation’ due its powerful Treasury department’s wish to retain tight control of government spending.
By Ben Garside – ben@carbon-pulse.com
