Department for Environment, Food and Rural Affairs
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UK publishes second year EU ETS results
The results for UK installations of the second year of the EU Emissions Trading Scheme (EU ETS), which sets a cap on total carbon dioxide (CO2) emissions from European industries, were published today.
UK sites covered by the scheme emitted 251.1 million tonnes of carbon dioxide (MtCO2) in 2006, an increase of 8.8MtCO2, or 3.6%, from 2005. The power sector increased its emissions by 9.3MtCO2, while other industry sectors decreased their emissions by 0.5MtCO2 in 2006. The total UK cap for 2006 was 217.3MtCO2, meaning that 33.8 MtCO2 were purchased through emissions trading to keep within the overall cap.
Under the scheme, installations which emit more CO2 than their allocation need to buy allowances to cover the extra emissions, and installations that emit less are able to sell allowances. This creates an incentive for industry to reduce emissions and improve energy efficiency.
The overall increase in emissions from UK installations, reflect the provisional CO2 statistics published in March, which showed a 11/4% increase in overall CO2 emissions in the UK. This increase was due mainly to unusually high international gas prices, which led to a switch to coal in electricity generation. Coal-fired power stations emit approximately twice as much as gas-fired power stations per unit of electricity generated.
Our provisional estimate of CO2 emissions in 2006 is that they were about 5.3% below 1990 levels. However, when the effect of the EU ETS is taken into account, UK emissions were about 11.0% below 1990 levels, the same as in 2005.
The results also show that in 2006, UK installations were 100% compliant with the scheme's requirements to report emissions and surrender an equal number of allowances.
Climate Change and Environment Minister Ian Pearson said:
"The UK remains committed to a strong, effective carbon market as a central part of our efforts to combat climate change. The first phase of the EU ETS was designed as a learning phase, and important lessons have been applied to the second phase.
"These figures reinforce the fact that the trading mechanism works. The 2006 results across the EU reiterate the need to increase the scarcity of allowances in the carbon market. We are greatly encouraged by the Commission's decisions on Member States' Phase II National Allocation Plans, which show a clear determination to ensure real scarcity in the carbon market and to use the ETS to drive down carbon dioxide emissions in line with the EU's Kyoto targets.
"The 100% compliance with the requirements of the scheme is outstanding, and reflects the effort made by operators, verifiers and regulators in meeting the mandatory deadlines and the prompt enforcement action taken by the regulators against those who were non-compliant in 2005."
The 2006 results across the EU show that other Member States had more allowances than needed to cover their emissions. This reiterates the need for market scarcity for Phase II in order to drive cost-effective emission reductions. The Commission's decisions on Phase II NAPs to date recognise this.
The sector-level summary of 2006 EU ETS results in the UK will be available at:http://www.defra.gov.uk/environment/climatechange/trading/eu/results/index.htm Over the coming months, Defra will produce a summary report examining the results in more depth.
Notes to editors
1. The EU Emissions Trading Scheme (EU ETS) aims to reduce emissions of carbon dioxide at least cost to industry. Participants are allocated tradeable emissions allowances that they can trade to help them in meeting their emissions reductions targets.
2. The scheme commenced on 1 January 2005. The first phase runs from 2005-2007 and the second phase will run from 2008-2012 to coincide with the first Kyoto Commitment Period.
3. The scheme works on a "cap and trade" basis. Member States governments are required to set an emissions cap for all installations covered by the scheme. Each installation will then be allocated allowances for the particular commitment period in question. The number of allowances allocated to each installation for any given period is specified in a document called the National Allocation Plan (NAP). Anyone who is not covered by the scheme will be able to open an account on the Registry and buy and sell allowances.
4. Each installation covered by the scheme has to hold a greenhouse gas emissions trading permit (in effect, a licence to operate and to emit carbon dioxide). Each permitted installation will then receive an allocation of allowances. Member states must ensure that by 30 April each year, the operator of each installation surrenders a number of allowances equal to the total emissions from that installation during the preceding calendar year. Installations are required to have these annual emissions independently verified. These allowances are then 'retired' from the Registry. Each installation has, in effect, three options:
* Reduce annual emissions to exactly the number of allowances it has been allocated for that year;
* Reduce annual emissions to below its cap and either sell the excess allowances it holds to another company or bank them (i.e. store them for future use); or
* Keep annual emissions at a level above the level of allowances it has been allocated and buy allowances from the market to cover the difference.
5. If an installation fails to surrender sufficient allowances to cover its annual emissions, they will face financial penalties (currently set at E40 per tonne), and also the requirement to surrender sufficient allowances the following year.
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