UK launches world’s first national emissions trading programme

Under the final version of the first-of-a-kind scheme launched on 14 August, participants sign up to delivering emission reduction targets which can either be made by cuts in-house or by buying and selling emission ‘allowances’ on the market to meet those targets. If firms can reduce emissions cheaply and beat their targets, they can sell the surplus allowances or bank them for future use. The Government has pledged up to £215 million over five years from 2003-04 to provide incentive payments for companies to join the scheme, which will be allocated through an auction next year.

The final Framework Document for the UK Emissions Trading Scheme, contains details of who is eligible to join the scheme and how to bid for the incentives on offer. There will be sanctions on companies who break the rules and those failing to achieve their emission reduction targets will have to pay back incentive money with interest and will face tougher targets in future years to make up the shortfall, warns the Department of the Environment, Food and Rural Affairs (DEFRA).

The programme and rules for the auction of incentive money, which translates as £30 million after corporation tax, will be published in December, and bids from those wishing to enter the auction will be invited early next year. Companies that have entered into Climate Change Agreements will also be able to use the trading scheme to help them meet their emission targets.

The framework contains some changes to the draft framework published in May, which was criticised by respondents for having too tight a timetable (see related story). One change is that those holding absolute targets will be able to bank any over-achievement they have made through their own action in to the Kyoto commitment period 2008-2012, although there may be restrictions on banking beyond this. To maximise participation, there will also be no requirement for a minimum percentage emission reduction for entry into the auction, while credits from projects can also be used by both holders of output related targets and absolute target holders.

“This scheme establishes the UK as a world leader in the field of greenhouse gas emissions trading, giving British business a head start in this developing new market,” commented Environment Minister Michael Meacher. “It builds on the success of the recent climate change talks in Bonn by demonstrating that tackling climate change can be good for business. The UK climate change programme could cut greenhouse gas emissions to 23% below 1990 levels by 2010. I expect our scheme to make a significant contribution and at the same time benefit both business and the environment by stimulating and financially rewarding innovation and investment.”

The scheme will significantly increase the value and size of the global emission trade, which the World Bank has estimated to be worth about US$100 million, involving roughly 55 million tonnes of carbon dioxide equivalent emissions reductions (see related story).