Comments on October 2011 Guidance Issued by Treasury on Valuation of Greenhouse Gas Emissions

The EU emissions trading system is failing to produce a carbon price that is efficacious in promoting low-carbon investment or a low-carbon economy. Carbon price projections from this scheme are nevertheless incorporated in the formal guidance issued by the UK Treasury to guide government departments in appraising policy initiatives and projects.

The Treasury’s guidance deals with this issue of the carbon price by trying to maintain a distinction between emissions in what it calls the ‘traded sector’, i.e. sectors such as power and aviation covered by the EU ETS, and the ‘non-traded sector’, which includes domestic gas and road transport. This distinction is untenable and has the potential to create serious distortions in policy. This Comment explains how these are likely to arise.

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