Memorandum submitted by the Economic and
Social Research Council
1.1 The Economic and Social Research Council
(ESRC) funds research and training in social and economic issues.
We are an independent organisation, established by Royal Charter,
but receive most of our funding through the Department for
Innovation, Universities and Skills. Our budget of £181 million
(2007/2008) funds over 2,500 researchers in academic institutions
and policy research institutes throughout the UK. We also support
more than 2,000 postgraduate students.
1.2 The quality of life in and economic well-being
of the UK and beyond is significantly affected by issues associated
with and affected by environmental change and energy. As such
these are particular areas of challenge for some of the social
scientists we fund. This submission reflects some of the work
funded to date and we hope the Committee find the evidence of
2.1 The EU Emissions Trading Scheme (ETS) has
opened up potential for exporters and producers of renewable energy
technology. However, these opportunities may not be realised given
capital is not guaranteed to distribute in a rationale fashion.
As such work to help further encourage the better flow of investment
and capital, including consideration of regulation by a variety
of stakeholders is required. We would argue robust insights to
these issues can only be gain through research, which is as yet
to be fully supported.
2.2 Some ESRC funded research has indicated
that the price of carbon can play a fundamental role in the effectiveness
of international climate change, helping encourage transition
to a low-carbon economy. However, this can only be one element
of a comprehensive carbon management policy, which must also include
policy interventions on a broad front that encompass a full range
of economic and social considerations including behaviour, practices
2.3 Research on carbon markets suggests they
require underpinning with bespoke mechanisms to facilitate maximum
effectiveness. This should include guidance and support in terms
of encouraging the take up of the most appropriate technologies.
Such interventions should include consideration of new regulatory
support in areas such as planning and market design.
2.4 Organisations responses to ETS vary according
to their strategic objectives, scale and long-term targets. Large-scale
long-term investors appear to have adapted to the scheme in response
to perceived returns, driven by perceptions of those organisations
by third parties. Additional work to understand these complex
relationships and how other organisations do, or may, in the future
respond, would provide greater understanding allowing policy to
evolve such that the benefits of carbon trading are maximised.
Early indicators suggest beneficial steps may include the extent
to which the trading system is easily understood and engaged with;
importantly, that prices accurately reflect what is appropriate
to meet future emissions targets and that the price is adjusted
as appropriate as better information about the impact of global
warming develops; and, that these are reflected in joined up EU
and member state policy. In addition, maintaining a high price
for carbon will help maximise support for socially profitable
2.5 An expected direct outcome of the development
and working of the ETS is a scale back in the role for CDM project
mechanisms. Although CDM provides scope for stakeholders, as individuals,
to directly benefit from project credits, further action is less
likely to be pursued. Secondly, support normally flows to energy
intensive `carbon rich' sectors which mitigates against movements
towards lower-carbon activities.
2.6 The global competitiveness of EU business
and industry will be affected by carbon trading and as such questions
arise regarding state aid issues in what is currently a highly
sensitive global market. These raise significant legal and ethical
questions which are being addressed by the ESRC funded Electricity
Policy Research Group at the University of Cambridge http://www.eprg.group.cam.ac.uk/.
The Group's work suggests that careful implementation of such
responses may ensure against breeching WTO regulation. In addition
interventions have the ability to bring a secondary benefit to
bear in the form of reduced administrative complexity, an additional
constraint on the effectiveness of carbon markets.
2.6 The longer-term challenge of developing
a global carbon market or linked markets has also been subject
to research which indicates considerable barriers remain to its
successful implementation, not least the lack of an accurate or
acceptable base line for emissions on a country by country basis.
Further research on this challenge from both the natural and social
sciences could contribute to a resolution of this challenge.
2.8 Finally, research indicates preferential
support for renewables and their development which exceeds that
received for avoiding emissions via ETS would be beneficial. Similar
measures adopted with regard to nuclear generation led to efficient,
commercially attractive opportunities of benefit internationally.
Appropriate investment in the renewables sector has the potential
to have significant impact on climate change mitigation and as
such should be born in mind as carbon markets develop.