Power firms continue work on CO2 trading

The electricity industry is to lead further work on the development of a UK emission trading system for carbon dioxide despite the verdict of the Marshall report that a statutory scheme should be ruled as a short-term option.

Commissioned by the Government last spring, Lord Marshall's report on economic instruments and the business use of energy was published as the Chancellor unveiled his pre-Budget report on 3 November.

The report came out strongly against early introduction of a trading system for industrial CO2 emissions, mainly because Lord Marshall foresaw serious difficulties in agreeing a mechanism for equitable allocation of permits between sectors. His preferred option was an energy tax, with no exemptions for energy-intensive sectors (ENDS Report 285, pp 17-22 ).

The industry bodies which attempted over the summer to persuade Lord Marshall that a trading scheme could be introduced within a couple of years in the hope of avoiding an energy tax (ENDS Report 284, pp 28-33 ) are licking their wounds. The Association of Electricity Producers (AEP) was among them. David Porter, its Chief Executive, accepts that the chances of dissuading the Government from introducing an energy tax are now "not good", although he remains insistent that trading "will stand more chance of delivering emission reductions."

Nevertheless, the AEP is to continue its work on developing detailed ideas on how a trading system might work. Earlier this year, it brought together other trading enthusiasts, mainly in the oil and gas industries, as well as representatives of other industries and civil servants.

Five working groups with similar participation are now being set up to maintain the momentum. Over the next few months, they will examine issues such as the scope and principles of a trading system; different permit allocation methods, including auctioning; different approaches to a pilot scheme; "buyer and seller beware" issues; and possible constraints on trading, such as the incoming integrated pollution prevention and control regime which will impose statutory energy efficiency requirements on heavy industry.

Official interest in emission trading has by no means been killed off by the Marshall report. The Department of the Environment, Transport and the Regions is understood to be keen to see a non-statutory pilot scheme, though one largely run by industry itself.

But no official view on what form a non-statutory scheme should take can be expected until at least next summer. The Government has slipped provisions to set up a statutory trading scheme into the new Pollution Prevention and Control Bill (see pp 28-29 ), but it seems that these powers are unlikely to be used for some time.

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