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UTILITY WEEK | 3rd - 9Th OcTObEr 2014 | 21 Finance & Investment S eventy-three countries and more than 1,000 compa- nies signed the World Bank's Putting a Price on Car- bon statement, presented ahead of the UN climate summit on 23 September, including the world's largest emitter, China. The governments that signed represent 54 per cent of global greenhouse gas emissions, many hav- ing already implemented carbon taxes or emission trad- ing schemes domestically. Almost 50 jurisdictions around the world have implemented emission trading schemes, and the World Bank's initiative confirms increasing sup- port for use of market instruments to reduce emissions. But do carbon markets work? Nearly all domestic or regional carbon markets are currently oversupplied. The global financial crisis is oen the main reason for this, but many markets have also been created to achieve modest political ambition, where caps have been set close to historic emissions. Oversupply has pushed allowance prices to low levels across the world, and none of the carbon mar- kets are generating much abatement in the short term. Although these measures ensure that emissions stay below the politi- cally agreed cap, it is currently ques- tionable whether they send the right signal for long-term investments. Accordingly, carbon markets have received a lot of crit- icism, but some of this is for the wrong reasons. There is a tendency to blame the policy instrument itself for the lack of environmental progress. But the ability of a carbon market to deliver abatement or stimulate green invest- ment is ultimately determined by the underlying political ambition. The effectiveness of future emission trading schemes will therefore depend on the reduction targets taken on by national governments in the context of the Paris agreement. Without more ambitious mitigation tar- gets, any pricing mechanism would fall short of achieving a shi to low-carbon technologies and industries. The fact that countries are increasingly choosing emission trading systems as climate policy instruments means that the regulatory framework for future reduc- tions is in place. It is now up to policymakers to raise the ambition and put carbon markets to work to ensure much larger reductions in the period up to 2030. Hæge Fjellheim, senior analyst, Point Carbon at Thomson Reuters "It is now up to policymakers to raise the ambition and put carbon markets to work to ensure much larger reductions in emissions up to 2030." Investor view Hæge Fjellheim Carbon markets have received criticism, some for the wrong reasons survived the Scottish referendum – has deferred decisions on certain major energy projects until aer next May's general elec- tion. Centrica, meanwhile, is selling – rather than building – gas-fired plants. Politicians, therefore, expecting a post general election wall of money to be invested in modernising the UK's creaking energy infrastructure, may well be sorely disap- pointed. Indeed, there are many sound reasons – unpredictable politics, the Com- petition and Markets Authority inquiry, low spark spreads, uncertain capacity credit remuneration and projected higher interest rates, to name just a few – for not investing in UK generation. Finally, electricity and gas consum- ers have also been at the wrong end of the industry's big numbers for too long. Since 1996, average domestic gas prices have effec- tively doubled in real terms while domestic electricity prices have also been driven up on the back of higher gas input costs. A dual fuel bill currently averages more than £1,250 per household. No wonder the Miliband price pledge proved so astute polit- ically, even if it has given an amber light to potential energy investors. Many of these big numbers are over- looked by the media, which understandably focuses more on retail prices that directly impact their many millions of readers. But this focus disregards the pertinence of industry's investment numbers to the press's favourite challenge of "keeping the lights on". Irrespective of what this year's conference season throws up, there remains an abiding challenge for the utility sector to get this key message across effectively – all the more so given the complexity of electricity and gas finances. Nigel Hawkins, director, Nigel Hawkins Associates £100bn decc's projected energy investment requirement to 2020 £6bn annual investment required in transmission and distribu- tion infrastructure during the next decade £11bn cost of smart meter rollout, in addition to decc's £100 billion estimate of required energy investment £130bn combined net debt of the big six and National Grid £92.50/mwh strike price agreed for EdF's hinkley Point c nuclear plant - awaiting European approval £105/mwh strike price awarded to drax for the biomass output of one of its four generating unit headline nUmbers UK electricity sUpply by FUel type, percentage mix 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 364twh Other Renewables Nuclear CCGT Coal and oil 395twh Source: AT Kearney (Dukes 2012, Decc, National Grid)