Government calls for EU carbon market reforms to improve energy efficiency

Government calls for EU carbon market reforms to improve energy efficiency

Government calls for EU carbon market reforms to improve energy efficiency

Stronger reforms to the Emissions Trading System (ETS) made by the European Union (EU) could help the scheme to work more efficiently, in addition to serving to stimulate investment in low-carbon technologies.

This is according to the Department of Energy & Climate Change (DECC), which reiterated its position that a Market Stability Reserve (MSR) will help the continent meet its greenhouse gas emission reduction obligations.

It was specified that such action could facilitate the achievement of targets more cost effectively through the EU ETS.

Government policy currently stipulates that the country's greenhouse gas emissions are to be cut by at least 80 per cent from the baseline established in 1990 - and this is to be done by 2050.

The 2008 Climate Change Act outlined this target - and it represented the first legally binding climate change target to be made in the world.

"A strong EU ETS can be a symbol to the rest of the world - but that is not what we have now," energy and climate change secretary Ed Davey commented.

"Europe has the opportunity to show the world how we can cut emissions while creating investment, jobs and growth - but only if we reform the system and reform it fast," the minister continued, adding: "Otherwise we're facing increasing costs for businesses, uncertainty for investment and ultimately higher costs for consumers, which isn't acceptable."

In a statement released yesterday (October 20th), DECC raised concerns regarding the surplus in the EU ETS of around two billion allowances, which the government argues has been brought about as a result of an insufficiently ambitious cap and the wider economic recession. It was suggested that these factors have all combined to undermine the function of the market.

Low carbon investors have therefore not been getting positive signals that investment would be a positive move, meaning the overall costs associated with meeting future carbon reduction obligations are being increased for the government.

With these considerations in mind, DECC called for the current MSR to be brought forward to 2017. It is hoped this will make it possible for the ETS to be reformed sooner, which in turn could help to drive the low carbon investment needed to reach the 2050 targets.

MSR is expected to address the concerns raised above by creating an allowance reserve that will increase or reduce the supply of allowances in the system in line with variations in levels of demand.

This means that the market could operate more effectively as external circumstances continuously change.

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Posted by Julie Tucker