United Kingdom

United Kingdom

Green credits and carbon trade link -- Joined up UK policy

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In its plans for a national emissions trading market, the UK government is forging a link with its main policy instruments for reducing greenhouse gases, the Climate Change Levy agreements with energy intensive users and the renewable energy obligation. Both these policies are expected to open up a considerable market for wind power, the first by using a fiscal instrument to create demand for wind power and the second by requiring electricity retailers to supply consumers with it.

Under the renewables obligation, electricity retailers will have to buy a specified amount of power from renewable sources or the equivalent amount of "green" certificates -- known as renewables obligation certificates (ROCs). Suppliers who buy more green power or ROCs than needed to fulfil their obligation will be able to convert their surplus to CO2 equivalent and sell it into the emissions trading scheme. They will not, however, be able to buy through the emission trading scheme to make up any shortfall in meeting their renewables obligation.

Some sections of big British industry, however, are voicing disquiet about the government's firm intent to launch the emissions trading market already on April 1, 2002. Responses to a consultation on trading proposals launched by the Department of the Environment, Transport and the Regions (DETR) show wide concern about the tight timeframe. Many respondents argue that taking time to get the scheme right is more important than an early start date.

Head start

The government, however, is keen for the UK to get early experience of emissions trading to boost its ability to influence the design of a future international market. Indeed, the country could find itself hosting the world's first national greenhouse gas trading market. "British businesses can become the world leaders in exporting greener, cleaner technologies, providing new opportunities for industry and achieving cuts in emissions," says environment minister Michael Meacher.

The government expects emissions trading to deliver savings of at least two million tonnes of carbon -- or 7.7 million tonnes of carbon dioxide -- a year by 2010, helping the country meet its Kyoto commitment of a 12.5% reduction in greenhouse gases below 1990 levels, and its domestic goal of a 20% reduction of carbon dioxide.

Incentives to join in

A draft framework for the UK emissions trading scheme, published in early May, includes details of how companies can join the scheme, the incentives on offer and penalties for non-compliance. Participation in the scheme will be voluntary and will be open to all UK organisations. But the government has pledged £43 million of incentives in 2003/4 to encourage companies to join, with the money to be allocated through an auction.

According to the DETR, the design of the framework reflects strongly the views of business through the Emissions Trading Group -- a business led body which helped develop the program, and through responses to its consultation. Despite some reservations, every response, from companies and business associations to environmental groups, endorsed efforts to establish emissions trading. Most highlighted the need for simplicity, flexibility, and broad participation and called for the proposal to cover all greenhouse gases rather than just CO2 as originally planned.

In the light of feedback to its draft rules, the DETR expects to publish a final version of the framework for the scheme in July.

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