The Economics of Carbon: Trading and Tax Exemptions
Submitted by admin on February 16, 2006 - 05:10.
Renewable Obligation Certificates (ROCs):
The Renewables Obligation requires all electricity suppliers to supply electricity with an increasing percentage coming from renewable supplies. OFGEM regulates the Renewables Obligation by using ROCs, which are submitted by the electricity suppliers as evidence that they have bought power from renewable generators. ROCs therefore add value to clean, renewable electricity, providing an additional income source for owners of renewable energy generation systems. The trading of ROCs is a contractual matter between relevant parties, for example the generator and the supplier. There are organisations that pool together small-scale ROCs and sell them for a higher price and take a cut of the money. ROCs may be sold to suppliers (or third parties) either with, or separately from, the electricity generated. In 2005-6, the trading price for ROCs was at £45.
Emissions Trading Scheme:
Emissions trading gives companies the flexibility to meet emission reduction targets according to their own strategy; for example by reducing emissions on site or by buying allowances from other companies who have excess allowances. Working on a ‘cap and trade’ basis, each EU Member State government is required to set an emission cap for all installations covered by the scheme. The number of allowances allocated to each installation for any given period is specified in a National Allocation Plan (NAP). The EU Emissions Trading Scheme (EU ETS) is one of the policies being introduced across Europe to reduce emissions of carbon dioxide. Phase I of the Scheme began on 1 January 2005 and will run until 31 December 2007. Phase I of the EU ETS is compulsory for all 25 EU Member States covering 1055 installations in the UK and more than 12,000 across the EU. An ‘installation’ is defined in the ETS Regulations2 as: ‘a stationary technical unit with a thermal input over 20MW thermal input, where one or more activities have an effect on greenhouse gas emissions and pollution (e.g. energy activities)’. Individual firms can voluntarily register to join the scheme.
Phase II will run from 1 January 2008 until 31 December 2012 and may be extended to include other energy intensive activities and greenhouse gases3. The second phase is likely to enforce greater involvement from different industrial, commercial and private sectors. UK firms covered by the EU Emissions Trading Scheme opened their web-based carbon accounts in May 2005. Free allowances for existing installations are given to operators representing a tonne of the relevant emission (in this case CO2 equivalent). Operators trade their allowances across EU countries through the registry software, which records CO2 allowances held in firms’ accounts.
Operators must surrender allowances equal to their emissions each year, and will be fined €40 for each unmatched tonne in any particular year. Operators of installations who emit more than their free allocation can reduce their carbon footprint by investing in emissions reduction strategies, or buying further allowances. Operators who emit less carbon dioxide than their allocation may sell surplus allowances. Energy efficient measures and sourcing power from renewables will therefore yield greater payback if firms participate in the carbon-trading scheme. Net producers of renewable energy will therefore be able to generate additional income through this scheme.
Climate Change Levy:
Introduced on 1st April 2001, the climate change levy is a tax on the use of energy in industry, commerce and the public sector, with offsetting cuts in employers' National Insurance Contributions and additional support for energy efficiency schemes and renewable sources of energy. Electricity generated from new renewable energy (e.g. solar and wind power) is exempt from the levy.
‘Fiscal changes to fuel duty and The Emission Trading Scheme
will significantly influence the built environment’ King Sturge1
will significantly influence the built environment’ King Sturge1
Renewable Obligation Certificates (ROCs):
The Renewables Obligation requires all electricity suppliers to supply electricity with an increasing percentage coming from renewable supplies. OFGEM regulates the Renewables Obligation by using ROCs, which are submitted by the electricity suppliers as evidence that they have bought power from renewable generators. ROCs therefore add value to clean, renewable electricity, providing an additional income source for owners of renewable energy generation systems. The trading of ROCs is a contractual matter between relevant parties, for example the generator and the supplier. There are organisations that pool together small-scale ROCs and sell them for a higher price and take a cut of the money. ROCs may be sold to suppliers (or third parties) either with, or separately from, the electricity generated. In 2005-6, the trading price for ROCs was at £45.
Emissions Trading Scheme:
Emissions trading gives companies the flexibility to meet emission reduction targets according to their own strategy; for example by reducing emissions on site or by buying allowances from other companies who have excess allowances. Working on a ‘cap and trade’ basis, each EU Member State government is required to set an emission cap for all installations covered by the scheme. The number of allowances allocated to each installation for any given period is specified in a National Allocation Plan (NAP). The EU Emissions Trading Scheme (EU ETS) is one of the policies being introduced across Europe to reduce emissions of carbon dioxide. Phase I of the Scheme began on 1 January 2005 and will run until 31 December 2007. Phase I of the EU ETS is compulsory for all 25 EU Member States covering 1055 installations in the UK and more than 12,000 across the EU. An ‘installation’ is defined in the ETS Regulations2 as: ‘a stationary technical unit with a thermal input over 20MW thermal input, where one or more activities have an effect on greenhouse gas emissions and pollution (e.g. energy activities)’. Individual firms can voluntarily register to join the scheme.
Phase II will run from 1 January 2008 until 31 December 2012 and may be extended to include other energy intensive activities and greenhouse gases3. The second phase is likely to enforce greater involvement from different industrial, commercial and private sectors. UK firms covered by the EU Emissions Trading Scheme opened their web-based carbon accounts in May 2005. Free allowances for existing installations are given to operators representing a tonne of the relevant emission (in this case CO2 equivalent). Operators trade their allowances across EU countries through the registry software, which records CO2 allowances held in firms’ accounts.
Operators must surrender allowances equal to their emissions each year, and will be fined €40 for each unmatched tonne in any particular year. Operators of installations who emit more than their free allocation can reduce their carbon footprint by investing in emissions reduction strategies, or buying further allowances. Operators who emit less carbon dioxide than their allocation may sell surplus allowances. Energy efficient measures and sourcing power from renewables will therefore yield greater payback if firms participate in the carbon-trading scheme. Net producers of renewable energy will therefore be able to generate additional income through this scheme.
Climate Change Levy:
Introduced on 1st April 2001, the climate change levy is a tax on the use of energy in industry, commerce and the public sector, with offsetting cuts in employers' National Insurance Contributions and additional support for energy efficiency schemes and renewable sources of energy. Electricity generated from new renewable energy (e.g. solar and wind power) is exempt from the levy.
1 http://www.kingsturge.co.uk/commercial/research/
2 http://www.defra.gov.uk/environment/climatechange/trading/eu/info/index.htm
