UK – Greenhouse gas trading one step closer

The UK Environment Agency has contacted 1000 businesses and organisations in England and Wales in the first stage of implementing the UK component of a Europe-wide emissions trading scheme designed to cut greenhouse gas emissions and climate change. Businesses affected by the trading scheme must obtain a permit from the Environment Agency by 31 March 2004.

The first phase of the new emissions regime (2005-2007) will focus on carbon dioxide, a major contributor to climate change that could bring high human, environmental and economic costs if not addressed. Under the Kyoto protocol, the UK has agreed to reduce emissions by 12.5 per cent from 1990 levels by 2008-212. The UK government also aims a 20 per cent reduction by 2010. The European scheme, which is due to start on 1 January 2005, is to cover 40 per cent of European carbon dioxide emissions.

During the first phase the Department for Environment, Food and Rural Affairs will set a cap on the combined amount of carbon dioxide that can be emitted from business activities in, amongst others, the energy, glass, paper, bricks and cement industries. Each individual business or organisation will be awarded a proportion of this cap. These allowances are tradable as energy-efficient companies can sell surplus allowances to companies who require more energy use.

Emissions trading scheme have been found an effective way of reducing polluting emissions. Schemes have been pioneered in the US where over a decade ago a sulphur dioxide emission trading scheme which allowed companies to trade credits for sulphur dioxide emissions. Research has shown that this has lead to sulphur dioxide levels falling much faster and at a significantly lower cost than anyone predicted. In 2002,  a similar scheme for carbon dioxide was set up in the UK, involving companies such as Lafarge, British Airways, BP and Shell, on a voluntary basis.

Meanwhile, UK prime minister Tony Blair discussed the new European trading scheme and the role of City of London within it with 10 major investment banks during an “environmental breakfast”. According to a Downing Street spokeswoman: “This should be an attractive market for financial institutions to be involved in and with our experience of the voluntary scheme, London is ideally placed to be a place.”