Member Article

Carbon Trading

With Watson Burton LLP Law FirmClimate change and global warming are now accepted as areas of serious concern across the globe and the phrase “carbon trading” may be familiar. This article discusses the operation of the schemes that have given rise to this phrase.There are 2 separate carbon emissions trading schemes operating in the UK: the UK Emissions Trading Scheme and the EU Emissions Trading Scheme. Both schemes have one principal aim: reducing the emissions of gases that contribute to global warming. However, the two schemes are completely separate from each other and operate differently. UK Carbon TradingThe UK scheme is voluntary and runs until the end of 2006. It covers the six greenhouse gases: carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulphur hexafluoride. In 2002, several voluntary participants from industry in the UK signed up to reductions targets for greenhouse gas emissions. Financial incentives are available if these targets are achieved. If participants fail to reach their targets, they are penalised. Targets can be reached by reducing emission levels or purchasing “allowances”. If participants achieve a greater reduction than their target, this over-achievement can be converted into allowances and sold.One allowance represents the equivalent of 1 tonne of carbon dioxide (CO2). Allowances can be traded through the Emissions Trading Registry, in a similar way to stocks and shares. It is still possible to join the scheme as a way of mitigating the Climate Change Levy (certain participants can receive a rebate of this tax) or as a trading participant.EU Carbon TradingThe EU scheme is a mandatory scheme covering only CO2 emissions. The first Phase runs from 2005 until 2007. Installations carrying out industrial activities above certain threshold levels must be authorised by a Greenhouse Gas Emissions Permit. It is an offence, punishable by a fine or imprisonment, to carry out such activities without a permit. If culpable, individual officers of companies are liable to personal prosecution. A permit allows production of a certain amount of CO2. To avoid fines, allowances must again be purchased to cover any excess emissions. As in the UK scheme, an allowance represents 1 tonne of CO2 and any over-achievement in emissions reduction can be sold. Installations that fall within the requirements of the EU scheme, but which are already participating in the UK scheme, have been granted a temporary exclusion from the EU scheme (until the end of 2006). Installations covered by Climate Change Agreements have been opted-out of the whole of the first phase of the EU scheme (2005 - 2007).If you have any questions on this article, please contact Catherine Chipchase at Watson Burton LLP (email Catherine.chipchase@watsonburton.com).

This was posted in Bdaily's Members' News section by Ruth Mitchell .