CBI questions MPs' call for minimum carbon price

The Confederation of British Industry (CBI) has questioned a call by a UK parliamentary committee for the introduction of a floor on the price of carbon, arguing that a range of government policies, including subsidies for renewable energy generation and funding for development of carbon capture and storage are already supporting investment in low carbon technologies.

In a report published today, the House of Commons Environmental Audit Committee (EAC) concludes that the EU emissions trading scheme (EUETS) is "failing to deliver green investment" because carbon allowance prices are too low yhanks to a combination of economic recession hitting industrial output, an overly-generous emissions cap and the issuing of too many free carbon allowances. The EAC argues that the price of allowances should be raised from current levels of around €15/tonne of CO2 to around €100/tonne through the introduction of a carbon tax and tightening the overall cap.

The committee is also worried that the use of offsets and the banking of surplus credits from the scheme second phase (2008-12) could continue to undermine prices during its third phase.

"The recession has left many big firms with more carbon allowances than they need and carbon prices have collapsed," said committee chairman Tim Yeo. "If the government wants to kick-start serious green investment, it must now step in to stop the price of carbon flat-lining."

CBI deputy director John Cridland said he "agreed with the committee that there is uncertainty about whether the EUETS will be sufficient to encourage future investment in technologies like nuclear". However, he added that "there is a debate to be had about whether a floor price is the right response. It should be remembered that many low carbon technologies, such as renewables and clean coal, have their own support schemes, with a higher carbon price that encourages new technologies to be brought to market."

“The reason the carbon price is currently lower than expected is because the market believes the recession will make the EU’s targets easier to meet," said Cridland. "The committee is right to raise the option of reducing the ETS cap, but in practice this will depend on whether the EU decides to increase its 2020 targets which, in turn, will depend on international negotiations.”

• CBI news release
• Environmental Audit Committee news release
• report