12 Mar 2002 – The UK government’s auction of emissions allowances commenced yesterday in which companies can bid for a share of the £200m ($284m) of incentive money aimed at kick-starting a voluntary emissions trading system.

Interest has been high in the Defra-run auction in which payments are allocated for proven reductions in greenhouse gases. The auction will create the pollution allowances which can then be bought and sold within a trading system due to be launched on April 2.

The objective of the emissions trading scheme is to encourage the maximum reduction in harmful emissions at the lowest cost to industry – in order to work towards the – UK’s Kyoto targets.

Denmark already has an emissions trading system in place although the UK scheme differs in a number of ways including the exclusion of power generators from directly participating.

This also distinguishes the scheme from that proposed by the EU, and scheduled to commence in 2005.

The UK originally set an upper limit of £215m in incentives, but last week set an “indicative budget range” of £150-£200m.

Companies will bid in to the auction and allocations will go first to the lowest bidder, thereby keeping the cost to a minimum. An original starting price of £100 per tonne of CO2 equivalent was thought to be too generous and would quickly exhaust the budget.