Wednesday, 30 July 2008

Councils must take the lead on tackling energy costs

Paul Bettison
The Guardian,
Wednesday July 30 2008

You can bet that jaws will drop across the nation. As the cost of heating and lighting a typical home blasts through the £1,000-a-year mark, and the number of householders in fuel poverty nears 6 million, the main utility companies begin publishing their interim results this week - and the picture is expected to be one of healthy profits.
The Local Government Association (LGA) will be quoting the announcements in repeating its call for the government to levy an annual charge of £500m on the energy companies for at least five years. The LGA wants the money to insulate half of all homes in England and Wales, knocking £200 a year off the fuel bills of 10 million consumers, lifting 500,000 households out of fuel poverty, and cutting domestic carbon emissions by 20%.
You and I already pay an extra £33 towards our fuel bills to fund home insulation schemes run by the utility companies. What we are arguing is that the suppliers should match these contributions pound for pound out of their profits. Councils should lead this programme to tackle the pitfalls of existing schemes because local authorities would ensure a more efficient method of carrying out the work, greater accountability, and a better chance of encouraging householders to take part.
During a debate around the climate change bill, environment minister Phil Woolas said he supports the principle behind our proposals - but that the sticking point for the government is that, without changing how the energy market is regulated, it is not possible to stop the utility companies from passing on the charge to consumers.
I would argue that this stumbling block can be surmounted - it just needs a display of political will.
Energy regulator Ofgem has signalled a possible solution. Referring to the energy industry benefiting from a £9bn windfall in tradable permits under the European Emissions Trading Scheme, Ofgem chief executive Alistair Buchanan said: "That is why Ofgem is renewing its proposal that this windfall could be used to help customers in fuel poverty, who have been hardest hit by the recent energy price rises."
When Gordon Brown was challenged this month by Nick Clegg MP about fuel poverty, he said that winter allowance is paid to 11 million pensioners at a cost of £2bn, and that the utility companies are paying £100m to help low-income families. We support these measures, but they do not encourage people to reduce energy use over the long term, nor improve the housing stock.
Energy suppliers are making hefty profits at the expense of householders. Councils are the link between national aspirations and individual actions to tackle climate change. We should seize this chance to pay for a massive drive to insulate people's homes, providing a long-term solution to rising fuel costs and cutting carbon emissions.
· Paul Bettison is chairman of the Local Government Association's environment board.

Salmond pushes £22m wind-power expansion

Published Date: 30 July 2008
By Jenny Haworth

ALEX Salmond yesterday said the past ten days were the most exciting in the history of renewables in Scotland, as he gave the go-ahead for a major wind farm to expand.
Another nine turbines will be built alongside the 77 already given approval at the Crystal Rig wind farm, near Dunbar in East Lothian.The First Minister announced the extension during a visit to Natural Power, the company behind the project.The extra 27MW capacity provided by the £22 million extension could power more than 13,000 homes.Mr Salmond said the move "completes the most exciting ten days in the history of renewables in Scotland."Last week, he said that the largest wind farm in Europe would be built in Scotland.The 548MW Clyde project in South Lanarkshire is double the size of the largest wind farm in Europe outside Scotland. A 45MW biomass plant was also granted permission at the Tullis Russell papermill site in Markinch, Fife, ten days ago.

Digesting the problem

Britain has fallen well behind much of Europe when it comes to utilising manure from farms and waste from abattoirs and food processors to create gas and electricity. But that could soon change. Terry Slavin reports
Terry Slavin
The Guardian,
Wednesday July 30 2008

