EUETS needs single carbon cap, say MPs

The EU emissions trading scheme should have a single EU-wide cap linked to long-term EU targets for absolute cuts in emissions, says the House of Commons Environmental Audit Committee

In a report issued last week the committee says the use of national carbon emission caps based on emissions projections failed to cut emissions during the first phase of the EU emissions trading scheme.

The committee also called for an end to the free allocation of emissions allowances and the introduction of full auctioning.

At the very least, it says, sectors like power generation and aviation which are sheltered from international competition, should receive 100% of their allowances through auctioning from 2012.

Other sectors should be subject to a “significant” level of auctioning, which should rise in later phases.

Revenue from auctioning should fund tax cuts for low carbon technologies and, in the case of aviation, subsidise rail alternatives.

The report says auctioning would prevent the airlines and power generators from making windfall profits by passing on the costs of free allowances to their customers.

In the meantime, the government should impose a windfall tax on power companies that fail to invest this extra revenue in low carbon generation.

Meanwhile, a coalition of NGOs and business groups joined with government on Tuesday to present a “manifesto” for the future of the scheme.

They urged the European Commission, member states and industry to act to secure the future of the carbon market by setting out clear and demanding targets “at least” up to 2030.

The signatories want the Commission to guarantee that emissions reductions credits from the Kyoto Protocol’s flexible mechanisms will continue to be recognised after 2012. They also want clarity about the balance of effort expected from domestic and global action.

All businesses, says the coalition, should be exposed to the full cost of carbon and be encouraged to reduce emissions.

Linking the EUETS with other schemes must be managed carefully and based on comparable rules, emissions reduction targets and robust monitoring and verification.