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