Looking at the cows on his dairy farm in Devon, Winston Reed does not see what many environmentalists do: animals burping up vast quantities of methane, a greenhouse gas 21 times more potent than CO2. He is more concerned with what comes out of the animals' other end - and it offers hope for the planet. As Reed says: "The poo from four cows can produce enough energy to heat and light a house for a year."
Unlike the methane that cows and other ruminants exhale as their stomachs convert grass into milk, and which is believed to be responsible for up to a quarter of "manmade" methane emissions worldwide, the gas in their manure can be harnessed as a force for good. And the same goes for all other forms of organic waste that would otherwise rot in landfill sites.
Reed, 35, is seeking planning permission to build an energy centre on his farm, in a rural community on the outskirts of Tiverton, near Exeter, taking in manure from local farms and waste from local abattoirs and food processors. It would not be the first of its kind in the UK, but it would be by far the most ambitious - creating electricity to light 6,000 local houses and £700,000 worth of heat for local industries, including a sawmill plant making wood pellets for biomass boilers. Since Tiverton's population is only 20,000, it will go a long way to making the town self-sufficient in energy, he says.
More than that, it will help address the issues of food and fuel security by making them more sustainable, at a time when both are in short supply.
The plans hinge on a technology called anaerobic digestion (AD). Organic material is fed into heated tanks, where natural fermentation breaks it down into methane and carbon dioxide - the same basic ingredients as natural gas. This biogas can then be burned to generate electricity in a combined heat and power plant, or, as many countries in Europe do, upgraded so it could be fed into the gas grid or used in vehicles modified to run on compressed natural gas. The only byproduct of the process is an organic fertiliser.
Such alchemy has been worked for decades in some parts of Europe - Germany has 3,000 on-farm AD plants - but has been relatively unknown in the UK, except in the sewage-treatment industry.
Play catch-up
That, however, is something that the Department for Environment, Food and Rural Affairs (Defra) wants to change. This month, three Defra ministers met with representatives from agriculture, the supermarkets, waste and water and energy companies, as well as local government, to discuss how Britain could play catch-up with Europe. The department sees the potential not only in terms of generating renewable energy but also in addressing the issue Gordon Brown highlighted at the G8 summit last month: the amount of food Britain wastes.
According to the Waste and Resources Action Programme (Wrap), UK households throw away almost a third of the food we buy: that's 6.7m tonnes of food waste. The CO2 generated in producing food that is wasted, and then the methane it gives off as it decomposes in landfill sites, results in the equivalent of 18m tonnes of avoidable CO2 emissions a year, Wrap says.
About a tenth of local authorities offer weekly food waste collection, but Defra wants to see this increased, and last year's waste strategy for England urged local authorities to consider AD for all their food waste. There are only a few large-scale AD plants in the UK, including one in Ludlow, south Shropshire, that processes 80 tonnes of kitchen and garden waste a week from 20,000 local homes and businesses. But earlier this year, Defra announced it would spend £10m to get more of these off the ground. Under proposed changes to the government's funding scheme for green electricity, AD plants will from next April earn double the Renewables Obligation credits, which can be swapped for cash.
However, Reed says the real key to success for AD may lie with major food retailers rather than the government. Many have been looking into AD as a solution for cutting food waste for some time.
Another pressing problem faced by supermarkets striving to cut their carbon footprints - the difficulty of sourcing "green electricity" - could also be solved by AD. Marks & Spencer is encouraging its suppliers to build AD plants on their farms, to process waste such as grass and manure, and is offering contracts to purchase the "green" electricity they produce. Richard Gillies, in charge of the company's £200m eco-plan, says AD not only makes sense from a carbon footprint perspective but is also a winning proposition for its suppliers. "It is an efficient way to deal with waste, which they would otherwise have to pay to dispose of," he says. "They get organic fertiliser, and they get an income stream from the electricity they generate. You are turning what would have been costs into benefits."
But there are even more efficient uses of AD than generating electricity, says John Baldwin, managing director of CNG Services, a member of the Greener for Life consortium that will build the Tiverton energy centre. He points out that one of the problems with generating electricity with AD is what to do with the spare heat, which, unlike electricity, must be used near where it is generated. Only 20% of it is used to heat up the digester. The rest, unless piped into a nearby leisure centre or hospital, goes to waste - and there isn't much call for a leisure centre near a sewage treatment plant or landfill site.
Unless there is a local use for the heat, it is far more efficient to do what countries such as Sweden do: clean up the biogas produced and put it straight into the gas grid. "The Swedes would not dream of burning valuable renewable methane for electricity production alone," Baldwin says. " If we had AD plants everywhere in the UK, we could get 20% of our gas from this very renewable resource."
At the moment, there is no incentive to do this in the UK. Only electricity from AD plants, not biogas, is lined up to get double credits from next year. Baldwin says the UK is also far from exploiting AD's other great potential: converting biogas into a compressed natural gas and using it to fuel cars and buses. This is what is happening in the French city of Lille, where most of the city's buses and refuse lorries are running on biomethane generated by domestic household waste and sewage.
Baldwin points out that biomethane has the lowest "well to wheel" CO2 emissions of any transport fuel, being almost twice as efficient as diesel at turning biomass into transport fuel - with no particulates and almost no other emissions. The problem, of course, is having the cars and lorries that can run on compressed natural gas, and infrastructure to support them. Unlike in Europe and even in a countries such as India - the city of Delhi runs most of its buses and taxis on it - CNG vehicles are not commercially available in Britain.
Fleets of lorries
Reed says Britain's retailers, with their fleets of delivery lorries, could again provide the answer. Tiverton's energy centre will initially use biogas to create electricity, but longer-term plans are to upgrade it to biomethane. This will then be combined with 7% hydrogen to create hythane, an even greener fuel, with half of biomethane's emissions.
The ideal customers for the fuel would be supermarkets, with their big fleets of lorries that can fuel up at centralised distribution depots, and Reed says he is currently in discussions with a retailer trying to tie up an agreement.
"It all boils down to food and fuel security," he says. "You can't have one without the other." And the cows on his farm are as good a place as any to start.
· The UK generates about 30m dry tonnes of agricultural manure and food waste each year - capable of producing methane with an energy content equivalent to 6.3m tonnes of oil. That could meet 16% of transport fuel demand.
· Just 6m tonnes of food waste could produce enough biogas to generate 1GWh of renewable electricity - about the same as a power station.
· Biogas-fuelled vehicles can reduce carbon emissions by between 75% and 200% compared to fossil fuels, but there is virtually no refuelling infrastructure in Britain. Germany has installed 800 natural gas filling stations in the last three years.
· Biogas gives lower exhaust emissions than fossil fuels, improving air quality.
· Experts say biogas could be produced in the UK for 50p-60p per kg, about the same as the current price of compressed natural gas.
· Running a vehicle on biogas is 40% cheaper than on diesel, and 55% cheaper than petrol. But high capital and maintenance costs make HGVs the only economic biogas vehicles so far.

