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• EU Emissions Trading Scheme Contacts

EU Emissions Trading Scheme (EU ETS)

The EU ETS - which is managed by Defra and which BERR has an important role in - will contribute to the Government’s emissions reductions commitments:

• Kyoto Protocol – the UK’s binding international target to reduce a basket of six greenhouse gas emissions by 12.5% below 1990 levels by 2012
• the domestic goal of reducing CO2 emissions by 20% by 2010
• the Energy White Paper 2003 goals of setting the UK on a path to reduce CO2 emissions by 60% by 2050

BERR takes the lead in certain areas of the EU ETS, namely the Allocation Methodology and New Entrants and Closures, as well having a strong interest in investigating its impact on UK industry.

The scheme covers electricity generation and the main energy intensive industries - power stations, refineries and offshore, iron and steel, cement and lime, paper, food and drink, glass, ceramics, and engineering and vehicles.  Overall, these account for around 50% of UK CO2 emissions.

The EU ETS works on a “cap and trade” basis.  EU Member State governments are required to set emissions limits for all installations in their country covered by the scheme.  Each installation is then allocated allowances equal to that cap for the particular phase in question.  The allocations of allowances is set out in the National Allocation Plan for the particular period.  The first phase of the EU ETS runs from 2005 – 2007; Phase II runs from 2008 – 2012.

Installations may meet their cap by either reducing emissions below the cap and selling the surplus, or letting their emissions remain higher than the cap and buying allowances from other participants in the EU emissions market in order to meet the cap.

Emissions Projections

Energy and carbon dioxide emissions forecasts are used to inform policy development and their refinement to reflect new data, policy measures and other information is part of an ongoing exercise. These projections are used to inform the Climate Change Programme and the Energy Review and are also used as an input to the National Allocation Plan for the EU ETS to inform the allocation of allowances to sectors covered by the scheme.

Updated energy projections (UEP) for the UK economy were published in February 2006.  Further work has been undertaken by Oxford Economic Forecasting (OEF) and the Carbon Consortium to produce detailed emission projections for industrial sectors covered by the EU ETS.