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As UK Cap and Trade Falters, Government May Prop Up Carbon Prices

emissions-5UK lawmakers are calling for stricter limits on greenhouse gases and the power to intervene in carbon markets as its cap-and-trade program fails to encourage investments in cleaner energy, reports Business Week.

The UK’s cross-party parliamentary Environmental Audit Committee (EAC) says the current EU ETS carbon price is well below the levels needed to spur investments in clean energy, reports Carbon Positive. The EAC report indicates that emissions caps in the EU are too low to support a high enough carbon price, according to the article.

A couple of factors are contributing to the problem. These include the recession, which has created a surplus of EUA emissions permits in the second phase of the EU ETS, running until 2012, and a lack of a higher emissions reduction target, which would have boosted carbon prices over the next decade, reports Carbon Positive. A Bloomberg market survey estimated the oversupply at 2.3 percent, according to the article.

The committee said intervention could involve a carbon tax when market prices fall below a set level, minimum prices for national carbon auctions, and cancellation of outstanding allowances under a reserve for new entrants, reports Business Week.

The EAC report is calling for the Government to introduce a minimum carbon price of €100 ($137) per ton of CO2 to bolster investment, reports Energy Efficiency News. Currently, carbon prices hover around €15 ($20) per ton, according to the article.

It could also include financial incentives for companies within the EU ETS to cancel allowances they own voluntarily, reports Business Week.

The committee is pushing the EU to adopt an European target that more closely reflects the climate change science, and to adopt a tighter cap for the EU ETS. The agency also recommends improving how the EU responds to recession driven reductions in demand and regularly reviewing whether the cap needs to be tightened.

Other recommendations include auctioning as many allowances as possible instead of giving them away for free as well as encouraging other European countries to increase the use of allowance auctions with reserve prices, to use more low-carbon power generation and to provide tighter regulation on high-carbon power.

A number of financial market players criticized the idea of market intervention, stating it goes against the nature of a cap-and-trade system, reports Carbon Positive.

However, European investors have been calling for changes in the carbon market to reduce GHG emissions and to drive investment in low-carbon solutions as early as last May.

The European Commission opposes intervention in the carbon market and believes prices should reflect supply and demand, reports Business Week.

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One thought on “As UK Cap and Trade Falters, Government May Prop Up Carbon Prices

  1. Does anyone know if we can short these deals? If so I plan to short the Sheeeeettt of the carbon market. This boondoggle just gave a death rattle from the sounds of this article. Bwhahahahahaha smoke that UN.

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