New Delhi races to win nuclear deal approval

By Amy Kazmin in New Delhi and Demetri Sevastopulo in Washington
Published: July 30 2008 01:38

India has gone into diplomatic overdrive to persuade the United Nations nuclear watchdog and nuclear technology exporters to lift a decades-old embargo on New Delhi’s access to atomic energy technology, despite its refusal to give up its weapons programme.

India’s Congress-led ruling coalition won a domestic political fight last week over a landmark nuclear energy deal with the US. But New Delhi and Washington are facing an uphill battle to secure the necessary international and US congressional approval before President George W. Bush leaves office in January.
Ending its status as a nuclear pariah requires India to win endorsement from the International Atomic Energy Agency and the Nuclear Suppliers Group (NSG) for its planned safeguards to prevent foreign nuclear technology from being diverted to military use. The 35-member IAEA governing board is due to vote on India’s plan on Friday. Washington hopes the 45-member NSG will meet within the 10 following days.
Mr Bush last week reassured Manmohan Singh, the Indian prime minister, that he wanted to complete the deal as soon as possible. But domestic delays in India have greatly reduced the chance of US congressional approval this year.
India’s quest for foreign nuclear technology may also face resistance from countries unhappy with its rejection of the nuclear non-proliferation treaty. Brahma Chellaney, a strategic studies professor at New Delhi’s Council for Policy Research, says the NSG – formed after India’s first nuclear weapons test in 1974 – may impose conditions before giving India the green light. Scandinavian countries, with their opposition to nuclear weapons proliferation, and Pakistan, India’s neighbour, are seen as potential obstacles.
“The future of the [Indo-US nuclear] deal is far from certain,” said Mr Chellaney. “This elation among proponents that the way has been cleared is so misplaced. It’s very likely that this deal will pick up more conditions when it goes through the NSG.”
George Perkovich, a non-proliferation expert at the Carnegie Endowment for International Peace, said one possibility was that the NSG would seek a ban on countries exporting civil nuclear technology to India if New Delhi – which also tested nuclear devices in 1998 – carried out further tests.
China, India’s neighbour and strategic rival, has so far remained quiet on any objections it might have, at the official level at least.
“We believe different countries can co-operate on peaceful use of nuclear energy on the premise of observing international obligations,” Liu Jianchao, a Chinese foreign ministry spokesman, said this month. But any deal, he added, “should be ... conducive to strengthening the international non-proliferation efforts”.
Some Chinese analysts argue that the introduction of advanced US nuclear techniques to India could upset the strategic balance in south Asia and stimulate a new nuclear arms race. The fact that India is not a signatory to the nuclear non-proliferation treaty could also weaken the authority of the international non-proliferation system, other Chinese experts contend.
Pakistan, which sits on the IAEA governing board, has objected to an Indian inspections regime and called for the agency to draft a “non-discriminatory” safeguards plan applicable to all countries, which could delay IAEA approval for India.
Japan, a member of the IAEA board and the NSG, appears to have concluded that having a strong India as a strategic counterweight to China overrides unease on welcoming a new nation to the nuclear club. “India and Japan are strategic partners,” said Tomohiko Taniguchi, a foreign ministry spokesman.
The Bush administration hopes to have IAEA and NSG approval in time to notify Congress in early September. But unless Congress goes into recess later than scheduled – currently late September – lawmakers may not have the 30 days required before they can vote on the deal.
The Democratic leadership on Capitol Hill has also ruled out holding a “lame duck” session between the presidential election and the inauguration of the next president in January. A congressional aide said it was unlikely to be a priority early in a new administration.
Additional reporting by Farhan Bokhari, David Pilling, Chris Mason, Hugh Williamson and Geoff Dyer
Copyright The Financial Times Limited 2008

