The UK Emissions Trading Scheme and its interactions Olivia Hartridge Department for Environment, Food and Rural Affairs The UK scheme and its interactions Why is there a scheme? Who is in the scheme? Direct participants Agreement participants How does it interact with other policies now? and in the future? 1
Why is there a scheme? Kyoto target: 12.5% GHG Domestic goal: 20% CO 2 Longer term: 60-70% GHG? Sets context for UK Climate Change Programme......to which UK emissions trading scheme is central Who can enter? Agreement participants Direct participants Emissions Trading Scheme Project participants 2
Who can enter? Agreement participants Direct participants Project participants Climate Change Levy: tax on the downstream business use of energy 80% tax discount for energy intensive industry in return for tough emissions targets Choice between a relative target or an absolute target Can trade to meet target Who can enter? Agreement participants Direct participants Project participants Open to any organisation on the basis of its emissions within the UK Certain sources excluded such as households, direct emissions from electricity generation Incentive worth up to 30m per annum after tax in return for absolute emissions targets 3
Who can enter? Agreement participants Direct participants Project participants Project rules still being developed internationally Content of proposed EU directive on projects as yet unknown Research into baselines, verification and monitoring is ongoing Can earn credits to sell into the scheme Agreement participants: Targets negotiated with Government First compliance period: 2002 (biennial) Project participants: Project proposals must be approved by Government Direct participants: How do they enter? Targets set through Government auction First compliance period: 2002 (annual) 4
What are the mechanics? Non-Target Holders Market Gateway Projects Absolute Target Holders Relative Target Holders Approval Verification Reporting Government What are the mechanics? Registry: www.defra.gov.uk/etr Open trading account via an electronic form Trading and compliance accounts look like electronic bank accounts Gateway status permanently on view, and able to view the gateway queue Allowance transfers take place in real-time at click of button Not a trading platform 5
Market activity Trading so far 800,000 1,000,000 allowances 150-200 trades In context 70-80 international trades (1996-2000) 395 transfers in Acid Rain Program by the end of its first compliance period (1993-1995) 6
Price: April November 2002 Fitting the policies together IPPC Directive Emissions Trading Climate Change Levy and Agreements Energy Policy 7
Fitting the policies together Integrated Pollution Prevention and Control (IPPC) Directive: baseline energy efficiency if have a trading target Renewables Obligation for 10% of electricity to be supplied from renewable energy by 2010 Goal to at least double capacity of CHP by 2010 Fitting the policies together Direct Obligation STICK Lower tax Trading Lighter regulation Financial Commercial Incentive Opportunity CARROT 8
Where do we go from here? Energy White Paper setting out Government s vision to 2020 and beyond Compatibility with EU trading scheme: from 2005 onwards Compatibility with international trading under Kyoto: from 2008 onwards Where do we go from here? voluntary...mandatory limited coverage...wide participation CO 2 only. all 6 GHGs IPPC trading + local safeguards 9
Conclusions Policies evolving to embrace trading Bringing trading to pre-existing policies Changes to IPPC application Resulting UK ETS market is active and increasing business enthusiasm for, and confidence in, using trading More information from http://www.defra.gov.uk/environment/ climatechange/trading/index.htm http://www.defra.gov.uk/etr http://www.defra.gov.uk/environment/ climatechange/ccl/index.htm 10