A dispute has erupted between the UK and the European Commission over the size of the carbon credit allocations as set out under the EU carbon trading scheme (ETS). Although the UK government agreed to issue credits amounting to 736 million tonnes of carbon dioxide back in July, it has taken the decision to allocate credits adding up to 756 million tonnes, claiming that it had underestimated its original submission for emissions through to 2008. The government has also guaranteed that these revised levels will stand for all industries bar the electricity sector.
However, the Commission is likely to view the move unfavourably and facing a possible forced return to the original limits, the government has said that it will comply with the original limit by taking credits from the electricity sector. The Department for Environment, Food and Rural Affairs (DEFRA) has taken its decision on the grounds that the electricity sector is the most protected from international competition. Generators have criticised the plans, claiming that they leave considerable uncertainty over allocations and would deter investment in the sector. Even so, while the electricity industry is facing the brunt of any additional restrictions, other sectors may also suffer as they will not be able to trade carbon allowances until the dispute is resolved, although they will be obliged to monitor emissions and will be allowed to trade carbon futures.
ETS came into force on 1 January with carbon trading at just over€7/tonne.
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