Carbon trading plan set to curb polluters

8 Oct 09
The government has finalised plans for a carbon emissions reduction scheme aimed at forcing major public and private sector polluters to take action on climate change
By David Williams

8 October 2009

The government has finalised plans for a carbon emissions reduction scheme aimed at forcing major public and private sector polluters to take action on climate change.

But the Local Government Association described the plans as a ‘missed opportunity’. It complained that the Department of Energy and Climate Change had overlooked major concerns raised by public sector bodies.

The details of the Carbon Reduction Commitment Energy Efficiency Scheme were announced on October 7. The CO2 trading system, which will take effect from April 2010, will involve almost every public sector organisation along with hundreds of private sector household names.

The scheme is for bodies whose buildings use at least 6,000kw/h of electricity per year – equating to an annual bill of around £500,000 or more.

Around 5,000 organisations will be ranked on how much energy they save year-on-year. An additional ‘growth metric’ will give some adjustment for firms that are expanding but emitting proportionally less CO2.

Initially, there will also be allowances for bodies that took early action to improve their energy efficiency.

In 2010/11, those taking part will simply monitor their energy use. The first auctions of carbon credits, priced at £12 per tonne, will take place the following year. Organisations will be able to buy and sell credits to cover their emissions.

Each year, the value of the credits will be redistributed, with rewards and penalties for high and low performers. In the first year, organisations could gain or lose up to 10% of the value of their carbon credits. By the fifth year, that proportion will have risen to 50%. The DECC estimates that a typical local authority would have to buy around £420,000 worth of carbon credits, so could stand to gain or lose £42,000 in the first year, and £210,000 by the fifth.

But the LGA is concerned that the reward and penalty system could cause cash to flow from the public sector into the private. Policy consultant Russell Reefer also said the growth metric was designed around the needs of business, allowing firms to pick up league table points on criteria irrelevant to public bodies.

Karen Lawrence, project manager at the Local Government Information Unit said that many bodies were confident they could compete with the private sector, but the incentives might not be enough to cause real reductions.

 ‘Finance directors are not that concerned about this because it’s a relatively small amount of money – the real driver is how much you can save on your energy bills,’ she told Public Finance.

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