The House of Commons Energy and Climate Change Committee, chaired by Tim Yeo MP, has launched a new inquiry into the EU Emissions Trading System (EU ETS).

The EU ETS is the principal policy instrument for climate change mitigation in the EU. The inquiry will investigate whether the system can deliver the EU’s climate change mitigation goals in the absence of a legally-binding international emissions reduction commitment after the Kyoto Protocol ends in 2012.

The scheme is closely linked to the international climate change mitigation regime. Through the Linking Directive, the EU ETS accepts offsets from the flexible mechanisms of the Kyoto Protocol. The EU market has provided the core of international demand in these schemes. More broadly, the EU ETS has provided a model for the consideration of cap-and-trade schemes around the world.

The scheme was intended to form the core of a global carbon market, but is looking increasingly isolated after the failure to achieve binding emissions reduction commitments under the United Nations Framework Convention on Climate Change (UN FCCC) for the period after 2012, when the first commitment period of the Kyoto Protocol comes to an end.

There is concern that the lack of an international framework for emissions reductions and carbon trading poses some serious difficulties for the future viability of the EU ETS, particularly associated with carbon leakage, comparability of effort and access to other viable emissions trading schemes.

The Committee said it would particularly welcome evidence addressing some or all of the following questions:

• Does the EU ETS remain a viable instrument for climate change mitigation in the EU?
• Can the EU ETS operate effectively in a world without legally-binding emissions reduction commitments and other cap-and-trade schemes?
• What reduction in emissions will the EU ETS deliver in Phase III, within the EU and abroad?
• Could the environmental and economic efficiency of the EU ETS be improved by linking with other emissions trading schemes and how can this be achieved?
• What actions should the UK and the EU be taking to promote the development of compatible ETSs internationally?
• Could sectoral agreements form part of the future of the EU ETS?
• Will the EU ETS be able to access viable alternatives to international credits without the Clean Development Mechanism?
• Is the EU ETS a constraint on unilateral action to reduce emissions and, on the other hand, how are Member States’ own policies affecting the operation of the trading system?
• How serious an impact have the recent cases of fraud had on confidence in the EU ETS? Are further improvements in security and auditing required?
• How can the EU ETS be strengthened to operate effectively in a world without legally binding emissions reduction obligations?

The inquiry will form the first part of a two-part inquiry into low-carbon cooperation. The second part will investigate whether bilateral and sectoral agreements with key developing countries such as China would be a more effective means of reducing emissions.

The deadline for the submission of written evidence is Friday 12 August.