The EU needed to act fast to strengthen the bloc's emissions trading system and help prices recover after they slumped amid a glut, the UK's Department of Energy and Climate Change (DECC) said.
A delay in the sale of 400 million to 1.2 billion allowances under a strategy proposed by the EU regulator would boost carbon prices at the beginning of the next emission market phase starting in 2013 even as it lowered it at a later stage of the trading period, DECC said in an analysis published on its website.
According to DECC, if allowances were canceled and permanently removed from the market there would be a sustained positive impact on carbon price with a
consistent rise in prices over all years up to 2020.
The average price of permits over the next trading period in the EU emissions trading system, running through 2020, may increase by 4 to 24 euros a metric ton RR if the EU decided to cancel from 400 million to 1.7 billion allowances, compared with scenarios without permanent removal of allowances, according to DECC estimates.
DECC said, permanent removal of allowances would also increase the revenue of member states from carbon auctions.
Meanwhile, in the UK, MPs and environmental campaigners on Thurday condemned the appointment of climate sceptic Peter Lilley to the committee that scrutinised the government's energy and climate policies and called the move "deeply worrying."