Major Changes the UK plans to make to the EU’s ETS policies

Since 2005, the UK has been using the EU’s ETS as a key tool to help deliver its statutory
emissions reduction target – reduction of 80% by 2050. The UK’s emissions are down by
24% compared to 1990 levels.

EU ETS (Emission Trading System) gives companies from heavy industries and the power
sector flexibility to decide whether to invest in carbon abatement or to purchase
emission allowances to comply. But the market currently has a surplus of over 2 billion
allowances, meaning it is not stimulating the low-carbon investment needed now to
meet long-term targets.

The key reforms the UK is calling for are:

 Cancellation of surplus allowances before 2020 to help restore the balance

between supply and demand, and put the system back on track once and for all. If not
tackled, the surplus will continue to depress the carbon price, delaying the low-
carbon investment that is needed now to meet our emissions reduction targets cost-
effectively. The UK Government is considering the potential of the Market Stability
Reserve to address this problem, a mechanism proposed by the European
Commission in January.