UK leads the way with the first carbon auction

Posted on 19 Nov 2008 by The Manufacturer

Today saw the UK government hold Europe’s first carbon allowance auction in Phase two of the EU Emissions Trading Scheme (EU ETS).

Four million allowances were sold at 13.60 each, totalling £54 million before VAT.

The system in place caps the level of carbon emissions allowed each year from heavily polluting manufacturing and energy sites. Firms must buy more credits if they break the limit but can sell off any they do not use.

Energy and Climate Change Minister of State, Mike O’Brien, said:

“Today’s first Phase II auction demonstrates continued UK leadership in reducing carbon emissions as part of the fight against dangerous climate change.

The EU ETS is central to keeping the price of tackling climate change as low as possible to industry and the economy.

We want more auctioning in the future – and are already planning to auction 100% of the allowances needed by the power sector from 2013. This auction highlights the importance of using the market to drive down emissions and create incentives for the development of low carbon technology.”

Chris Stubbs, Divisional Managing Director at WSP Environment & Energy said the second phase of the scheme adds benefits to the first but caution must be taken to ensure the system is implemented successfully.

“Until now the EU ETS has watered down the “polluter pays” principle to the point of non-existence through the issuance of free allowances. This announcement is a significant shift towards full “polluter pays” principles, akin to landfill tax,” he said.

“Some have argued that power producers raised prices on the back of the initial implementation of EU ETS even though its implementation cost them almost nothing as allowances were free. This price rise is likely to happen again when the power producers’ costs really do rise, as they have to buy allowances for real. This could be economically & politically difficult in these challenging times.

“One issue is who absorbs the undeniable cost increase that the power producers will suffer,” Stubbs warned.

The government will auction a further 25 million allowances during the course of next year.