Government consults on cap and trade

Consultation has begun on plans to introduce a cap and trade scheme to cover some of the UK's most energy intensive industries.

While the energy companies themselves and individual installations with truly colossal energy bills, such as large cement works, are already covered by the Europe-wide Emissions Trading Scheme, Government announced last year that it plans to set up a similar initiative to cover slightly smaller energy users.

The Carbon Reduction Commitment will apply to those organisations which use more than 6,000MWh per year, equivalent to an energy bill of around £500,000.

This will cover the large retailers, hotel chains, universities, bigger hospitals and even some Government departments.

The scheme will set a cap for energy use and organisations which exceed their allowance will need to buy credits from those which manage to come in well under target.

Faced with criticism that these organisations are effectively being taxed twice – once when they pay for their power from the energy companies already covered by the ETS and again by this scheme – Government has taken pains to stress that the Carbon Reduction Commitment will be energy neutral, and money raised from the sale of credits will be returned to the organisations involved, albeit it with weighting dependent on their performance.

“We are committed to ambitious targets to reduce the UK’s CO2 emissions and this will require contributions from all sectors of the economy and from across all parts of the UK,” said Climate Change and Environment Minister Ian Pearson.

“Our aim is to reduce absolute carbon emissions while growing the economy – and the Carbon Reduction Commitment is geared accordingly to help organisations save money through improved energy efficiency.”

The commitment is designed to drive emissions reductions by giving organisations a financial incentive to do so through emissions trading, combined with corporate social responsibility incentives through publishing companies’ performance in a league table.

The Government is consulting on the detailed implementation of the policy, including the type of auction and league table design, definition of an organisation, rules to exempt small sources of emissions, the approach to monitoring, reporting and auditing results and scheme penalties.

More details on the consultation, which will run until October 9, can be found on the Defra website.

Sam Bond

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