Emissions trading
48. Carbon credits (sometimes referred to as emissions
allowances) are designed to be used within emissions trading systems,
the most significant being the EU Emissions Trading Scheme (EU
ETS). Each credit is meant to be equivalent to one tonne of carbon
dioxide; within trading schemes, where a project (for example,
the replacement of diesel generators with solar panels in rural
India) is judged to have reduced carbon emissions, it may sell
credits equal to this saving to another agent (for instance, a
coal-fired power station in the UK) in order for it to be recognised
as having in effect reduced its emissions to a lower target level.
49. In October 2007 we published a short report on
the transparency with which the Government was reporting the use
of carbon credits. In particular, we singled out a graph in the
2007 Budget Report which incorporated the net purchase of millions
of carbon credits in its depiction of UK CO2 emissions
for 2005, without making this clear. The graph therefore depicted
UK CO2 as going down steeply in 2005, when in fact
actual carbon emissions from within the UK were virtually unchanged
since 2004. A small footnote stated that the graph took the effects
of the EU ETS into account, but did not explain any further what
this meant. Following a letter we had written to the Secretary
of State for Environment in the summer, in which we first raised
some of these issues and singled out the same Budget 2007 graph,
the 2007 Pre-Budget Report published a similar graph which was
much more transparent, separately depicting 'actual UK emissions'
and 'UK emissions incorporating trading'.
50. Transparency could still be improved in many
ways, however. We are still aware of important examples where
the distinction between emissions cuts made at home and those
funded abroad is not being made explicit. As a notable example,
in his Pre-Budget address on 9 October 2007, the Chancellor told
the House that, "We are the only country to have met our
Kyoto obligations. We have reduced our greenhouse gas emissions
by almost a fifth since 1990",[71]
without making it clear that this incorporated the net purchase
by the UK of some 33.8 million carbon allowances in 2006.
Taking the actual emissions figures for 2006 from the UK itself,
greenhouse gas emissions were down 15.1% since 1990—not
19.5%, the figure, incorporating emissions trading, that the Chancellor
was alluding to.[72]
We recommend that it is always
made clear, in Government statements and documents, where UK reported
emissions figures incorporate the purchase of carbon credits;
the risk otherwise is that politicians and the public will receive
a falsely reassuring picture of progress in decarbonising the
UK itself.
51. Aside from the simple issue of transparent reporting
of the use of emissions trading, we also have some concerns about
the value of certain credits: essentially, whether they do all
in reality represent a cut in emissions, somewhere in the world,
equivalent to one tonne of CO2. For example, it is
widely agreed that in Phase I (2005-07) of the EU ETS, Member
States allocated their industries more carbon allowances than
they needed, the result being that many industries had spare allowances
to sell without having had to do anything to reduce their emissions.
This is even recognised by the Treasury; for instance, in a document
published alongside the PBR, the Treasury stated: "While
Phase I has had a number of problems as a result of over-allocation
of allowances in the EU as a whole, it has provided valuable learning
opportunities for emitters, regulators, traders and governments."[73]
In such circumstances, purchasing carbon credits has been described
as buying 'hot air', rather than funding genuine emissions reductions.
52. We asked the Exchequer Secretary what the Government
was doing to verify that each carbon credit purchased by the UK,
and set against national emissions figures, was genuinely reducing
global emissions by one tonne of CO2. She replied:
The point of a cap and trade system is that you cap
and then trade. If you pay for allowances with money you have
to make an assumption that that reduces emissions somewhere else
where the system is working, and since the damaging effects of
a tonne of carbon are the same if the emission is in Devon or
Delhi I do not think it matters that much. We have to be confident
in order to incentivise emissions reductions. If we can identify
the domestic and international nature of the reductions that is
the transparency we need.[74]
We are not satisfied by this answer. The
Government cannot afford simply to assume that purchasing carbon
credits is leading to genuine emissions reductions elsewhere in
the world. We recommend that the Government demonstrate a systematic
approach to verifying, as rigorously as possible, that the net
purchase of carbon credits by the UK is funding genuine emissions
reductions. We further recommend that the new Committee on Climate
Change evaluate each year the quality of the emissions credits
set against the UK's carbon budget for that year: we believe it
should state whether, in its opinion, these credits have genuinely
reduced global emissions by an equivalent amount.
71 HC Deb, 9 October 2007,
col 171 Back
72
Defra, UK Climate Change Programme - Annual Report to Parliament,
July 2007, p 14, p 15. To clarify these were the provisional figures
for 2006, used at the time of the Pre-Budget Report, and have
since been updated: see "UK climate change sustainable development
indicator", Defra statistical press release 25/08, 31 January
2008 Back
73
HM Treasury, Moving to a global low carbon economy: implementing
the Stern Review, October 2007, p 26 Back
74
Q184 Back
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