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Sir John Bourn, head of the National Audit Office, reported today that the Emissions Trading Scheme has brought about a reduction in emissions of greenhouse gases and that the Scheme has benefited the UK economy. He noted that, whilst some reductions were likely to have happened without the Scheme, most of the reductions were generated by the scheme. Sir John concluded that the Scheme was a pioneering initiative with significant achievements, and the Department has the opportunity to share the lessons learned from the innovative policy.

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The Scheme enables participants in the Scheme to buy and sell allowances to emit greenhouse gases. It was launched in March 2002, when the Department for Environment, Food and Rural Affairs (DEFRA) agreed to pay participants £215 million over five years, in return for binding commitments by the participants to cut their greenhouse gas emissions. Since then, these participants and others have been able to trade emissions allowances.

In the Scheme’s first year (2002), the 31 participants receiving incentive payments reported total emissions reductions almost six times their total target for the year: 4.64 million tonnes, compared to a target of 0.79 million tonnes. NAO analysis of the four participants in the scheme who exceeded their targets by the widest margin, shows that most of the emissions reductions reported by these participants (66 per cent) were the result of action taken in response to the scheme, such as changes in operating methods and capital investment. They were also using incentive payments to fund investment to deliver further emissions reduction in the future.

However, the analysis of these four participants also shows that an estimated 34 per cent of these emissions reductions would have happened without the scheme. These four participants were selected because, taken together, they account for more than 80 per cent of the reductions reported in 2002. Since each participant’s circumstances are unique, the findings in these four cases are not typical of the remainder of the Scheme, where not all participants exceeded their targets, but they are nonetheless significant because these four participants account for 50 per cent of the incentive funding paid.

The timescale for the launch of the Scheme was pressured, in order to gain most benefit for the UK prior to the launch of international emissions trading schemes. More companies may, however, have taken part in the scheme, resulting in more emissions reductions being achieved, if they had been given more time to prepare.

Organisations participating in the scheme and other companies providing services to them (such as emissions broker and environmental consultancies) have gained experience of emissions trading which will put them in a strong position when the European Union Emissions Trading Scheme begins in 2005. However differences between the UK and European schemes will make integration, for those participants affected and for providers of emissions trading services such as brokerage and verification, less straightforward then initially hoped.

Sir John Bourn said today,

“The Department’s voluntary Emissions Trading Scheme was a pioneering initiative which has brought about significant achievements. There are lessons to be learned on Scheme design and implementation should further similar trading schemes be set up, but UK companies should benefit from their early experience when a European Union Scheme is introduced in 2005”.

 

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