Weak ETS needs tightening to be effective - EAC
The Environmental Audit Commission has published its third report on the EU Emissions Trading Scheme in which it blasts the mechanism for being too loose to be effective and calls for a 'significant' tightening of caps.
It also says that Government should auction as many allowances as possible rather than give them away free, thereby helping to keep carbon prices higher by ensuring greater scarcity.
In the wake of the disappointing Copenhagen meeting, the report urges the Government to push for further emissions cuts on the European stage, to more closely reflect the current scientific thinking on climate science.
Interestingly, the report looks to the future and highlights the need for merging carbon trading schemes from around the world to create a truly global carbon market.
"There is likely to be a need for emissions trading for decades to come, however optimistic we might wish to be on the rate of global progress on emissions reductions," says the report.
"Government should argue within the EU to seek to link the EU ETS with other schemes.
"Because differences in the parameters of the schemes, for example in terms of the use permitted of offset credits, could make that difficult, the EU should take care that linking schemes should not undermine the environmental effectiveness of the EU ETS or significantly weakened the carbon price."
It suggests that some sort of carbon exchange rate could create a level playing field between schemes.
Business lobby the CBI has come to the defence of the EU ETS, arguing that it remains the best way to tackle emissions in a cost-effective way and blaming the recession rather than weak caps for the low price of carbon.
John Cridland, CBI Deputy Director-General, said: "It's good to see the Committee backing the Government's support for emissions trading and it is right to point out that there needs to be a global response to climate change.
"Linking ETS schemes across the world could help, provided the integrity of the EU's scheme is not undermined.
"We agree with the Committee that there is uncertainty about whether the EU ETS will be sufficient to encourage future investment in technologies like nuclear, but there is a debate to be had about whether a floor price is the right response.
"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."
"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."