The government is proposing to allocate 238 million allowances per year during the second phase, which will run between 2008-2012, compared to 245 million allowances under the current phase, delivering savings of up to 8 million tones per year. This will put the UK on course to achieve a 16.2% reduction in carbon dioxide emissions by 2010, compared with the 15-18% range stated in the Climate Change Programme published in March.

Simultaneously, the government announced the creation of a new joint Defra/DTI Environmental Transformation Fund that will provide a boost to investment in renewable energies and other green technologies aimed at reducing carbon emissions.

Millliband commented: “We believe there is a major opportunity for the UK not just to invest in renewable energy, other non nuclear low carbon technologies and energy efficiency, but also to build successful businesses in these fields. The new Environmental Transformation Fund will grasp this opportunity.”

Commenting on the announcement, David Porter, chief executive of the Association of Electricity Producers said: “Power generators have always been expected to carry the burden of CO2 reductions. They want to play the part in the future but if targets are to be reached, before long, the burden will have to be shared by other sectors. Not only that, but other countries in the EU will have to take the EUETS more seriously.”

The UK announcement compares with Germany’s NAP proposals which will see a reduction of 15 million tonnes of carbon dioxide per year. However, while energy-intensive industries have only to achieve a 1.25% in order to preserve international competitiveness, generation companies must reduce emissions by 15%. The proposed cap for phase two of the EU ETS is 482 million tonnes, down from 495 million tonnes in phase one.

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