An organisation that is above political interference is needed to restore the credibility of the EU's climate policy, according to a new report published recently by UK-based think tank IPPR.
With a structure and powers based on the Bank of England's Monetary Policy Committee, the Carbon Market Policy Committee (CMPC) would be given the power to set the number of carbon allowances in order to impact the carbon price and encourage low carbon investment at the lowest possible cost. It would have the power to restore the proper functioning of the ETS market following an economic shock. It would be allowed to remove the quantity of allowances in the ETS and determine when intervention was necessary. EU member states would be able to monitor the CMPC and set its goals, but the methods used by the committee would be independent of political control.
London is now home to 93.5 per cent of the market in carbon exchanges, making it the carbon trading capital of the world. Total annual volumes of emissions contracts have increased every year with volumes in 2012 nearly 100 times the level in 2005. Britain is second only to China in the volume of annually issued climate-themed bonds.
But in recent years ten carbon trading desks in the City have closed or been scaled down as a result of problems with the ETS, which has struggled due to a collapse in the carbon price following the global financial crisis. New opportunities are increasingly being exploited by other financial centres including Sydney and Singapore as countries around the world, including the US and China, develop their own carbon trading systems.
Will Straw, associate director for Climate Change, Energy and Transport at IPPR, commented:
"The Emissions Trading Scheme is faltering to the detriment of the EU's global reputation for tackling climate change and in recent years the City of London's status as the world's primary centre of carbon trading and finance has been undermined. We urgently need to restore the Emissions Trading Scheme's credibility and subsequently the EU's momentum on climate change. A new Carbon Market Policy Committee modelled on the 'goal dependence, instrument-independence' of the Monetary Policy Commission is what's needed. Clearly defined goals to reduce emissions as cheaply as possible can be pursued through a more flexible approach to the supply of allowances in the ETS.
"If an EU-wide carbon price floor or reserve price became politically feasible in the future, the rules of the Carbon Market Policy Committee could be amended without the need to create a new institution."
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