UK firms bid in auction to cut 4 mln T of CO2
Date: 15-Mar-02
Country: UK
Author: Neil Chatterjee
This exceeded expectations and will be over five percent of the UK's planned reduction in greenhouse gas emissions by 2010, the government said.
Leading firms, including British Airways, BP, Shell and Barclays, bid in a competitive auction for 215 million pounds ($303.2 million) of government incentive money, given to those who pledge to cut the most emissions.
"This is the first trading scheme of its kind and demonstrates the UK's commitment to fully meeting its obligations under international climate change agreements," said British Environment Minister Michael Meacher in a statement.
The government said last week it had a likely budget of 150-200 million pounds ($213.2-$284.2 million) over five years for the scheme, though the full budget of 215 million was used.
This was because the government had got value for money, with its objective to obtain the maximum level of reductions for the incentive pot, a Department of Environment, Food and Rural Affairs spokeswoman said.
The government had expected companies to pledge to cut around 2.9 million tonnes of carbon dioxide, she said.
Many scientists blame carbon dioxide emissions for global warming and climate change, including increased risk of droughts and storms.
STRONG COMPETITION FOR INCENTIVE
In the descending auction, the cash given per tonne of carbon dioxide reduction progessively dropped through nine rounds from 100 pounds ($141) to a closing price of 53.37 pounds ($75.27) per tonne.
At the end of each round, the auctioneer determined whether the lowest price times the quantity of emission reductions bid was more than the budget of 215 million pounds - whether there was sufficient money to pay for all the bid reductions offered.
If this was greater than the budget, another round started. The auction ended when the price times the total quantity of reductions bid used up the incentive pot. The companies that were still prepared to cut their emissions at the closing price won the incentive.
"It exceeded expectations - the competitive price shows there is demand for this sort of market," the spokeswoman said.
Forty-six companies had signed up for the auction though 38 entered it, with a few dropping out as the level of government cash versus the costs of cutting their emissions was not profitable, she added.
There is a cap at 20 percent of the yearly incentive fund for any one company. The scheme is designed to significantly cut the cost for British firms of complying with the Kyoto Protocol, with the government target to cut emissions by 23 percent on 1990 levels by 2010.
Under the terms of the voluntary trading scheme, due to begin on April 2, participants agree to cut greenhouse gas emissions, either in-house or by buying and selling carbon allowances.
Companies with the lowest cost of reducing emissions will be able to sell surplus pollution permits to those with the highest cost of reducing emissions.
"It will give UK companies invaluable experience of emissions trading at a national level. This will put the UK in a good position when global trading starts," Meacher said.
Nearly 6,000 more companies are expected to join the scheme later this year, but were not eligible for incentive cash in the auction as they already hold climate agreements to cut a fixed amount of emissions.
This gives them tax advantages, the spokeswoman said.
They will also be able to sell credits into the scheme if they cut emissions by more than their targets.