This move is likely to prove controversial and deal a further blow to the credibility of the current carbon trading system.
The last round of credit allowance for carbon trading caused controversial when it was revealed that power generators had persuaded OFGEM, the government energy regulator, to put up prices – in effect passing the burden of producing carbon onto the consumer – despite having been given the majority of carbon credits for free. This allowed the companies to profit twice from their pollution; once from selling the free credits when their price rose and secondly from additional charges to consumers. The Carbon Trust, a UK government-funded body, found that power companies made more than £864m from the first phase of the scheme.
The second round will see carbon credits sold at auctions run by national governments. The European Commission wants profits from this auction to be ring fenced to dedicated funds. The UK Treasury has refused. According to the BBC a unnamed government source has admitted that there was a risk that this could be seen as undermining the credibility of the EU’s environment policies.