Indonesia Has Lots of Coal -- And Blackouts in Capital

Low Electric Rates Drive Producers To Export Market
By YAYU YUNIARJuly 29, 2008;

JAKARTA -- Indonesia is the world's largest producer of thermal coal, which is used to generate one-third of the nation's electricity. So why are factories, businesses and ordinary citizens around this sprawling capital city facing chronic blackouts?
The answer: Indonesian coal producers would rather export at a higher price than sell locally to PLN, the state-owned electricity utility. That has left PLN with a coal deficit in recent months, forcing it to turn the power off in sections of Jakarta for hours each day.
In a desperate move to reduce power usage, the government is forcing factories in industrial zones around Jakarta to shut for two days between Monday and Friday and move those working days to the weekend. And it is trying through television advertising campaigns to persuade consumers to switch off lights and minimize power consumption.
The troubles are one example of how attempts by governments in many parts of the developing world to control prices for consumers can lead to problems. In Indonesia, the government sets low rates for electricity that don't reflect its real cost. That has contributed to years of underinvestment in power infrastructure. As the international market price for commodities like coal rises, Indonesian producers can often get a better price by exporting than by selling to their home market.
The power issue is hurting Indonesia's attractiveness as an investment site. More than 400 Japanese companies -- making everything from food to textiles -- jointly issued a formal complaint to the government this month about the frequent cuts to power supply and threatened to pull out unless the problems are resolved quickly.
The power shortages are "sending negative signals and discouraging investment," said Adam Sack, Indonesia head of the International Finance Corporation, the corporate investment arm of the World Bank.
Other Asian countries are also facing electricity shortages caused by rising coal prices, which have more than doubled in the past year. China is rationing electricity during the peak-usage summer season. High coal prices have already forced many small power producers there out of business, exacerbating supply shortages.
The coal squeeze reflects competition among Asia's still-expanding economies for resources to meet their power needs. In India, Tata Power Co. is investing $4 billion to develop one of the world's largest coal-fired power plants by 2012. To ensure coal supplies for the plant, Tata last year agreed to pay $1.1 billion for a 30% stake in two large Indonesian coal mines, further draining supply for domestic Indonesian users.
Indonesia, Southeast Asia's largest economy, has abundant resources of commodities including natural gas, palm oil and nickel. Balancing exports of these commodities to hungry consumers in China and India with Indonesia's domestic needs has proved tricky. The economy is forecast to expand 6% this year, largely because of the commodity exports. Yet the power shortages may hurt growth.
Indonesia suffers from years of slow investment in new power plants and power transmission lines. Since the 1997-98 Asian financial crises -- which led to the collapse of a number of joint-venture independent power projects -- foreign investors have shunned Indonesia's electricity-generating sector. One problem is that investors can't be sure the government will set the conditions enabling them to make a return.
"Indonesian decision making is so slow and unclear," said Hongjoo Hahm, a specialist on infrastructure with the World Bank in Jakarta.
With the country's main Java-Bali grid heavily overloaded, Jakarta introduced a plan in 2006 to quickly build coal-fired plants with a capacity of 10,000 megawatts. It lined up Chinese state-owned companies to participate. These projects were supposed to come on line by 2010, but construction has been delayed because of uncertainties over Indonesian government guarantees that PLN will buy the electricity generated.
Officials hoped that coal would be a cheaper source of fuel for Indonesia's power plants than oil and diesel. But international thermal coal prices have risen by about 160% in the past year to $180 per metric ton. With coal shortages globally, many big Indonesian miners say they can get higher prices selling to Indian or Chinese customers. Meanwhile, cash-strapped PLN, which relies heavily on government subsidies, is unable to match global prices.
"It's a free market and one can not blame coal producers," said Supriatna Suhala, director of the Indonesian Coal Miner Association. Indian buyers, he said, are willing to pay about a third more than PLN per tons of coal. "Not to mention that payment [from PLN] is often delayed up to five months," Mr. Suhala added.
Write to Yayu Yuniar at

