UK Sets Greenhouse Gas Emission Allocations for Trading

LONDON, UK, January 20, 2004 (ENS) - The UK government has become the first in Europe to issue detailed proposals for allocating allowances to industry for the first period of the European Union greenhouse gas emission trading scheme, from 2005 to 2007.

All 15 countries that are currently EU member states are required to submit such National Allocation Plans to the European Commission by March 31. The deadline for the 10 accession countries is May 1, the date they formally become EU member states.

The scheme will cover some 1,500 industrial installations in Britain, accounting for about half of national carbon dioxide emissions in 1990.


UK Environment Minister Margaret Beckett (Photo courtesy DEFRA)
UK Environment Minister Margaret Beckett described the plan, issued on Monday for consultation, as "challenging but achievable." The allocation of emission allowances has been set at a level which will encourage industry to "invest in emission abatement and take advantage of the opportunities that trading has to offer," she said.

"The EU Emissions Trading Scheme will be a vital measure in our drive to reduce emissions of greenhouse gases across Europe," said Beckett.

"We have set the overall number of allowances for UK industry at a level which moves us beyond our Kyoto Protocol commitment towards our tougher national goal and which recognizes the need to preserve the competitive position of UK industry," she said.

The industries covered under the National Allocation Plan include electricity generation, oil refining, iron and steel manufacturing, minerals extraction and refining, and paper, pulp and board manufacturing.

The number of allowances available for the scheme's first phase will be "consistent with an overall reduction in UK carbon dioxide (CO2) emissions of 16.3 percent by 2010" against 1990 levels, the government said. This is the emissions cap for participants in the trading system.

For the second phase of the scheme, from 2008 through 2012, the UK will aim for emission cuts consistent with a national carbon dioxide reduction of 20 percent, the government said.

It is not yet clear exactly what average percentage cut in emissions the participating sectors must make to achieve this consistency.


Oil refinery, Teesport, England. (Two photos by Ian Britton courtesy FreeFoto)
For most sectors the cap should be achievable through existing policies. Only electricity generators appear to be faced with a tougher challenge in the scheme's first phase.

Trade and Industry Secretary Patricia Hewitt said, "On top of the substantial reductions in carbon dioxide emissions that we expect from the operation of the scheme, there will be opportunities for UK firms to gain from the international trading in carbon that should follow. I recognize that this is a key policy for many businesses, and we would urge industry to carefully consider the proposals. We welcome their views on the consultation document."

Junior Environment Minister Elliott Morley urged participating companies to go beyond required emissions cuts and make the UK a net seller of emissions allowances in the EU trading system.

New entrants after the launch of the trading system will receive free allowances from a reserve accounting for about 5.7 percent of the total allowances to be issued.

A proportion of this reserve will be set aside for new combined heat and power plants. Any unused allowances in the reserve will be auctioned to all sectors in the scheme.

Plants closing down will be able to keep their allowances for one year, after which they will have no entitlement to future allocations.

Banking of allowances from one phase of the scheme to the next will not be allowed.

power station

British Energy's 2GW Eggborough coal fired power station in North Yorkshire, England
Companies already participating in the UK's existing national emissions trading system will be able to apply for temporary opt-outs from the European Union scheme.

The European Commission will be notified of which installations would like to opt out once the final National Allocation Plan is submitted.

Initial reactions to the draft National Allocation Plan emerged swiftly. The UK chemical industry expressed concern that rising costs resulting from the emissions cap might disadvantage British business against competitors.

The association of electricity producers had warned that electricity prices would increase if a strict cap was set. Morley said at a press conference that he expected any such rise to be "quite modest."

The Confederation of British Industry warned that the government might be "risking the sacrifice of UK jobs on the altar of green credentials."

UK industry had lobbied for a lower cap consistent with the UK's Kyoto target of minus 12.5 percent for all six greehouse gases in the Kyoto basket.

Environmental groups were happier. Friends of the Earth welcomed the plan, saying, "Inefficient coal fired power stations, the carbon dinosaurs of our economy, will be the most affected sector overall."

The plan will "set a standard for other countries across the EU to follow," Friends of the Earth said.


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