Memorandum submitted by the Royal Academy
of Engineering
The Royal Academy of Engineering is pleased
to submit evidence to the Environmental Audit Committee's inquiry
into "The role of international carbon markets in preventing
dangerous climate change". This response is based on contributions
from the Academy's President and Fellows. The Academy is content
for its input into this inquiry to be made public and would be
pleased to provide supplementary evidence if required.
We have chosen to submit comments that are not specifically
related to topics outlined in the inquiry.
1. International carbon markets are an important
part of the policy response to climate change. There are currently
only a few mandatory schemes in operation, most prominently in
Europe and in some American states, but their impact is growing.
2. The scientific evidence suggests that
limiting global warming to 2°C will require a 50% reduction
of today's annual greenhouse gas emissions by 2050.[44]
3. All carbon trading and limiting schemes
create a market which is essentially artificial; the cost of damage
caused by carbon emissions is impossible to calculate therefore
the price of carbon is artificial. It is only possible to have
an administered value/penalty cost of carbon which will vary depending
upon the nature of a particular scheme.
4. As carbon markets are built, concerns
about industrial competitiveness are emerging. This emerged as
one of the main obstacles to last year's negotiations on extending
the EU Emissions Trading Scheme. Proposed policy changes often
cause fears about competitiveness but such concerns are short-sighted.
The development of an international carbon market should alleviate
such concerns.
5. Currently, relatively few firms have
trading partners outside their geographical region. The more exceptions
that governments allow to carbon market frameworks, the less those
schemes can contribute towards carbon reduction.
6. Mitigating climate change, like financial
stability, is a public good which only proper regulation can squeeze
out from the market. Fully functioning carbon markets should provide
businesses with a regulatory incentive to factor carbon costs
into their investment decisions. As more businesses become regulated
under carbon market frameworks and fewer free permits are given
out, markets should become more efficient in establishing a long-term
carbon price.
7. The benefit of a strengthened carbon
market is that regulation conditions the growth of the market
to accord with established climate change goals. The recent banking
crisis illustrates the importance of striking the right balance
between government regulation and unrestricted markets.
March 2009
44 Building a low carbon economy-the UK's contribution
to tackling climate change, Committee on Climate Change, December
2008, http://hmccc.s3.amazonaws.com/pdf/TSO-ClimateChange.pdf Back
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