ANALYSIS - British companies warm to greenhouse gas trading
Date: 26-Mar-02
Country: UK
Author: Neil Chatterjee
Emissions trading has been embraced by Britain, Denmark, Norway and the European Union as a way of helping companies to reduce pollution as part of the U.N. Kyoto Protocol.
The UK target is to cut greenhouse gas emissions by 23 percent on 1990 levels by 2010, well above the average of 5.2 percent that industrialised countries are committed to by the protocol.
Certain companies have voluntarily agreed individual targets with the government, for which they can gain a cash incentive or tax rebates.
If a company reduces its emissions by more than its target or invests in renewable energy it gains credits or allowances, which it can sell. Companies that do not make their targets can buy these allowances to offset their emissions, either directly or through brokers.
"It's been free to pollute, now it costs to pollute," one of the new breed of emissions traders said.
Britain's scheme is set to start on April 2, though forward trades under the UK regulatory system began last September.
Market prices for UK emissions credits or allowances are at three to six pounds ($4.28-$8.57) per tonne of carbon dioxide, brokers and traders said. "This is the range of prices, it's not a hugely liquid market yet but it has potential," said Albrecht Von Ruffer, broker at emissions trader Natsource.
Recent weeks have seen a handful of trades, though details remain confidential, said Von Ruffer.
Emissions trading was one of the means set out by the Kyoto Protocol to reduce pollution. Globally there have been more than 65 trades totalling 50 million to 70 million tonnes over the past five years, according to a report released this month by the U.S. environmental group The Pew Center.
However the world's biggest polluter, the United States, pulled out of the deal last year and has rejected a national emissions trading system for carbon dioxide, saying it would hurt economic growth.
UK AHEAD OF EU
The protocol could lead to a global market in greenhouse gas emissions from 2008. The UK is keen to kick start the process.
"We think this gives British companies experience of trading and a first advantage - and it's a good way of reducing emissions," said a government spokesman.
Thirty-four British organisations, including blue-chip firms such as British Airways and BP as well as the Natural History Museum in London, bid in an auction this month for 215 million pounds ($306.9 million) of government incentives to join the UK scheme.
Participants agreed to cut over four million tonnes of greenhouse gas emissions over five years, either in-house or by buying and selling emissions allowances.
Oil major Shell said it was already trading but saw only a gradual uptake of the British system.
"I doubt there will be many trades. UK emissions trading is a stepping stone, it's voluntary with a small number of players," said an emissions trader at the company.
"The bigger issue is the proposed EU system - we would like to see clarity on the UK transfer into the EU-wide system, as while there is no clarity that stymies trade," he said.
EU proposals adopted in October call for compulsory trading just on carbon dioxide by 2005. The UK system is voluntary and covers six greenhouse gases but Britain is pushing ahead despite the two systems failing to dovetail.
Environmentalists said the success of emissions trading depends on the rules.
"If it results in an actual reduction in emissions, that's good. It can let the market find the cheapest way to get the job done," said Steve Sawyer, climate campaigner at Greenpeace.
"Hopefully the money saved will be invested in the right way to get further credits."
MISSING TARGETS WOULD INCREASE DEMAND
Other companies in the auction surveyed by Reuters said they would reduce emissions by around 10 percent over five years, mostly through greater energy efficiency.
But some said although they were confident of making their goals, they would be unlikely to start trad
