Select Committee on Environmental Audit Memoranda

Annex 4


  Since New and Renewable Energy, Prospects for the 21st Century, The Renewables Obligation, Preliminary Consultation has been published, the DETR has published its consultation on a greenhouse gas emissions trading scheme. This ascertains that a system to trade carbon dioxide equivalent permits and credits will be set up in the UK this year. It is anticipated that this will become a global market.

  The Association wrote to the DTI and DETR earlier this year, voicing concerns that certificates will not be easily broken into their component parts: carbon offsets and other attributes.[53]

  In the same way that a Renewable Obligation Certificate (ROC) can be traded separately from the physical electricity, in order to ensure the best price is received for the various components of output, so the certificate should be tradeable, with or without the carbon element.

  The Association is pleased that the DETR's consultation document on an emissions trading scheme[54] concurs with the view that renewable energy output reduces greenhouse gas emissions from what they otherwise would have been (the normal criterion for carbon credit creation). It acknowledges that in addition to "CO2-equivalent" there are "wider (non greenhouse gas) goals" related to the Obligation. As a point of clarity, we would suggest that whilst the DETR's document suggests the carbon value will only be tradeable separately from the "wider goals" once a supplier has met its renewable obligation, in reality it is likely that traders will offer instruments, if economically viable, that offer such a split in advance of the obligation being met.

  It is not a case of trying to sell the same product twice: ROCs with carbon value would fetch a higher price than those without carbon, where the carbon value had been sold elsewhere.

  Such trades will not, however, expose the Obligation in any way: the value of the acknowledged "wider goals" will be sold, and the associated ROC will be registered.

  The market will split the various elements, but there would be no effect on the administration of the scheme. Both the DTI's recent consultation on renewable energy and the DETR's document anticipate that there will be registries, with associated rules, established for ROCs and emissions trading. Transparency and certification will be integral parts of each system.

  Trading the various elements of the ROC in appropriate markets will create the best markets, for generators and suppliers, and help ensure that the Obligation is met through purchasing of renewable output, rather than paying the buy out price.

  Furthermore, correct pricing should minimise the amount consumers have to pay through the FFL and the cost of the Obligation.

  The flexibility of generators being able to sell the carbon reductions element of the ROC into the developing global market, could offer higher prices to generators. This could potentially lower the price at which generators are willing to sell the remaining components of the Obligation, reducing levy requirements for NFFO-3, 4 and 5 and reducing consumers' bills directly for non-NFFO output.

53   Letter to John Doddrell, DTI from Nicola Steen, AEP, 26.7.00. Back

54   DETR: A Greenhouse Gas Emissions Trading Scheme for the United Kingdom, consultation document. London: November 2000. Back

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