Memorandum submitted by the City of London
Corporation
1. The City Corporation prides itself in being
one of the first municipal purchasers in the UK of "green
energy" with all street lighting and civic buildings run
on renewable energy. For some time now, the City Corporation has
also voluntarily offset the carbon dioxide emissions from the
Lord Mayor's Show, and the business travel of the Lord Mayor,
other elected members and City of London officers. It is also,
perhaps, worth noting that the City Corporation is the first UK
local government authority to develop a Climate Change Adaptation
Strategy and to be awarded the Carbon Trust Standard (2008).
2. The City is a founder member of the London
Climate Change Agency and, in 1999, was a founder member of the
UK Emissions Trading Group (UK ETG), which played an important
role in laying the foundations upon which the UK, and then EU,
Emission Trading Schemes were built.
3. The market that is building up in emissions
trading is the result of a combination of the policy requirement
to reduce carbon emissions and a market opportunity. The signing
of the Kyoto Protocol and the resulting EU Emissions Trading Scheme
(EU ETS), have led to the development of the market in carbon
allowances. London's pool of expertise in financial services has
enabled it to become Europe's emissions trading "hub"
in a market that has seen considerable growth in recent years
and a London cluster servicing this emerging industry has already
developed.
4. In establishing the EU ETS, policy makers
have created a demand for a commodity (an allowance to emit carbon)
which was previously considered free. To this end, in establishing
the world's only regional trading scheme, Europe has a massive
potential advantage not only in the development of new financial
products, but also in the financing of developments in new technologies
to combat climate change. Now the price of carbon has been set,
the commercial viability of abatement projects can be more readily
calculated and capital or project finance sought from the private
sector.
5. Whilst emissions trading is currently
a significant tool in the fight against climate change, it is
not a panacea and is reliant both directly and indirectly on enabling
legislation which will lead society to a low-carbon future. However,
by harnessing the market in emissions abatement, cap and trade
schemes allow specific reduction targets to be set and monitored,
and the efficiency of the market will ensure that emissions reductions
are met at the lowest possible cost.
6. Carbon trading is a broad church and
currently two emissions trading markets are evolving in parallel:
— formal markets—epitomised by the
EU ETS; and
— informal markets involving Verified Emissions
Reductions (VERs), which are a key market in the US.
7. Although the UK Government's new Quality
Assurance Scheme[34] begins
to address this, VERs currently lack market infrastructure, such
as registries and monitoring. This Voluntary market may, however,
evolve into a more formal trading system—in which case carbon
offsets, such as Clean Development Mechanism credits, may form
a bridge to a wider market, and could provide a common "currency"
between schemes. The development of carbon trading schemes will
increase market value by an order of magnitude and is likely to
spawn a plethora of new products and secondary markets
8. Whilst there are arguments in favour
of developing a global trading mechanism, another school of thought
suggests that the future success of carbon markets does not necessarily
rely on a global scheme since no other commodity has one. It may
be that establishing a global system could be counter productive
and overly complex. Many regions are setting up their own trading
schemes and it might be better to perhaps capitalise on and pull
those together in some way.
9. Regardless of whether the future of carbon
markets is in a global trading system or greater compatibility
between regional systems, London (and therefore the UK) cannot
afford to be complacent and cede any of its commanding lead in
this field. It must capitalise on its experience in the market
so far to develop new products, protect the integrity of existing
markets and influence the development of new markets with the
long-term aim of encouraging growth in carbon trading.
10. Finally, in 2006, the City of London,
along with BP, Forum for the Future, Gresham College and Z/Yen
Consulting, launched The London Accord, a unique collaborative
research project intended to share thinking on climate change
mitigation and to provide analysis of approaches to direct investment
to the best opportunities for investment. A number of leading
City organisations have supplied their research teams without
charge with the aim of providing a shared consensus to present
greater clarity and better measurement of the link between investment,
financial and "carbon" returns and also a better understanding
of the role of public policy in this area. A report, representing
the end of the first phase, was published in December 2007 as
a reference guide for investors as they consider climate change.
The second phase, now underway, is widening the scope of the project
to a broader range of social and environmental issues.[35]
The City of London Corporation recently committed to continue
to develop and support the project until 2011.
March 2009
34 http://campaigns.direct.gov.uk/actonco2/home/features/offsetting.html Back
35
All the research is available to download free from www.london-accord.co.uk Back
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