04 October 2007
Speech by the Economic Secretary to the Treasury, Kitty Ussher MP, ICAEW 'Making carbon markets work' event
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Introduction
1. It’s a pleasure to open this morning’s meeting. Thank you, Michael, for that introduction, thank you to the ICAEW for organising the event, and for hosting us here in Chartered Accountants Hall, and of course thank you all for being here.
2. I want to start today by saying that I believe carbon trading can play a very significant part, and in fact needs to play a very significant part, in the way that we tackle climate change, both here in Britain and worldwide.
3. I’ll say a bit more about that in a second – but the point of today is that for carbon trading to play that part, and for it to help us tackle climate change, it has to be credible.
4. And for it to be credible, we have to make it effective and accountable – that’s what you’re all here to talk about today, and that’s why today’s meeting is so important – and I’m very grateful to you for sharing your views and expertise.
Climate change
5. So today’s event is about how we can make carbon trading effective and accountable, so that we can make it work. And I think we have to start by realising how important it is that carbon trading does work.
6. I won’t give you the statistics today about how much damage climate change could do if it isn’t mitigated – how many towns and cities could be destroyed, and how many people could be displaced or killed.
7. I’m sure you’re all aware of them – and I’m sure you’re also aware that Nick Stern made clear a year ago that unmitigated climate change would bring real economic costs, as well as those human and social costs. You know the importance of doing something about it.
8. Well, fortunately, Nick’s report wasn’t all doom and gloom. He didn’t just highlight the dangers of climate change, he also suggested some ways of avoiding them, or at least reducing the damage.
9. The message was that we can do something about it, if we act quickly to reduce carbon emissions – and that if we can do that in the most efficient way, this doesn’t have to be at the cost of development and economic growth.
Carbon pricing
10. Nick’s analysis was that to do that, we need to give carbon a global price, so that we can correct what he described as the greatest market failure the world has ever seen.
11. By giving carbon a price, we can make individuals and businesses factor the real cost of the damage their carbon emissions cause into their decisions – we can internalise the externality, to use the economists’ jargon.
12. Now, I am an economist, so I find the simple, market-based concept of putting a price on carbon attractive. It makes people notice, and think about the emissions they’re causing – and it means that emissions can be reduced where it’s most efficient.
13. So, like the rest of the Government, I think that carbon-pricing will be a very important way of tackling climate change.
14. Of course, there are lots of possible ways of creating that price – we’ve increased a number of green taxes, for example. But we believe that a very important way of doing this is the trading of carbon emissions.
Carbon trading
15. So, the Government has been strongly supporting the EU Emissions Trading Scheme. We want it to be strengthened in the future, with limits that tighten over time to create scarcity, and we want it to be expanded – to cover more sectors and more gases, and also to link, eventually, with schemes in other countries.
16. We know that carbon pricing can only be fully effective if we can create a global price – which means a global carbon market.
17. So I hope that the European system can be linked with others, as a step towards a global system. And we’re working with California and other American states to try to ensure that trading systems are compatible as they are developed, so that it will be possible to trade between them.
Carbon trading as an opportunity
18. Of course, all of this is really challenging. Climate change is one of the biggest challenges that we face, globally, over the coming decades – and establishing a carbon trading market won’t be easy.
19. But I do also want to talk about the opportunities that are being created – and here in the heart of the City, it seems appropriate to start with the new market that’s being created in financial services.
20. Already, the global carbon trading market is worth $30 billion a year – and we expect it to increase significantly in future. This is a new market, and a new opportunity for the UK, and for London in particular.
21. With our prominent role in international discussions on how to tackle climate change, our experience of policy solutions like trading, and our well developed financial services system, we’re well placed to make the most of it – and London is already the world’s leading financial centre for emissions trading.
22. Making sure that it maintains that position as the market grows will be one of my priorities over the years to come.
23. There are other environmental opportunities too. Establishing a global carbon price, and making businesses and individuals pay the real cost of their emissions, will lead to more investment in clean technology and in energy efficiency.
24. Already the annual turnover of the environmental goods and services sector is more than £25 billion in the UK. By 2015 we expect that to roughly double, creating at least 100,000 jobs.
25. So there are some real opportunities for a green economy and a growing economy – and carbon trading can be at the heart of that.
Conclusion
26. I started by saying that it’s important we recognise how much we’re expecting carbon trading to achieve – and I think you can see what I mean by now: not just tackling climate change, and being at the centre of a whole new area of economic growth.
27. That’s why it’s so important that we get the system to work – and that we make it credible. And that’s why today’s event is so important.
28. I hope that it will provide an opportunity to discuss the issues of how companies are accounting for and reporting their carbon permits, and their carbon emissions – issues that are becoming increasingly important.
29. It’s a chance to talk about how the Government and business are dealing with the assurance of emitted carbon and traded permits, for example, and how carbon permits should be valued in company accounts. These are important issues to tackle if we’re to make carbon reporting credible.
30. And today’s event will also inform the work we’re doing with our international partners on the next steps we need to take on carbon trading.
31. So once again, thank you very much for being here. It’s been a pleasure to speak to you this morning – and I look forward to hearing the results of your discussion.
32. Thank you.