Today, an important vote is taking place in the European Parliament. The British Government has asked all British MEPs to vote for a more competitive EU by supporting a higher price on carbon emissions.
A well-functioning market, where it is more expensive to produce carbon emissions is crucial for green growth, and for the UK, Sweden, and all other EU member states. The EU’s Trading Emissions scheme helps drive European innovation and competitiveness by incentivising the green economy with its green technologies and low-carbon investments.
Globally, in 2010-11, the green economy (low carbon and environmental goods and services) was valued at around £3.3 trillion, having grown by 3.7% from the previous year despite the economic slowdown. The global market is projected to continue to grow by around 4% over the next four years. A green economy is needed to create new jobs and reach new export markets. China’s Five Year Plan 2011-15 that invests $1.5 trillion (5% of GDP) in strategic new green industries clearly signals the green economy is the way of the future.
Europe needs to be able to compete with countries such as China, in this sector. A higher price for emissions would make this easier. It would benefit Europe – especially Sweden, who has a leading position in green technologies.
We also need a strong price signal that prevents us from being able to lock into a system based on old-fashioned fossil fuels.
Unfortunately, there is now a surplus in the market which has resulted in a very low price on emissions, reducing the incentive to innovate.
The European Commission has therefore suggested a temporary reduction in the number of emission allowances, with them being placed back into the system at a later date. By back-loading these emissions allowances, fewer will be available in the short-term, thereby driving up the price.
Although the UK generally agrees that market interference should be kept to a minimum, the current low price and market volatility put the smooth functioning and liquidity of the market at risk. The proposed one-off intervention would help to restore confidence in the market, before longer-term reforms to strengthen the system can be brought in.
Failure to agree back-loading will mean that the EU carbon price is likely to remain consistently low in the medium-term, potentially impacting market investors’ confidence and ability to invest in future low carbon technologies. An agreement now would minimise uncertainty and distortions, and promote investment. That’s why the British Government is encouraging MEPs from all countries and parties to support it.