Permit talks put brakes on drive to target gas guzzlers

Published Date: 29 July 2008

MOVES to introduce higher parking charges for the most polluting cars are set to be stalled as the controversial plans are put out for public consultation.
The proposals aimed at encouraging people to switch to greener vehicles have divided opinion in the Capital and were set to be discussed at today's council transport committee.But a final decision now looks to be months away as city leaders today pledged to carry out a public consultation. The plans would mean owners of the biggest gas-guzzlers would see the cost of an inner zone permit double from the current £160-a-year to £320. But drivers of the least polluting vehicles in the outer zones could see their charge fall from £80 to just £15. Residents would also face higher charges for second vehicles. The move for more consultation has today won broard support from some opposition politicians, but the Greens said their rivals' environmental credentials were on the line if they fudged a decision today. Deputy council leader Steve Cardownie said: "We are concerned that this might end up as some sort of trendy window dressing exercise without actually making much of a difference to the problem they are trying to address. "We need to take a proper look at this as I don't see where ability to pay has been taken into consideration. It just needs to go out to a wider consultation."Council officials estimate that more than 11,000 people will pay less under the scheme, with just 3348 residents paying more. The council expects this to result in a drop in income of nearly £44,000. Tory group leader Iain Whyte said: "The officers claim in the report there had been some consultation but there was not any widespread consultation as far as I'm aware."The proposals as they stand are turning parking charges into a tax whereas they were originally meant to cover the cost of the parking operation."Any changes to parking permits would involve a new traffic regulation order, which could result in a public hearing before the scheme was adopted. Therefore, any new scheme is not likely to be in place before 2010 at the earliest. The city's Labour transport spokesman, Councillor Ricky Henderson, said: "The broad principle is fairly sound but I think we do need to look again at how we incentivise people to look more carefully at their cars and the environment.Councillor Steve Burgess, the Green's environment spokesman, said: "All political parties should be supporting this move rather than trying to scupper it. Any claim to having green credentials is on the line here."City leader councillor Jenny Dawe, said:"We fully understand that this is not something that could be implemented straight away and we will use the report from officers as a basis for going out to consultation on the issue."

Green light for carbon credit saleBy David Litterick

Last Updated: 12:19am BST 30/07/2008

The Government yesterday unveiled its plans to auction off carbon credits in the first stage of a process that could eventually net the Treasury around £2bn a year.
The first auctions will take place later this year as part of European Union and Government plans to cut carbon emissions.
Over the next four years, the Department for Environment, Food and Rural Affairs, through the Debt Management Office will auction some 85m credits, each representing one tonne of carbon.

The auctions represent around 7pc of the credits the Government can allocate and is the second phase of its strategy for dealing with climate change.
Phase one of the scheme began in 2005 and was criticised for issuing too many permits and not offering enough incentives to cut emissions. As a result the number of permits has been tightened up and auctions will be held.
Companies, mainly those from heavy industry and the power sector, will name the amount they are prepared to pay for a given number of credits. A complex process will then allocate the credits.
With credits being bought and sold in the market for around £20, that could raise the Government around £1.7bn by 2012. At that point the Government is considering auctioning almost all the permits, which experts believe could raise around £2bn a year.
The Government, which has said the money raised will go to the Exchequer, remains on a collision course with the EU, which has insisted that any monies raised from carbon permit trading should be used to fund projects designed to combat climate change.

