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Emission Trading Scheme

The Minister for the Environment (Mr. Elliot Morley): I have today issued a consultation paper "EU Emissions Trading Scheme—UK Draft National Allocation Plan for 2005 to 2007", which invites views from individuals and organisations on the Government's proposals for allocating allowances to participants in the first phase of the EU scheme and on a number of operational issues.

The EU emissions trading scheme will start in 2005 and will establish the world's largest ever market in emissions allowances. The scheme is the most significant measure in the EU climate change programme. Its objective is to reduce, in the most cost effective way, EU emissions of greenhouse gases that contribute to the problems associated with global warming. The Government stated in last year's Energy White Paper that the scheme will be a central plank of its future emissions reductions policies. The scheme will regulate the carbon dioxide emissions of up to 10,000 installations across the EU including those in the power

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generation, mineral oil, iron and steel, mineral and pulp and paper sectors. Approximately 1,500 UK installations are expected to be within the scope of the scheme which are responsible for about 50 per cent. of total UK emissions of carbon dioxide.

The Government is firmly committed to its national goal of moving towards a 20 per cent. reduction of carbon dioxide by 2010. The initial allocation of allowances for the first phase of the scheme is consistent with an overall reduction in UK carbon dioxide emissions of 16.3 per cent. The overall level of allowances to be allocated for the second phase, which runs from 2008–2012, will be strengthened to be consistent with the trading sector's contribution to achieving the 20 per cent. goal.

The consultation documents explain the decisions that the Government has taken in the light of responses to earlier consultation. In particular it explains how the

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total quantity of allowances has been calculated, how these allowances are to be distributed between each of the industry sectors covered by the scheme in 2005–2007, how sector totals are to be distributed between individual installations and the proportion of allowances to be allocated each year. They also set out proposals for allocating allowances to new installations and for dealing with plants which close, including making use of the auctioning provision to distribute any unused allowances set aside for new entrants.

Each EU member state is required to draw up a draft national allocation plan for submissions to the European Commission by the end of March 2004. Consultation will run until Friday 12 March. The Government will be holding a consultation seminar and meetings with individual sectors of industry during the consultation period to discuss the proposals. Following this the draft national allocation plan will be refined to take account of comments made during consultation before it is submitted to the European Commission.