Isramart : UK should press EU for tighter carbon caps

Isramart news:
LONDON (Reuters) - Prices for European carbon emissions permits are too low to deliver low-carbon investment and the British government should press the EU to tighten limits on emissions, a UK Parliamentary committee said on Monday.

The European Union's Emissions Trading Scheme (EU ETS) is the 27-nation bloc's main weapon against climate change. It forces companies to buy permits for each tonne of carbon they emit. Carbon output is capped and the level is lowered year by year.

As industrial output slowed in the recession, many companies had more carbon permits than they needed to cover their lower emissions. Many sold the surplus permits to raise cash, cutting the price more than half to under 15 euros a tonne.

Experts say carbon permits called EU Allowances (EUAs) need to rise to around 100 euros a tonne in 2020 to drive low-carbon investment. Analysts forecast prices to be some 30 euros by then.

"At the moment the price of carbon simply isn't high enough to make it work. If the Government wants to kick-start serious green investment, it must step in to stop the price of carbon flat-lining," said Tim Yeo, chairman of the Environmental Audit Committee (EAC).

The government should press the EU to significantly tighten the scheme's emissions caps, cancel new entrant reserve allowances and auction as many EUAs as possible instead of giving them to heavy polluters like utilities for free, the EAC said.

The EU ETS allows member states to set aside a national pool of spare EUAs called New Entrant Reserves for new or expanding industrial firms. Unused quotas from firms that close down are added to the pool.

Deutsche Bank estimates the total number of reserves in the EU will be over 300 million by 2012. Cancelling them, rather than auctioning or giving them away, would avoid too many permits flooding the market, the committee said.