Carbon Trading

Carbon Trading
1. What is Carbon Trading?
2. What is pro.manchester doing in relation to Carbon Trading?
3. Where can I go for additional help?

What is Carbon Trading?

Carbon Trading is another expression for the term “emissions trading”. In essence this is an administrative approach used to control carbon emissions by providing economic incentives for achieving reductions in the emissions of pollutants - in this scenario, the emissions of carbon dioxide. (CO2)

For the purposes of this note we are using the term "Carbon Trading" to include any form of trading of goods and services in the Carbon Market which in any way impacts upon carbon dioxide emission control or regulation.  On the one hand there are carbon emitters who will be caught by the regulatory regime (consumers of services) and on the other there will be providers of a range of services which consumers will require in order to meet their regulatory requirements.

Clearly the Financial and Professional sector has a significant role to play in meeting the needs of consumers requiring specialist services to meet regulatory requirements. They also need to recognise the fact that entitities within the Financial and Professional sector may also be consumers in this new market!

Why is this relevant now?

Carbon Reduction Committment - Energy Efficiency Scheme. (CRC)
The CRC is a new mandatory, energy efficiency emissions trading scheme for the UK which comes into effect in April 2010. To quote from the Environment Agency's website " CRC is central to the UK's strategy for improving energy efficiency and reducing carbon dioxide emissions. "Like it or not, emission regulation is here to stay and all affected enterprises on the consumer or supplier side, need to gear up to meet the challenges it poses and the opportunities it presents.

How does CRC work?

CRC, like a number of other emissions trading schemes including the European Union Emissions Trading Scheme (EUETS), operates as what is called a "cap and trade" scheme. In essence a cap is applied by a regulatory body each year capping the number of tons of CO2 which can be emitted each year - adminstered in the UK by the Environment Agency. A corresponding number of CO2 emissions allowances will be made available by the regulator to be purchased by CRC participants. The idea is that the overall cap will reduce year on year meaning that the number of allowances will reduce accordingly.

The first phase of the CRC scheme (April 2010 – March 2013) is likely not to involve a requirement to “trade” CO2 emission allowances as the Environment Agency/DECC have acknowledged the need in the market place to become familiar with the form of regulation, while also recognizing cashflow implication at a particularly critical time for most operations while in recession. But in all other respects affected emitters will need to be ready. During each phase participants in the CRC will need to establish whether to:

- implement energy efficiency schemes to reduce CO2 emissions to come within the number of allowances, they have and/or
- buy or sell allowances amongst other participants on what is called either the primary or the secondary carbon trading market.

At the end of each emissions year there are two significant events:
1. A League table is produced setting out the performance of all participants for the previous year, and
2. if emissions exceed available allowances fines will be levied against its participants by the Environment Agency. Bonuses can be paid to emitters who have reduced their emissions, while fines can be levied against emitters who have failed to reduce their emissons.

Risks
- Cashflow implications of having to buy allowances
- fines for non compliance
- reputational risk through position on annual league table
- capital cost to improve energy efficiency
- IGNORANCE of all of the above.

Are you caught by CRC? Check the simple flowchart

What is pro.manchester doing in relation to Carbon Trading

In simple terms we are exploring whether there are real opportunities for the Financial & Professional sector in Manchester and the North West within this new emerging market.

What has been done so far?

A piece of research was commisioned last year to identify key reccommendations for progressing this piece of work.
Wood Holmes Group Report November 2005 - this identified three key areas of the wider carbon market which it felt were ripe to explore further, these being:
- creation of some form of carbon fund with a view potentially in the longer term of examing the viability of some form of Emissions Depository being located in the North West
 - Understanding the carbon supply chain - what is needed? what is supplied and from where, are there missing links? is additional support needed?
 - Raising awareness in the North West community of the significance of CRC and providing networking opportunities for participants and potential suppliers of services.

Subsequently NWDA has funded an extension to that piece of research. Mark Fitzgibbon, a partner at Cobbetts LLP was seconded to pro.manchester to carry on this work.

Where do members come in?

Take part! we're keen to actively engage with our Members to understand their first hand experiences of working within any of these three ICE niche markets to determine what the issues are in breaking into or operating within those markets; or just to hear your views generally. Click here to get in touch.

Further Resources

Climate Change Glossary
Relevant Legislation
Useful Links