Friday, January 16, 2009

The UK Carbon Trading Schemes

The Beginners' Guide to the UK's Carbon Trading Schemes by Saffron Samson

The purpose of the UK's carbon trading schemes is to help the campaign against climate change by making businesses pay for carbon emissions that cause global warming. This is intended to give them a financial motivation to reduce those emissions. The three main schemes are known as the EU Emissions Trading Scheme, the UK's Carbon Reduction Commitment and the UN's Clean Development Mechanism.

Under the first of the UK's carbon trading schemes, the EU Emissions Trading Scheme that had its first phase from 2005 to 2007, there is a cap on emissions by heavy polluters. If they exceed their caps they pay for the excess by buying more credits from similar businesses that do not use up all their allowances. This phase was seen as unsuccessful with a price crash resulting from too many free allowances and some companies selling off their free credits but not reducing their emissions sufficiently. For the second phase, from 2008 to 2012, allowances are more controlled and prices should become more stable. The third phase, starting in 2013, is expected to result in a noticeable pollution decrease and a significant increase in cost to businesses, mainly because the majority of credits will be auctioned rather than allocated freely.

While this scheme is aimed at companies that produce half the UK's emissions, the smaller polluters have not been forgotten. Another of the UK's carbon trading schemes is the Carbon Reduction Commitment. This is a similar scheme starting in 2010 and in general will affect organisations that spend more than GBP500,000 annually on electricity, such as schools and hospitals.

The third scheme, the UN's Clean Development Mechanism, is designed for smaller businesses. Even though their emissions are not great enough to oblige them to participate in the UK's carbon trading schemes, they can elect to purchase carbon credits. Theoretically this could result in a shortage of credits that could raise the carbon price for the heavy polluters and motivate them even more to reduce their emission levels.

For more information and guides visit Carbon Credits Trading

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