asked Her Majesty's Government:

How they propose to spend the proceeds derived from the auctioning of the emission allowances under phases II and III of the European Union Emissions Trading Scheme; and what estimates they have made of the amount of such proceeds; and [HL3094]

Whether the proceeds derived from the auctioning of the emission allowances under phases II and III of the European Union Emissions Trading Scheme will be deployed to stimulate private sector investment in low-carbon infrastructure projects; and, if so, how this will be done. [HL3095]

The Government plan to auction 7 per cent of allowances in phase II of EU ETS, amounting to approximately 85 million allowances, plus those allowances from installations that close during phase II and any unused surplus from the new entrant reserve (NER). Under the terms of the EU ETS Directive 2003/87/EC the total number of allowances auctioned cannot exceed 10 per cent of the number allocated during phase II. The auctioning levels for the EU ETS post-2012 have not yet been determined. However, the Chancellor recently announced that the UK will auction 100 per cent of allowances to the large electricity producers. The amount of revenue will be influenced by the market price at the time of the auctions.

We will not be hypothecating the revenues from the auction. The Government's spending priorities are not, in general, determined by the way in which the money is raised. Hypothecating revenues to particular-spending programmes imparts inflexibility in spending decisions and can lead to a misallocation of resources, with reduced value for money for taxpayers. The spending review process ensures that resources are allocated efficiently to deliver government objectives and ensures priorities, such as education and health, receive the increased levels of funding, as set out in the Comprehensive Spending Review (CSR).