Global emissions trading system key to cutting emissions, says report

The development of a global carbon market is “crucial” to keeping greenhouse gas emissions at a safe level, the Energy and Climate Change Committee has warned ahead of the Paris climate talks set for the end of the year

In a report the Committee advised that an agreement reached at the UNFCCC COP 21 in Paris in December must ensure that disparate regional, national and sub-national emissions trading systems are compatible with each other in the future.

Committee chair Tim Yeo stressed that putting a price on carbon is “absolutely essential” in curbing climate-changing greenhouse gas emissions in an “economically efficient” way.

“But,” he said, “Using taxes to set a carbon price does not guarantee any particular level of emissions reduction because the emitters may simply pay the tax and carry on polluting.

“Emissions trading allows us to set a cap on emissions and enables participating businesses to identify the most cost effective ways of reducing their emissions. Letting the market determine the price of carbon in this way is likely to be far more effective and politically palatable than carbon taxes.

“The world’s largest economies, China, the US and the EU, are already embraced emissions trading, so there are reasons to be hopeful about the prospects of progress in this area.”

The EU Emissions Trading System (EU ETS) is the longest-running and largest market in the world, covering 11,000 power stations and industrial plants in 31 countries.

Emissions trading works by selling permits to emitters for every unit of emissions they release, with the total number available set by governments or supra-national bodies.

Companies weigh the cost of implementing emission reduction measures against the cost of buying permits. They choose whether to cut their emissions or buy surplus permits from other firms.