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29^th June 2006 (Source: DTI )

The UK's proposal for the next period of the European Union's Emissions Trading Scheme (EU ETS) was announced by Environment Secretary David Miliband and Trade Secretary Alistair Darling today. They also announced the creation of a new joint Defra/DTI Environmental Transformation Fund that will provide a boost to investment in renewable energies and other green technologies aimed at reducing carbon emissions.

The proposal provides business with additional certainty on the contribution it needs to make to help tackle climate change and is expected to deliver additional savings of 8 million tonnes of carbon each year, roughly equivalent to the emissions of 4 1/2 million households.

Emissions trading sets a cap on carbon dioxide emissions from European industries. Under the scheme, installations that emit less carbon dioxide than their allocation are able to sell allowances on the newly established carbon market to installations which need to buy allowances to cover extra emissions. Putting a price on carbon creates an incentive for industry to invest in low carbon technology.

Urgent action is needed now to stabilise the emissions of carbon dioxide. The UK is at the forefront of tackling climate change, both internationally and at home. The UK is projected to cut emissions of greenhouse gases by 23-25% by 2010 - nearly double the target set by the Kyoto treaty.

Environment Secretary David Miliband said:

"Climate change is probably the greatest threat to our way of life. Cutting the emissions of carbon dioxide from all sectors of society is vital to avoid dangerous climate change. The more carbon that is released into the atmosphere, the greater the potential for millions of people to suffer from famine, disease and water shortage through increased temperatures and rising sea levels.

"Today's announcement will help create greater certainty for business and sends a clear message that emissions trading is here to stay and that the Government is committed to making it work. The scheme provides industry with the flexibility to decide whether to make emissions reductions themselves, or to buy reductions from others.

"We believe there is a major opportunity for the UK not just to invest in renewable energy, other non nuclear low carbon technologies and energy efficiency, but also to build successful businesses in these fields. The new Environmental Transformation Fund will grasp this opportunity."

Alistair Darling, Secretary of State for Trade and Industry, said:

"I welcome the setting up of the Environment Transformation Fund. Climate change is a threat to business and emissions trading is key in helping business to reduce its impact on our climate. It helps provide the framework in which long term investment decisions can be made, leading to cleaner and greener investment decisions. Demanding targets are necessary in order to stimulate innovation in low carbon technologies. Emissions trading is here to stay."

Notes to editors

1. The government is proposing to allocate 238 million allowances per year during the second phase, which will run between 2008-2012, compared to 245 million allowances per year under the current phase of the scheme. This announcement will put the UK on course to achieve a 16.2% reduction in carbon dioxide emissions by 2010, compared with the 15-18% range stated in the Climate Change Programme published in March.
2. The UK held a consultation on its draft NAP for Phase II of the EU ETS (March - May). The UK proposed to fix the final figure for the total quantity of allowances within a range that represented an annual reduction of between 3MtC (11 Mt CO2 reduction) and 8MtC (29.3 MtCO2 reduction) against projected business as usual emissions for Phase II. Additional installations brought into the scheme under expansion would not be included in this figure, and changes to the UK's inventory may affect the maximum.
3. Final details of the scale and scope of the Defra/DTI Environmental Transformation Fund will be announced in the Spending Review for implementation, like the ETS, in 2008.
4. EU ETS is just one of the government's portfolio of policies and measures designed to tackle emissions from all sectors. Other measures include: the climate change levy, designed to encourage businesses to improve their energy efficiency and the renewables obligation, requiring suppliers to source a percentage of electricity they supply from renewable sources.
5. The Climate Change Levy (CCL) introduced in 2001, encourages businesses to improve their energy efficiency. It has had a significant impact on energy demand; lowering emissions and helping business reduce their energy costs. An independent evaluation by Cambridge Econometrics concluded that the levy should lead to cumulative savings of 16.5mtC by 2006 and annual savings of over 3.5mtC a year by 2010.
6. The Renewable Transport Fuel Obligation will require 5 per cent of all UK fuel sales to come from renewable sources by 2010-11. This is set to deliver a net global reduction in carbon dioxide of around 1 million tones of carbon, equivalent to taking one million cars off the road, without stopping people from traveling.
7. Environment Secretary David Miliband recently pledged that the Government office estate will go carbon neutral by 2012, and set an aspirational target to reduce carbon emissions from the estate by 30 per cent by 2020 (carbon offsetting for official air travel has already been introduced). The measures to make the Government estate carbon neutral will save approximately 800,000 tonnes of carbon.
8. The Government set a goal in its Energy White Paper (2003), in line with the Royal Commission on Environmental Pollution's recommendation, to put itself on a path towards a reduction in CO2 emissions of some 60% on 1990 levels by 2050, with real progress by 2020.
9. In this century, without action to reduce emissions, the earth's temperature is likely to rise significantly, having serious damaging environmental impacts both locally and globally. Even seemingly small increases in temperature can have significant impacts on ecosystems and species, lead to increasing extreme weather events and implying severe consequences for society; socially, economically and environmentally. Action is needed now before the consequences become too great.

   Further information will be available at http://www.defra.gov.uk/environment/climatechange/trading/eu/index.htm

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