Draft Recognised Auction Platforms (Amendment and Miscellaneous Provisions) Regulations 2021 Draft Greenhouse Gas Emissions Trading Scheme Auctioning Regulations 2021

Abena Oppong-Asare Excerpts

Wednesday 14th April 2021 General Committees

[Abena Oppong-Asare (Erith and Thamesmead) (Lab)]

It is a pleasure to serve under your chairmanship, Mrs Murray. I thank the Minister for providing an overview of the regulations. As she has said, the regulations take further steps to establish a UK ETS by setting out more detail on how the auctions will operate. The second set of regulations amend financial services legislation to allow the functioning of the new UK ETS and to continue the Financial Conduct Authority’s role in regulating aspects of it.

We do not oppose the regulations, but I wish to make a couple of points and ask the Minister some questions. There has been a long-running debate, not least among the Government themselves, about what should replace the EU ETS as the UK left the EU. Until relatively recently, the Government were considering three options: a stand-alone UK ETS, a linked scheme or a carbon tax. The uncertainty about carbon pricing left many UK businesses in a state of confusion last year. It is welcoming that some clarity is now being given by the Government, but it is far from ideal that they are bringing forward this detail after the UK ETS has already been in existence for over three months. Once again, businesses have been left in the lurch. I am afraid that this sort of last-minute policy making, which does not recognise the long lead-in times that businesses need to operate, is typical of the Government.

We welcome the Government’s decision to stick with the cap-and-trade principles rather than pursue a carbon tax, and we support the creation of a UK ETS. However, we believe it is critical that the UK ETS is linked with the EU ETS. I am sure the Minister agrees that the only way to address climate change is to do so in partnership with countries around the world, and that we need an international approach to reducing carbon emissions. I hope that the Government will not let political or ideological aversion to working with the EU get in the way of doing what is best for the environment.

The Government’s energy White Paper, published last December, said:

“The UK is also open to linking the UK ETS internationally in principle and we are considering a range of options, but no decision on our preferred linking partners has yet been made.”

Can the Minister update us on whether negotiations have started with the EU on this issue? Can she tell us whether the Government are considering linking with other schemes around the world? If so, which ones? We really need some clarity on this vital issue.

I turn now to some specific points about the regulations, which set the auction reserve price at £22 per tonne of carbon. That is an increase from the Government’s previous proposal, but the Minister will know that the EU ETS price has increased considerably in recent months and is currently around £44. Do the Government intend to make any further changes to ARP in the light of this? The auction reserve price must be set at a level that creates a robust market and ultimately drives down emissions.

There is also an issue of market volatility, which has the potential to be especially problematic, given the smaller size of the UK ETS versus the EU ETS. A report by the Climate Change Committee said that

“a standalone UK ETS faces potentially significant challenges in achieving market stability and liquidity.”

Clearly, linking with the EU ETS would mitigate the risk, as would expanding the range of sectors covered by the ETS. It has recently been reported that the Government are considering extending ETS to the agriculture sector. Can the Minister update us on the Government’s thinking on this issue, and can she set out what steps the Government will take to ensure the market functions correctly?

A well-functioning and ambitious emissions trading system will clearly be a critical tool in our path to net zero. It is extremely important that the Government get that detail of the system right, and I hope the Minister can provide some reassurances on this today.