US environmental agency silences employees on climate change

Elana Schor in Washington,
Tuesday July 29 2008

Amid intensifying scrutiny of its failure to act on climate change, the US environmental protection agency (EPA) has ordered employees not to talk to internal auditors, Congress or the media, according to a leaked email released yesterday by green campaigners.
The EPA has refused repeated requests from Congress to explain its December denial of California's request to regulate greenhouse gas emissions - a move that overruled the agency's own career scientists.
Three Democratic senators have scheduled a press conference today to discuss the controversy.
On June 16, after an email from the campaign group Public Employees for Environmental Responsibility (Peer), the EPA told its enforcement officials not to answer questions on the issue - even those from the agency's in-house auditors.
"If you are contacted directly by the [auditors'] office or [congressional investigators] requesting information of any kind … please do not respond to questions or make any statements," the email said.
Enforcement officials were told to refer all questions to specific EPA representatives.
The issue is whether White House officials, including aides to vice-president Dick Cheney, improperly influenced the process by pressuring the EPA to reject California's bid to regulate emissions.
Peer, a non-profit group founded to fight political influence on government scientists, called the email proof of a "bunker mentality" at the agency.
"Inside the current EPA, candour has become the cardinal sin," Peer's executive director, Jeff Ruch, said.
"The clear intention behind this move is to chill the cubicles by suppressing any uncontrolled release of information."
Peer questioned whether the email could be a illegal obstruction of the EPA inspector general (IG), which conducts independent audits of the agency. IG auditors are given broad freedom under US law to examine internal policies at government agencies.The EPA spokeswoman Roxanne Smith said the email was partly a response to a 2007 report by agency auditors on how to streamline communications. That report made no specific suggestions about how the EPA could make its process more efficient, however.
"There is nothing in the procedure that restricts conversation" between EPA staff and investigators, Smith said via email. "The procedure simply ensures timely responses and assists in tracking and record-keeping obligations."
One of the senators set to discuss the issue today, the environment committee chairman Barbara Boxer, accused the EPA chief, Stephen Johnson, of kowtowing to industry opponents of carbon regulations.
"Stephen Johnson is turning the EPA into a secretive, dangerous ally of polluters instead of a leader in the effort to protect the health and safety of the American people," Boxer, from California, said.

Emission permit auctions to net £2bn

By Fiona Harvey, Environment Correspondent
Published: July 29 2008 03:42

Auctioning off the right to emit carbon dioxide is likely to net the government nearly €2.5bn (£2bn, $3.9bn) over the next four years, under plans to be announced on Tuesday.
The terms on which the emissions permits will be sold for the first time this year will be set out by the Department for Environment, Food and Rural Affairs and the Treasury.

The power sector will be most affected, as electricity generators will have to buy almost a third of their permits to produce carbon, instead of receiving them all free of charge as they have done since 2005, when the European Union’s emissions trading scheme started.
Other sectors in the scheme, such as steelmakers and cement-makers, will continue to receive all of their permits for nothing, at least until 2013.
However, the government has yet to set the date for the first annual auction to begin.
Phil Woolas, environment minister, said: “Auctioning [permits] marks an important step forwards in developing a system where market forces create financial incentives for major carbon emitters to reduce their emissions. This will help stimulate the development of green technology and British business can begin to realise the benefits of being leaders of the low carbon revolution.”
Scheme sets quotas for carbon dioxide production
Companies covered by the European Union’s emissions trading scheme may only produce a certain quota of carbon dioxide each year.
They are given permits, each representing a tonne of the gas, to do so. Companies that need to emit more than their quota can buy spare permits from cleaner businesses.
The permits were issued free in the first phase, from 2005 to 2007, but from this year governments can auction a proportion.
Electricity companies gained hundreds of millions of pounds a year from the first phase of the scheme by passing on to customers the theoretical cost of buying the permits, although they received them free. They will be the only sector forced to buy any permits at auction in the 2008-12 phase of the scheme, but this should not raise power prices as the cost of permits has already been included.
Paying for permits should not prompt power producers to raise their prices, however, as the cost of buying permits has already been factored into electricity prices since 2005.
Some 85m permits – about 7 per cent of the total number of permits allocated to UK companies in the current phase of the scheme – will be auctioned by 2012. But the government plans to “front-load” the auctions so that more are sold this year and next year than in 2011-12.
Monday’s price for this year’s permits stood at about €25, with permits for 2012 selling in the forward market at nearly €30.
At these prices, the permit auctions would yield the government between €2.1bn and €2.4bn in total by 2012.
The next phase of the scheme, from 2013, is likely to swell the government coffers by much more. Paul Klemperer, professor of economics at Oxford university, estimates that the government would gain about £2bn a year from auctioning permits if the power sector were forced to buy all its permits, as the European Commission proposes.
Under the government’s plans for the first permit auction, bidders will be given two months’ notice of the auction date. The auction will run for a few days at most, and bidders will submit their bids, detailing how many permits they want to buy and at what price, electronically. The auctions, which will be open to banks and brokers as well as companies covered by the trading scheme, will be administered by the UK Debt Management Office.
Once all the bids are in, the government will calculate a single settlement price for all the permits available. This will be done by taking the lowest price at which all the permits can be sold to the bidders.
Copyright The Financial Times Limited 2008