Entec Bulletin
EU Emissions Trading Scheme Steps Up
The EU emissions trading scheme (EU ETS) is approaching fast and in less than a year and a half, a large proportion of UK industry will be subject to caps on carbon dioxide emissions.
The UK government backs the EU ETS and in its Energy White Paper (February 2003), described it as "a central plank of the government's future approach to reducing business's greenhouse gas emissions."
The scheme is likely to be one of the most radical and far-reaching environmental policies for many years and both industry and policymakers across Europe are busily preparing for it. DEFRA's consultants are already working towards the preparation of a National Allocation Plan (NAP) to determine the allocation of permits to trade, and through their first phase of preparatory work have identified over 1,000 installations in the UK which are expected to come under the scheme. As a result, the government is stepping up efforts to encourage businesses with installations to start getting to grips early on with the EU ETS to ensure that any costs associated with the scheme are minimised and the transition runs as smoothly as possible.
Businesses that have installations in the scheme will have to apply for a greenhouse gas permit and put systems in place to monitor and report emissions. Emissions limits will be set and each installation will be allocated allowances equal to that limit. At the end of each year, emissions from the installation are measured and the operator of that installation must ensure that enough allowances are held to cover the annual emissions. They then give up a number of allowances equal to that annual emissions amount.
Operators are therefore faced with three choices: to meet their limit; to reduce emissions below their limit then sell or keep the surplus for future use; or let their emissions remain higher than the limit and buy allowances from others in the scheme to cover the difference. As such, a Europe-wide carbon trading market will be created and the best strategy for each participant will depend on the price of allowances compared to the costs of reducing their own emissions.
The EU ETS is due to start in 2005, with the first phase running from January 2005 - December 2007 and the second phase from 2008 to 2012. Currently it covers only direct carbon dioxide emissions though it may be expanded in the future to cover other greenhouse gases.
Click here to load the Entec home page