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UK carbon floor-EU ETS spread risks leakage - MP

13 Feb 2013 19:43:26 | edcm

The lack of a set spread between the EU emissions trading system (ETS) price and the UK's looming carbon price support mechanism will increase the risk of carbon leakage should the two figures diverge too far, according to a top politician.

"There's a difference between a unilateral stance that relates to the ETS and one that diverts from it," UK member of parliament (MP) Alan Whitehead, who deals with energy policy through a parliamentary committee role, told ICIS earlier this week. "That's the problem we have over the coming period."

The carbon price floor in the UK will top-up the amount that the power generation sector has to pay per tonne of CO2 emitted to a set figure. But the model has come in for some criticism. "It's a lumpy tax, not really a floor in relation to the ETS price," Whitehead said. "So you've got the ETS price plus a [variable] lump on top. If the ETS wobbles, the floor goes up as the ETS goes down. That's not a floor, that's a carbon tax."

Whitehead said that if market participants see the ETS continuing at historically low levels, but the carbon floor increasing year on year as has already been set out by the UK Treasury "leakage becomes much more centre stage". Carbon leakage is the act of business relocating overseas to avoid a carbon tax.

Britain backing back-loading

The UK secretary of state for energy and climate change Ed Davey said he is meeting with "liked-minded colleagues" next week from Denmark, Sweden and Finland to try and drum up more definite support for the back-loading proposal. He also mentioned talks with German and French minsters about the issue.

Davey added that while Britain has sought more ambitious proposals beyond just back-loading, he does not think a qualified majority exists to pass back-loading in the European Council at the moment. "I'll strain at every sinew this year to try and get an ambitious conclusion," he added.

The EU parliament's environment committee is due to vote on back-loading on 19 February. Jamie Stewart/Fionn O'Raghallaigh

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