Edward Davey's speech to the Global Carbon Market Conference on Carbon Pricing, 11 April 2013.
It’s a great pleasure to be here today.
As my colleagues have done, I want to share some of the perspective gained from my country’s experience of carbon pricing.
But I want to start by expressing unequivocal support for Carbon Trading as a tool for tackling climate change.
And I want to express my unequivocal support for acting collectively, through the EU, through the United Nations, through international law, to do this.
This is the best way to face the threat of climate change.
But I also want to make clear, that collective action, required though it may be in the final analysis, is no excuse for inaction.
It is no excuse for delaying taking the steps required in our individual societies to change behaviour, to treat carbon differently, to design out damaging emissions.
TRADING OUR WAY TO EMISSIONS REDUCTIONS
We have to act.
We face a problem of enormous magnitude.
We know that climate change represents a systemic threat to national and global security and prosperity.
It poses a huge risk to the long-term economic growth of economies around the world.
It is by far and away the biggest international challenge of our generation.
The post-Cold War generation.
We are the generation that is experiencing the unsettling early effects of man-made climate change.
We are the generation for whom globalisation is a matter of fact – so we recognise the requirement to work together to get things done – particularly here in Europe.
And we are a generation that understands the power of markets, markets that properly harnessed, can be a tool for the greater good.
All this is crucial.
Yes – we, as Governments, have to help people change the way they behave – using less energy, conserving more – and there is some compulsion involved in this.
Regulating to reduce the environmental impact of electrical goods for instance – as the EU has done through the Energy Using Products Framework.
We can use regulation in some instances.
But the best way to tackle climate change is to develop mechanisms that go with the grain of human behaviour – not against it.
That is why harnessing the market – harnessing competition – to help change behaviour - in alliance with the co-operative effect of international diplomacy and underpinned by the coercion of international law – is the best way to tackle climate change.
Emissions trading is a powerful tool for using the market, working with the grain of human behaviour, to reduce greenhouse gas emissions in the most cost effective way.
Putting a cap on carbon not only guarantees the level of reductions but enables countries and businesses to deliver those reductions in the most economically efficient way for them.
It also drives investment in low-carbon technology – creating new economic opportunities – and driving scientific solutions.
It can be the engine for the green growth we know is possible and we know is essential.
The more global the carbon market becomes, the lower the cost and the greater the benefits.
Trading our way to emissions reductions.
Trading our way to tackling climate change.
THE EUROPEAN EXPERIENCE
In the UK we have learnt much from our domestic experiences of carbon pricing.
We now have a decade of experience through initiatives such as our Climate Change Levy, The Carbon Reduction Commitment Energy Efficiency Scheme and, of course, the UK Emission Trading Scheme of 2002 which helped shape the EU ETS that we have in operation today.
I am proud of the role the UK played in developing the EU ETS.
The EU ETS has been a significant success – let’s be clear about that.
It has pioneered the large scale use of cap and trade across national boundaries covering 11,000 installations in 31 countries and remains the world’s largest emissions trading system;
And because of the success of EU policies, including the EU ETS, the EU is overachieving on its Kyoto target for 2012 and is on track to meet its 20% commitment by 2020.
Of course it’s far from perfect.
Not surprising because we are developing the system.
Supply of allowances massively outstrips demand in the system and it is certainly not proofed against the extraordinary economic conditions we face today.
That is why need reform.
We can reform the system but we need the political will to do so.
But for the UK the EU ETS has been and will remain our primary tool to reduce industrial greenhouse gas emissions.
So what can we learn from the European experience.
First, it is important to set ambitious long term targets to provide a strong and long term price signal to industry to incentivise low carbon investment.
Second, we have to achieve the right balance between free allocation and auctioning - avoiding windfall profits, but also maintaining industrial competitiveness and avoiding carbon leakage - pushing industries to operate outside the system – essentially exporting emissions.
Third, we need to find a way to ensure the system is future proof and resilient enough to deal with the kind of financial and economic shocks the world can throw at it.
So what does this experience suggest for carbon trading both inside Europe and outside?
Let me start with the EU.
First, the ambition to 2020 is not enough.
We need to move to a 30% EU target to restore demand.
I know from discussions with partners that this isn’t going to be easy.
But I do think it is very important so I really hope we can make progress.
Second, we need structural reform of the EU ETS to strengthen the carbon price and ensure we are on the most cost effective path to a low carbon Europe.
Structural reform, again, is not easy.
The appetite for reform is not immediately there but, interestingly, businesses who you would think would be against are listening and we have to win the argument on this.
Third, in the short-term, the UK supports the European Commission’s backloading proposals as a first step towards that longer-term structural reform.
The UK strongly supports this as a first step.
The upcoming vote is very significant.
We must send the right signals.
My message for Members of the European Parliament is that voting for the proposals is a vote for green growth and economic growth.
Finally, it is really important that we in Europe develop a robust, ambitious and cost effective policy framework for 2030 to ensure that our businesses have the certainty they need to invest in our low carbon future.
We’ve just started the debate and seen the Green Paper from the EU.
I am particularly passionate about negotiating a 2030 greenhouse gas target.
It is very important to focus talks on what we do agree on, especially at the United Nations Conference of Parties in Warsaw in November.
The EU has to have a strong position to lead.
The United States, South Korea, and China are moving on this.
The Wu has to be in a strong position to help.
This is vital for climate change in general but also for global talks.
In that context, the UK has supported the Commissions 2050 Low Carbon Roadmap including the domestic milestones of -40% in 2030 and -60% in 2040.
GLOBAL CARBON TRADING
Looking beyond Europe, again there has been much success.
Today there are around 50 countries engaged in existing or developing emissions trading schemes.
And there are 16 countries participating in the World Bank Partnership for Market Readiness which both the UK and Germany support both financially and through sharing technical assistance.
These developments could be a game changer in helping to tackle climate change.
The Clean Development Mechanism has also been a core component of the global carbon market, but it needs to reform to remain at the heart of emissions reduction policy.
We need to find ways to scale up the market mechanisms, perhaps to include whole sectors of economies in developing countries.
So there is lots of good work being done – but let nobody underestimate the scale of what we have still to achieve.
We have a lot of work to do to avoid ‘catastrophic’ impacts of climate change.
We now have three critical years leading to the end of 2015 to get the international politics aligned.
To bring into agreement those representing the huge mega economies of Europe, America, China, Russia, India, Brazil, Japan;
Those representing developing countries;
Those representing the most threatened by climate change;
And those who believe, quite wrongly, they are cushioned from the impact of climate change.
Politicians have to show leadership and make balanced choices.
Meeting their responsibility to look after the interests of those they directly represent, while trying to work for the greater good.
The result is rarely clean and neat.
Politics doesn’t come in nice packages sometimes
But it is much easier to come to a reasonable and altruistic position if the technological challenge is in hand and the results are beginning to show.
And if we can demonstrate that going green boosts growth and development, not holds it back.
I’ve been working with a number of Environment Minister in a Green Growth Group to make sure that those of us that recognise the importance of this work together.
I the UK we are reforming our electricity market to ensure that we get the investment we need and transformation we need.
It is this that gives me hope that we will achieve what we need to.
In this context, being able to point to properly functioning carbon markets will make it an awful lot easier to reach the agreement we need.
As we all begin to consider what a 2015 global climate change agreement might look like, everyone in this room, whether in the public, private or third sector has a part to play in leading the charge to deliver a truly global carbon market that meets the scale of the challenge before us.
Much remains to be done and we do not pretend to have all the answers, but we know the global carbon market will be one of them.
We, in the UK, look forward to working with you all on the road to 2015.