UKCS Contribution to Delivering Environmental Targets

Emissions Trading Scheme

The EU ETS came into effect at the beginning of 2005, as part of Europe’s response to the challenge of climate change. The first phase is from 2005 to 2007 and the second from 2008 to 2012, the Kyoto period. Already, consideration is being given to a third phase; it will be important that clear decisions are taken by governments for the post Kyoto period to ensure that the evolving market is given the necessary signals to plan and develop in a manner which will deliver reductions in emissions in the most competitive way.

The results for the first year of phase one have now been published and, although too much should not be read into one year’s outcome, it would appear that the UK is shouldering its full share of the burden among EU Member States, significantly because of the government’s domestic target for CO₂ emissions which is far more demanding than achieving the country’s Kyoto target. Over all industrial sectors within the EU ETS, the UK’s emissions were 12.5% in excess of plan. However, this excess occurred entirely within the power generation sector, with other sectors – including offshore oil and gas – being within their plans.

When the first year’s results across the EU were published, the price of a tonne of CO₂ fell dramatically from €25-30 to around €10, although it has since partly recovered to €15-20. Such volatility suggests a “thin” market and lays down a challenge to those countries who have probably not implemented the EU ETS with the rigour which the UK has applied. Indeed, it is concerning that our government is potentially jeopardising industrial competitiveness through its more stringent implementation of the scheme than is occurring in other Member States.

Preparations for phase two are well advanced with a draft National Allocation Plan due to be published for comment in summer 2006, for final submission to the European Commission by the end of the year. DEFRA is the leading department for the ETS, with major support from DTI with whom UKOOA is working closely on all aspects of the scheme as it applies to offshore oil and gas. As part of an expansion of the emissions covered by the scheme, it is likely that offshore flaring will be included in the second phase.

Nonetheless, it is essential that those sectors of the economy within the EU ETS do not shoulder more than their fair share of the burden of reducing harmful emissions and that, in a competitive economy such as ours, all parts make their contribution. It is far from clear that this is the case currently, just as it is far from clear that all other Member States are contributing to the extent which the UK is.