Carbon allowances go under the hammer

On Wednesday, the UK Government opened up the auction for allowances under Phase II of the cap and trade scheme, which runs from 2008 to 2012.

Four million allowances were sold at a value of just £13.60 each – raising a total of £54m excluding VAT for the Treasury.

Ministers said the auction demonstrated the UK’s “continuing leadership” on reducing carbon emissions.

“We want more auctioning in the future – and are already planning to auction 100% of the allowances needed by the power sector from 2013,” said Energy and Climate Change Minister Mike O’Brien.

“This auction highlights the importance of using the market to drive down emissions and create incentives for the development of low carbon technology.”

Next year, Government plans to auction a further 25m allowances. In total, about 86m will be auctioned over the four-year period.

But Ministers are being urged to earmark the revenue raised from the sale for environmental and clean energy projects, as other European states, including Austria, have promised.

Lisa Harker, co-director, of the Institute for Public Policy Research (IPPR), said: “This is a great opportunity to help poorer households make their homes both cheaper to heat and warmer, and create jobs through investment in new green technologies.”

Legal experts said that it remained to be seen whether the UK’s decision to begin auctioning the allowances ahead of other EU states would work.

Michael Wood, partner at international law firm Eversheds, said: “”Whether this is a sensible approach that will show leadership and leave UK installations already primed for fuller auctioning or whether this amounts to gold-plating of EU requirements will be a matter of perspective.

“But ultimately, whatever view you take, it is not going to change the fact that in future auctioning of carbon allowances will become more widespread.”

The EU ETS will ration the emissions of about 12,000 installations over the next four years, which together are responsible for almost half of the EU’s emissions of carbon dioxide.

The UK has set aside 7% of its allowance cap for auctioning.

Kate Martin