Environmental Audit Committee

22 October 2007


Presentation of emissions trading must be more transparent

In February 2007 the Environmental Audit Committee published a major report on the EU Emissions Trading Scheme (EU ETS). In a report out today, the Committee publishes the Government's response to its earlier recommendations - and also takes the relatively unusual step of publishing its own commentary on this Government response. The reason for this is an ongoing concern to ensure that the results of emissions trading are accurately reported to the public.

The Chairman of EAC, Tim Yeo MP, said: "Emissions trading can be very valuable, enabling emissions cuts to be made in the most economically efficient manner, irrespective of location. While the price of carbon collapsed in Phase I of the EU ETS, this should not be viewed as discrediting the concept of emissions trading - and Phase II already looks set to make significant improvements.

"But the Government should be more open about the problems of Phase I, and the uncertainties and complexities of emissions trading in general. The increased accountability this would result in would help to strengthen the foundations of emissions trading. Conversely, a lack of transparency could undermine both the effectiveness of emissions trading and public and financial confidence in it.

"It is especially important to get the transparency of reporting right at this stage given the Government's plans, under the forthcoming Climate Change Bill, to make extensive use of international emissions trading within a national carbon budgeting system."

In its report the Committee found that:

€ Unless the results of emissions trading are clearly reported there is a risk that the complexities of such transactions might obscure whether they are, in fact, reducing the full amount of emissions they ostensibly represent.

€ Buying emissions credits from other countries does not necessarily translate into cutting emissions, at home or abroad; the value of carbon credits - i.e., whether one carbon credit really does represent one tonne of carbon dioxide - is only as real as the trading schemes which issue them are effective.

€ Purchasing carbon credits from abroad should be clearly differentiated from making emissions cuts within the UK. But the Government is not always making these distinctions truly explicit. The Committee was particularly concerned by the 2007 Budget Report, which depicted UK emissions in a way which it had previously recommended should never be done.

Copies of the report will be available in hard copy from 11am on 22 October; and can be obtained from TSO outlets and from the Parliamentary Bookshop, 12 Bridge Street, Parliament Square, London SW1A 2JX (020 7219 3890) by quoting House of Commons No 1072. The text of the Report will also be available from approximately 3.30pm onwards on its publication date, on the Committee's Internet homepage: www.parliament.uk/eacom

Notes for Editors

For further information on the report, or to bid to interview the Chairman, journalists may phone the Committee's press officer, Laura Kibby, on 020 7219 0718.

The report published today by the Environmental Audit Committee (EAC) is its Eighth Report of Session 2006-07, Emissions Trading: Government Response to the Committee's Second Report of Session 2006-07 on the EU ETS, HC 1072. Details of all the Committee's press releases together with its Reports, oral evidence and other publications, are available on the Committee's website at: www.parliament.uk/eacom

The previous report by EAC (The EU Emissions Trading Scheme: Lessons for the future, EAC's Second Report of Session 2006-07, HC 70) had found that:

€ The extent to which the EU ETS can be judged a success depends on two things: the extent to which emissions are reduced, and the extent to which it provides a stable and effective carbon price. To date, the EU ETS has had very questionable effects on both measures.

€ Most of the National Allocation Plans originally proposed for Phase II were seriously inadequate - suggesting a worrying lack of understanding of the dangers of climate change, and of the need to tackle it, across Europe.

€ The European Commission's amendment of these national caps is encouraging - not just in terms of making it more likely that the EU ETS will begin to drive real carbon abatement in its Second Phase, but in terms of increasing confidence in the entire viability of emissions trading worldwide.

€ One disappointing aspect of Phase II is the small limit on allowances which can be auctioned, rather than given to firms for free. Auctioning allowances should lead to more accurate allocations, reduced bureaucracy, and greater internalisation of environmental costs in business decisions. The limit on auctioning must be increased in Phase III.

€ The UK was the only country (in the initial batch of 10 to submit their plans) which had its Second Phase national cap accepted as proposed and not revised downwards.The Government should be commended for its leading contribution to the success of Phase II.