British Carbon Sale To Swell Government Revenues
Date: 20-Nov-08
Country: UK
Author: Nina Chestney
The UK's Department of Energy and Climate Change (DECC) will auction 4 million permits out of a total 84 million from the second phase of the European Union's Emissions Trading Scheme (EU ETS), which runs from 2008-12.
It plans to auction a further 25 million of the credits, called EU Allowances (EUAs), next year.
Wednesday's sale, which could set a model for more in the coming months, will raise around 67 million euros ($84.58 million) for government coffers, based on Tuesday's EUA price of 16.8 euros per tonne.
The government could have boosted cash flow further by holding the auction when the EUA price starts to rebound from a 19-month low, Point Carbon analysts said.
"The auctioning of carbon allowances is a new form of taxation. Someone else is paying and the (government) doesn't even have to argue that taxation has increased," said UBS analyst Per Lekander.
The ETS aims to put a price on greenhouse gases such as carbon dioxide, which scientists say cause dangerous climate change, to persuade companies to reduce their emissions.
Under the scheme, participants receive a set quota of emissions permits, which are issued by governments into accounts held at national emissions registries.
The European Commission allows governments to auction up to 10 percent of the allowances issued in Phase 2 in preparation for 2013, when carbon permits will no longer be issued for free to electricity generators.
One advantage of auctioning is that it provides a way for governments to recoup the extra carbon costs that utilities pass on to consumers, and recycle these back to the taxpayer.
That auction revenue could reach 70 billion euros annually for the combined treasuries of all EU states by 2020.
NO EARMARKING
But a spokesman for the DECC said Britain will not earmark, or hypothecate, revenues to particular causes in advance.
"It's the government's prerogative to decide where the money will go. Ring-fencing is not the way; it ties the government's hands," the spokesman said.
Under proposals made by the European Commission in January, the UK needs to generate 15 percent of its energy from renewable sources like wind and solar, or more than triple the current levels.
This Renewable Energy Directive is expected to cost UK consumers 5.3 billion pounds ($8 billion) a year, or around 213 pounds per household, according to an Ernst & Young report published in June.
Environmental pressure group WWF said the auction should be an opportunity for the government to raise large amounts of money for tackling climate change and creating jobs in the renewable energy sector.
"If it is not prepared to ring-fence that money for climate change, it should announce a similar level of funding or explain where climate change money will come from," said Kirsty Clough, climate change policy officer at WWF.
The Confederation of British Industry believes the government should use the revenue as a tax cut for industry participating in the EU ETS or to support demonstration projects for carbon capture and storage, which is seen as an increasingly vital technology.
"The Prime Minister and his predecessor are on the record as saying that climate change is a unique challenge for the country. We do not think it is unreasonable in unusual times to call for new approaches," said Matthew Farrow, the employer group's head of environment.
Up to now, consumers have been paying for climate change policy.
Energy bills have risen to help pay the costs of meeting EU goals to cut greenhouse gas emissions by a fifth by 2020, as the EU's trading scheme sees utilities add to electricity prices the cost of the carbon permits many of them get for free, resulting in windfall profits.
"You would think revenues should be reinvested in climate change but no government anywhere will allow itself to be restricted by what it does with its revenue, unless they all agree, universally, to be bound by the same rules," said IDEAcarbon Director Alessandro Vitelli.
(Reporting by Nina Chestney; Editing by Anthony Barker)