UK Emissions Trading Scheme wins NAC accolade

The pioneering UK Emissions Trading Scheme is praised in a new report from the National Audit Office for its beneficial impact on the reduction of greenhouse gases. This seal of approval comes as the latest DEFRA figures show an upward movement, described by Environment Minister Elliot Morley as a "blip"

Sir John Bourn, head of the National Audit Office, reported that the Emissions Trading Scheme has brought about a reduction in emissions of greenhouse gases and that the Scheme has benefited the UK economy. He noted that, whilst some reductions were likely to have happened without the Scheme, most of the reductions were generated by the scheme. Sir John concluded that the Scheme was a pioneering initiative with significant achievements, and the Department has the opportunity to share the lessons learned from the innovative policy.

The Scheme enables participants in the Scheme to buy and sell allowances to emit greenhouse gases. It was launched in March 2002, when the Department for Environment, Food and Rural Affairs (DEFRA) agreed to pay participants £215 million over five years, in return for binding commitments by the participants to cut their greenhouse gas emissions. Since then, these participants and others have been able to trade emissions allowances.

In the Scheme’s first year (2002), the 31 participants receiving incentive payments reported total emissions reductions almost six times their total target for the year: 4.64 million tonnes, compared to a target of 0.79 million tonnes. NAO analysis of the four participants in the scheme who exceeded their targets by the widest margin, shows that most of the emissions reductions reported by these participants (66%) were the result of action taken in response to the scheme, such as changes in operating methods and capital investment. They were also using incentive payments to fund investment to deliver f

urther emissions reduction in the future.

However, the analysis of these four participants also shows that an estimated 34% of these emissions reductions would have happened without the scheme. These four participants were selected because, taken together, they account for more than 80% of the reductions reported in 2002. Since each participant’s circumstances are unique, the findings in these four cases are not typical of the remainder of the Scheme, where not all participants exceeded their targets, but they are nonetheless significant because these four participants account for 50% of the incentive funding paid.

The timescale for the launch of the Scheme was pressured, in order to gain most benefit for the UK prior to the launch of international emissions trading schemes. More companies may, however, have taken part in the scheme, resulting in more emissions reductions being achieved, if they had been given more time to prepare. Organisations participating in the scheme and other companies providing services to them (such as emissions broker and environmental consultancies) have gained experience of emissions trading which will put them in a strong position when the European Union Emissions Trading Scheme begins in 2005. However differences between the UK and European schemes will make integration, for those participants affected and for providers of emissions trading services such as brokerage and verification, less straightforward then initially hoped.

Sir John Bourn said: “The Department’s voluntary Emissions Trading Scheme was a pioneering initiative which has brought about significant achievements. There are lessons to be learned on Scheme design and implementation should further similar trading schemes be set up, but UK companies should benefit from their early experience when a European Union Scheme is introduced in 2005”.

Emissions statistics

Statistics published recently show that carbon dioxide emissions increased by 1.5% per cent during 2003.

The increase in 2003 is largely due to the greater use of coal for electricity generation, and a decrease in net imports of electricity from the continent. The increase partly reverses the three and a half per cent reduction in the previous year.

Emissions for 2003 are provisionally estimated at some 152.5 tonnes – about seven per cent lower than in 1990. Despite the rise in emissions during 2003, the UK is still on course to meet its contribution to the environmental targets set at Kyoto of a 12.5% reduction in greenhouse gas emissions by 2008-12 compared with a 1990 baseline.

Disappointing ‘blip’

Provisional DEFRA estimates suggest that greenhouse gas emissions in 2003 were about 14 % below the 1990 baseline. Environment Minister, Elliot Morley said: “This blip, although disappointing, was expected and does not knock us off the downward trend on emissions.

“Even on a downward trajectory there will be some variation about the trend from year to year.

“Later this year we will be reviewing the UK Climate Change Programme to assess the potential for strengthening existing policies and measures or introducing new ones to achieve our climate change objectives, including the domestic goal of reducing carbon dioxide emissions by 20% from 1990 levels by 2010.

“And from 2005 we will be looking to the impact of the EU Emissions Trading Scheme, especially in its second five year phase – which will run from 2008-2012 – to cut UK emissions further and move us towards the stated goal of 20% reductions on 1990 levels by 2010.”

Commenting on the new statistics, Friends of the Earth’s Energy Campaigner, termed the figures as “appalling” and said there was “an urgent need for tougher action on climate change.”

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