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<p>The EU Emissions Trading System (EU ETS) is functioning effectively. However, reform
is needed to tackle the surplus of two billion allowances that weakens the incentive
to adopt carbon-reducing measures. This risks increasing the long-term cost of meeting
the UK’s climate change targets. The Government supports reform through the European
Commission’s proposal for a Market Stability Reserve, strengthened by introducing
it before 2017 and placing a large portion of the surplus allowances directly in to
it.</p><p>Outside the EU, carbon pricing mechanisms are spreading globally as countries
recognise their usefulness as tools to modernise economies and tackle emissions. In
2014, about 40 national and over 20 sub-national jurisdictions had implemented or
scheduled emissions trading schemes or carbon taxes. Where appropriate, HMG supports
the development of these mechanisms through the international negotiations, our bilateral
project work and through projects funded by the International Climate Fund.</p>
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