Select Committee on European Union Fortieth Report


EXPANDING THE EU EMISSIONS TRADING SCHEME (EU ETS) (11863/03, 12790/05)

Letter from Karen Buck MP, Minister for Aviation, Department for Transport and Elliot Morley MP, Minister for Climate Change and Environment, Department for Environment, Food and Rural Affairs to the Chairman

  We are writing to update you on progress on our work relating to the above document, particularly in reference to the potential impact on allowance prices.

  The Commission's Aviation Working Group (AWG) has met twice and we are continuing to input into this work on technical issues, taking account of the views expressed by your Committee. The minutes of the AWG are available on the Commission's website.

  We recognise the concerns raised by your Committee and other stakeholders that the inclusion of aviation into the EU ETS may impact on allowance prices and feel that it is important to base any assessment of this complex issue on solid analytical work. We have therefore commissioned ICF Consulting to assess the potential impact of the inclusion of aviation into the EU ETS on the allowance price.

  ICF Consulting have now completed their report and a copy is attached for your reference. While forecasting the carbon price is inherently uncertain, ICF Consulting's findings suggest that adding the aviation sector to the EU ETS will not have a discernable impact on average annual prices of carbon instruments.

  Forecasting allowance prices is complicated and uncertain but we consider that an understanding of the likely impact of the inclusion of the aviation on the allowance price should form part of the impact assessment of any legislative proposal. This report provides a starting point for the development of an evidence base on that impact. We would welcome stakeholders views on the report and its conclusions.

Received 15 February 2006

Letter from Rt Hon Alistair Darling MP, Secretary of State, Department for Transport to the Chairman

  Today I announced that on 22 February Margaret Beckett, Alan Johnson and I wrote to Vice-President Jacques Barrot, Vice-President Gunter Verhuegen and Commissioner Stavros Dimas of the European Commission expressing the UK's support for the Commission review of the EU Emissions Trading Scheme (EU ETS) and to draw early attention to the potential expansion of the EU ETS to the surface transport sector.

  The letter asked that the inclusion of emissions from surface transport be given serious consideration as part of the review and offered our active contribution to work in this area. A copy of the letter dated 22 February is enclosed.

28 February 2006

Annex A

  We would like to express the UK's support for the Commission review of the EU Emissions Trading Scheme (EU ETS), which provides a welcome opportunity to improve the functioning of the trading scheme and consider its expansion to other sectors. As we set out in our questionnaire response last summer, the UK considers that the review should be focussed on how best to increase certainty about the long term future of the scheme and thereby maximise the potential of the EU ETS to stimulate necessary investments in low-carbon technology. Our officials will be writing to you shortly setting out our priorities for the review in more detail.

  We are writing to you now to draw early attention to the potential expansion of the EU ETS to the surface transport sector and to ask that the inclusion of emissions from surface transport be given serious consideration as part of the review.

  You will be aware that the EU ETS directive lists transport as one of the sectors that should be considered when assessing whether to expand the scheme. Emissions trading could potentially provide a cost-effective way for the transport sector to reduce its climate change impact.

  The UK looks forward to working closely with the Commission and would be happy to make an active contribution to work in this area, such as sharing our analysis and hosting an event to open up an informed debate of the options.

  Given the timescale for the review of EU ETS, to this end, we ask the Commission to consider the possibility of including this topic as an AOB item in a future Environment Council.

Letter from the Chairman to Rt Hon Alistair Darling MP

  Thank you for your letter of 28 February 2006, and for the enclosed copy letter dated 22 February 2006 from Margaret Beckett, Alan Johnson and yourself to the European Commission endorsing the Commission's review of the EU Emission's Trading Scheme.

  Sub-Committee B considered these letters at its meeting on 13 March 2006.

  We thank you for this information and trust you will keep us up-to-date on any new developments in this important area.

15 March 2006

Letter from the Chairman to Karen Buck MP and Elliot Morley MP

  Thank you for your undated letter which was received on 15 February 2006 and considered by Sub-Committee B at its meeting on 6 March 2006.

  Sub-Committee B remain most interested in this area and will consider ICF Consulting's report carefully, together with the Government's response to our recent report, Including the Aviation Sector in the European Union Emissions Trading Scheme, when it arrives and write further to you on any issues which arise. We note that you would welcome stakeholders' views on the report and its conclusions. To which stakeholders have you sent the report? Sub-Committee B would be grateful for a copy of any responses received.

8 March 2006

Letter from Derek Twigg MP, Parliamentary Under-Secretary of State, Department for Transport and Elliot Morley MP to the Chairman

  Thank you for your letter of 8 March 2006 regarding the ICF Consulting report, Including Aviation into the EU ETS: Impact on EU allowance prices.

  You were particularly interested to know which stakeholders we had sent this report to and whether we had had any responses. So far we have presented the paper to:

    —  The Emissions Trading Group (Working Group 5).

    —  The Aviation Working Group (set up by the Commission under the European Climate Change Programme).

    —  The Ad hoc Energy Taxation Steering Group.

    —  The Association for the Conservation of Energy.

    —  Our own Stakeholder Working Group (comprised of airline operators, NGOs, the Confederation of British Industry, and others).

  We have sent copies of the report to the Devolved Administrations, the Environment Agency, the European Commission and to Point Carbon. It has also been made available on the Defra website.

  We have not yet had any formal written responses to the ICF Consulting report. However, we have discussed the report in detail with stakeholders, following our presentations. The report was welcomed as a useful contribution to the debate and a focal point for analysis. Comments were focused around four main concerns:

    —  Are the assumptions regarding the availability of JI/CDM credits feasible?

    —  Will there be sufficient low cost power sector abatement options available, as suggested in the report?

    —  Are ICF Consulting's forecast carbon prices for Phase II credible?

    —  What will be the impacts of aviation in the EU ETS in the long term, ie beyond 2012?

  We are considering further work on broader carbon price modelling in conjunction with the DTI and are considering the above issues in evaluating what further work is required.

Received 18 April 2006

Letter from the Chairman to Derek Twigg MP and Elliot Morley MP

  Thank you for your undated letter received on 18 April replying to my letter of 8 March 2006 and considered by Sub-Committee B at its meeting on 24 April 2006.

  We were grateful for your detailing the stakeholders to whom the ICF report was sent, and for your summary of the areas of discussion which the report provoked. We do have some significant concerns over the report and, in particular, the interpretation which Ministers may have put on the conclusions.

  As you may be aware, the Government Response to our report, Including the Aviation Sector in the European Union Emissions Trading Scheme, was due on 18 April. To date we have still received no response. We would be grateful for an explanation of the delay and a date when we might expect the response.

  We will be considering the ICF report more fully and respond after consideration of the response to our report.

25 April 2006



 
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