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.
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.