EU: Emissions Trading Scheme

The Financial Services Secretary to the Treasury (Lord Myners)
My honourable friend the Exchequer Secretary to the Treasury (Angela Eagle) has made the following Written Ministerial Statement.

Yesterday morning, the Government successfully held the UK's first auction of carbon allowances as part of phase 2 of the EU's Emissions Trading Scheme (ETS). The auction was also the first of its kind to take place in Europe, demonstrating the UK's continuing leadership in the battle against dangerous climate change. Four million allowances were offered for sale and sold at a total value of £54 million, excluding VAT, or £13.60 per allowance. The auction was more than four times oversubscribed, demonstrating that the auction was competitive and that it attracted a significant amount of market interest.

The ETS puts a cap on emissions from around 12,000 installations throughout the EU—including in the energy and heavy industrial sectors, which are collectively responsible for close to half of the EU's emissions of carbon dioxide. Any of these installations that exceed its emissions cap will need to purchase the appropriate number of allowances.

Through auctions and the creation of a secondary market for allowances, the ETS is sending clear price signals. The carbon price will encourage Governments, businesses and individuals to factor the costs of emissions into their spending and investment decisions. A price for carbon creates an incentive to find products and processes that produce less carbon to achieve the same outcomes, which in turn encourages investment in the research and development of low carbon technologies.

Next month's international climate change negotiations in Poznan present an opportunity for Governments around the world to consider innovative approaches like the ETS as a means to counter the dangers of climate change. Norway, Liechtenstein and Iceland have already joined the ETS and work on other cap and trade schemes is under way in the USA, Australia, New Zealand, and Japan. The ETS is well positioned to form the basis of a global carbon market in the future.

During 2009, the Government plan to auction a further 25 million allowances. Dates for future auctions will be announced in due course.