1 Introduction
1. Emissions trading is central to the Government's
efforts to reduce greenhouse gas emissions in the UK. This is
our third report on UK policy on emissions trading. In a report
on the European Union Emissions Trading System (EU ETS) published
in March 2007,[1] we found
that, while Phase I of the System (2005-2007) had been an administrative
success, its record in reducing carbon emissions was questionable.
At the time we were encouraged to believe that Phase II (2008-2012)
would be more effective. We commended the Government for showing
leadership in developing the EU ETS, but cautioned against relying
solely on emissions trading to save us from dangerous climate
change.
2. In October 2007 we published our second report
on emissions trading.[2]
That report highlighted our concerns about the transparency with
which the Government was reporting the impacts of carbon trading
in UK national emissions figures—an issue we return to in
this report.[3]
3. Since our earlier inquiries, in December 2008
the EU agreed emissions caps, in line with Europe-wide emissions
reductions targets of 20% by 2020 (relative to 1990 levels), subject
to revision if there were an agreement at the UN climate change
conference in Copenhagen. That target represented a 10% cut in
emissions (relative to 2005 levels) in the 'non-traded' sectors
of the economy (which account for about 60% of total emissions),
and a 21% cut for the emissions-traded sectors. The EU also agreed
revisions to aspects of the EU ETS, including a phasing out of
free allowances for the power sector from 2013 and for other traded
sectors between 2013 and 2027 (but retaining free allowances for
sectors regarded by the EC as being at risk from global competition)
and limiting the use of 'offset credits' (paragraph 36) to 50%
of claimed emissions reductions.
4. Since our 2007 inquiries, the Climate Change Act
has also been passed, establishing the Committee on Climate Change
and putting UK carbon budgets (in line with that Committee's advice)
on a statutory footing. Recently, we published our report on carbon
budgets.[4]
5. And last month, the UN climate change conference
in Copenhagen noted an Accord— negotiated by the US, China,
India, South Africa and Brazil, and signed by 49 countries[5]—
which "agree[ed] that deep cuts in global emissions are required".[6]
The Accord "recognis[ed] the scientific view that the increase
in global temperature should be below 2oC".[7]
The conference did not agree any binding emissions limits, although
the Accord invited countries individually or jointly to commit
to "quantified economy-wide emissions targets for 2020, to
be submitted […] by 31 January 2010".[8]
The Accord did not include any changes in the operation of carbon
markets, but rather simply noted the signatories' decision "to
pursue various approaches, including opportunities to use markets,
to enhance the cost-effectiveness of and to promote mitigation
actions".[9]
6. We undertook this latest inquiry to examine the
prospects for a global carbon market and the implications for
this of further development of the EU ETS. In doing so, we have
reviewed the impact of Phase I of the EU ETS as well as progress
on Phase II and the prospects for Phase III. We do not cover the
potential use of emissions trading schemes to fund the preservation
of forests, which was the subject of our report Reducing greenhouse
gas emissions from deforestation published in June 2009.[10]
7. The National Audit Office (NAO) provided us with
a briefing on developments in the EU ETS since our 2007 report.
The NAO's report, containing analysis of the design of Phases
II and III, and including the results of their survey of UK firms
subject to the System, was published in March 2009.[11]
We received nearly 50 written submissions, received before the
Copenhagen conference, and took oral evidence between March and
June 2009 from business groups, traders and investors, the Carbon
Trust, NGOs, a European Commission representative, and the then
Minister and officials from the Department for Energy and Climate
Change (DECC). We also discussed emissions trading during a visit
by three of our members to the United States in May 2009 (see
Annex).
1 Second Report of Session 2006-07, The EU Emissions
Trading Scheme: Lessons for the future, HC 70 Back
2
Eighth Report of Session 2006-07, Emissions Trading: Government
Response to the Committee's Second Report of Session 2006-07 on
the EU ETS, HC 1072 Back
3
Paragraph 18 Back
4
Third Report of Session 2009-10, Carbon budgets, HC 228 Back
5
HC Deb 5 January 2010, col 42 Back
6
Copenhagen Accord, 18 December 2009, para 2 Back
7
Copenhagen Accord, para 1 Back
8
Copenhagen Accord, para 4 Back
9
Copenhagen Accord, para 7 Back
10
Fifth Report of Session 2009-10, Reducing greenhouse gas emissions
from deforestation: No hope without forests, HC 30 Back
11
National Audit Office, European Union Emissions Trading Scheme,
March 2009, published on the NAO website. Back
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