Energy in a Competitive Market

Energy in a Competitive Market

Essays in Honour of Colin Robinson

Edited by Lester C. Hunt

This fine collection of original essays is in recognition of Colin Robinson, who has been at the forefront of thinking in energy economics for over 30 years. Energy in a Competitive Market brings together both prominent academics and practitioners to honour his outstanding and unique contribution. The authors cover a wide and fascinating selection of topics incorporating the whole spectrum of energy economics. In doing so, they examine the belief that markets are the key to the effective allocation of resources, a notion which arguably applies as much to energy as it does to any other commodity.

Chapter 11: UK emissions targets: modelling incentive mechanisms

Bridget Rosewell and Laurence Smith

Subjects: economics and finance, competition policy, energy economics, public sector economics

Extract

Bridget Rosewell and Laurence Smith INTRODUCTION As a method for achieving the UK’s Kyoto Protocol target reduction in greenhouse gas emissions levels of 12.5 per cent on 1990 levels, and the government’s own 20 per cent reduction in carbon dioxide emissions, the government is in the process of introducing a domestic emissions trading scheme. This chapter describes part of the contribution of ‘the Environment Business’ to the design of the UK Emissions Trading Scheme (ETS).1 The development of the ETS has proceeded largely through the actions of a group of businesses which came together to form the Emissions Trading Group (ETG). This group of companies has worked with the Department for the Environment, Transport and the Regions (DETR), the Department of Trade and Industry (DTI) and HM Treasury (HMT) to put forward an emissions trading scheme which would be acceptable to business and the government. The Environment Business is part of the ETG. The main part of the UK ETS will be a cap-and-trade scheme, where companies will accept absolute emissions targets in each year of the scheme. They will be given enough emissions permits to cover their target and will have to have enough permits at the end of each year to cover their emissions for that year. Companies will be able to trade in these permits, selling permits if they produce fewer emissions than their target, or buying permits if they produce more emissions than their target. At the time of writing the plan is that the...

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