UK wants 'substantial reform' of ETS

17th July 2014

Related Topics

Related tags

  • EU ,
  • Air ,
  • Pollution & Waste Management ,
  • Renewable ,
  • Mitigation


Catherine Reeves

A two billion surplus of carbon allowances under the EU emissions trading system (ETS) threatens to depress low-carbon investment for at least a decade, and undermines the bloc's claim to be a global leader on climate change, according to a new position paper from Decc.

The report, UK Vision for phase IV of the EU ETS, says existing proposals to reform the ETS do not go far enough to correct the persistent oversupply of allowances and calls on the European commission to cancel an “ambitious volume” of allowances.

"The UK is asking for bold and comprehensive reforms to restore the ability of the EU ETS to drive cost-effective emission reduction and low-carbon investment," said the energy secretary, Ed Davey.

The ETS is the largest cap-and-trade scheme in the world and regulates about half of the EU’s CO2 emissions. But over-allocation of carbon allowances has led to a carbon price collapse, from around €30 per tonne in 2008 to around €6 now. The collapse in prices has made it cheaper for polluting industries to buy allowances instead of investing in low-carbon technologies, undermining the transition to a low-carbon economy which the scheme was set up to support.

Under its “backloading” arrangement, the commission has temporarily withdrawn 900 million carbon allowances from the current phase of the ETS, which it claims will restore the short-term balance in the European carbon market. But these allowances will be reintroduced in 2019-20 and the total allowances available in phase III will remain unchanged.

European commissioner for climate action, Connie Hedegaard, said in December 2013 when backloading was agreed that the measure would help stabilise the carbon market in the coming years, although she conceded that that the commission also had to tackle "more structural challenges".

Future proposals for reforming the system for phase IV, which starts in 2021, includes the introduction of a “market stability reserve” (MSR), which aims to address the structural imbalance between supply and demand. Under MSR, 12% of allowances will be removed if the surplus is larger than 833 million allowances, but would return 100 million allowances to the market if the surplus falls below 400 million.

The Decc report welcomes the MSR proposal, but says it will not correct the problem of oversupply in the system. The UK government has already cancelled 36 million surplus allowances from the UK allocation and wants the EU to take a similar approach. “The UK continues to call for cancellation of an ambitious volume of allowances to reduce the current surplus and help restore the balance between supply and demand,” states the Decc report.

The government’s proposal has been welcomed by carbon market think tank, Sandbag. Head of policy, Damien Morris, said: “A wide range of stakeholders share the government’s view. An increase in environmental ambition is urgently needed, and cancellation is the obvious way to achieve this.”

Transform articles

Regulator publishes new code to tackle 'greenwashing'

The Competition and Markets Authority (CMA) has published a new 'Green Claims Code' to ensure businesses are not misleading consumers about their environmental credentials.

22nd September 2021

Read more

The UK government must develop regulation to stop the financial sector from providing billions of pounds to companies that threaten rainforests worldwide, WWF has said.

10th September 2021

Read more

Over two million hectares of Brazilian rainforest could be legally converted to supply the UK with soy under a new anti-deforestation law proposed by the government, the WWF has found.

26th August 2021

Read more

The Better Business Act would put responsibility to society and the environment on the same footing as responsibility to shareholders, explains Chris Turner

30th July 2021

Read more

In Elliott-Smith v Secretary of State for Business, Energy and Industrial Strategy, the claimant applied for judicial review of the legality of the defendants’ joint decision to create the UK Emissions Trading Scheme (UK ETS) as a substitute for UK participation in the EU Emissions Trading Scheme (EU ETS).

30th July 2021

Read more

Thames Water has been fined £4m after untreated sewage escaped from sewers below London into a park and a river.

30th July 2021

Read more

In R. (on the application of Hudson) v Windsor and Maidenhead RBC, the appellant appealed against a decision to uphold the local authority’s grant of planning permission for the construction of a holiday village at the Legoland Windsor Resort.

28th May 2021

Read more

Are voluntary commitments enough to make the private sector act on waste? David Burrows explores the issues

28th May 2021

Read more

Government announcements on infrastructure reveal a direction of travel but key details are still unknown, says Huw Morris

29th January 2021

Read more

Media enquires

Looking for an expert to speak at an event or comment on an item in the news?

Find an expert