Press Story

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 today by think tank IPPR.

Based on the Bank of England's Monetary Policy Committee (MPC), 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.

The CMPC 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 annual issuance of 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. The UK must act now to influence the reform of the ETS in Europe and secure the position of the City as the centre of climate finance.

Will Straw, Associate Director at IPPR, said:

"The Emissions Trading Scheme is faltering to the detriment of the EU's global reputation for tackling climate change and to the City's standing as the capital of carbon trading.

"In recent years the City of London's status as the world's primary centre of carbon trading and finance has been undermined. Carbon trading desks at 10 key financial institutions including household names Barclays and JP Morgan have closed or been scaled back. This is the worst possible timing as more and more countries are developing their own market-based systems for tackling carbon emissions.

"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."

Notes to Editors

In recent years:
o Barclays sold its carbon trading business to Tricona, a Swedish carbon trading company.
o Deutsche Bank closed its global carbon trading operations.
o EcoSecurities laid off 85 per cent of its staff, many of whom were UK-based.
o JP Morgan scaled back its environmental markets team.
o Morgan Stanley closed its full-time carbon desk, now covered only part-time.
o Sindacatum closed its London operations aside from one lawyer; moved everyone else to Singapore.
o UBS closed its climate change advisory practice.

IPPR's new report 'Up in smoke: How the EU's faltering climate policy is undermining the City of London' will be available here from Friday: http://bit.ly/IPPR11509

IPPR's report 'Europe's next economy: The benefits of and barriers to the low-carbon transition' is available here: http://bit.ly/1cEuyAD