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UK emissions trading market opens

2 April, 2002 – The UK government-sponsored market in trading greenhouse gas emissions starts today enabling “cleaner” companies to profit by selling permits to polluters.

Emissions trading is regarded as an effective way of enabling counties and companies to make emissions reductions towards their Kyoto commitments in the most cost effective way by encouraging cuts in greenhouse gas (GHG) where the internal cost is least.

Polluters are afforded the option of making cuts in their own emission levels or buying permits, whichever is the most beneficial.

The UK market is a forerunner to a Europe-wide scheme intended for introduction in 2005 and, according to the government, puts Britain in the position of world leadership in the field of emissions trading.

Britain is committed to reducing greenhouse gases, such as carbon dioxide, by 12.5 per cent compared to 1990 levels and the UK trading scheme has been funded with à‚£215m in financial incentives from the government.

Last month, 34 companies and organisations successfully bid for this incentive money, who between them . agreed to cut GHG emissions by more than 4m tonnes of carbon dioxide over the next five years in return for &pound 53.37 a tonne.

The start of trading today is largely symbolic as the only thing that will open today is a government-run electronic register of emissions allowances won by the 34 companies in order to record deals between them and other emissions traders.

Specialist brokers have already been carrying out UK trades for delivery this summer with Natsource Tullet having broked the first trade last September between DuPont and Marubeni of Japan – DuPont having agreed to deliver 10 000 UK emissions allowances this summer.

Among the companies taking part in the auction were Shell, BP, ICI, DuPont, Tesco, British Airways and Blue Circle. Power generators are not permitted to participate in the UK scheme although it seems likely that the European market will be open to them.
The auction established a clearing price for cutting carbon emissions at &pound53 per tonne.

Firms that believe they can cut their emission beyond their ‘cap’ will be able to sell the surplus to others struggling to meet their obligation.

Real liquidity in the market is not expected until the entry of the larger category of 6000 companies that have pledged to cut emissions per unit of output to get a rebate on the climate change levy.