November 2011

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• UK Policy Tracker: Government Games with Energy Efficiency Incentives
• US Policy Tracker: Cap-and-Trade Poised for Takeoff?

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UK Policy Tracker: Government Games with Energy Efficiency Incentives

Energy efficiency is high on the UK government’s agenda, with three new developments receiving a range of responses from business and green groups.

Firstly, funding for all carbon capture and storage (CCS) schemes in UK has been withdrawn, which contrary to expectations, is not necessarily a negative development. DECC will use the £1bn committed to such schemes to support future projects; while as many as seven UK projects are now bidding for an EU funding programme, compared to six projects competing from the rest of the EU. The potential is there for the UK to jointly fund the winning project with the EU.

In November the UK Government published fast hitting proposals for dramatic cuts to the solar Feed-in-Tariff (FIT) scheme, in a bid to reduce spending on the household sector, reduce the cost of electricity to the end user and stay within budget in the face of falling costs of solar panels. From April 2012 reduced rates of 21 pence rather than 43 pence per kilowatt hour will apply to installations up to 4 kW (largely installed in households across UK).

Opposition from green groups is growing, amid concerns for the very survival of the solar industry as householders abandon their plans for solar installations. The government may find itself being challenged in court by campaigning NGOs over its ‘unlawful’ cut off date of December 11, which is 2 weeks before the official consultation period ends.

In a much more positively received development, the realisation of the Green Deal framework means that from 2012 households can receive cash loans to carry out energy conservation measures. The scheme aims to make 14 million homes more energy efficient by 2020 and another 12 million by 2030, with the potential to create 250,000 “green jobs” and revolutionize the built environment in the UK by drastically reducing home energy use. It’s anticipated that councils and even high street retailers could soon have their own green deal packages to take advantage of the scheme.

US Policy Tracker: Cap-and-Trade Poised for Takeoff?

California’s cap-and-trade programme, now approved by officials and set to start in 2013, is considered to be one of the most ambitious climate-change programs till now. The programme aims to reduce GHG emissions to 1990 levels by 2020, by capping 85% of the state’s GHG emissions with a yearly declining target for utility companies and other industrial sources.

California is trying to steer clear of the various problems that have plagued other cap-and-trade schemes. There are plans to auction most of the emission allowances at a later stage instead of allocating all of them freely; imposing holding and auction purchase limits to ensure no one entity stockpiles on allowances; and finally, allocating some allowances to industrial producers based on their production capacity rather than current emissions, so that they have the incentive to increase their production as long as they are able to reduce their emissions.

However the scheme’s very limited use of offsets may prove to be a stumbling block for more cost-effective emission reductions. Use of offsets to meet targets is restricted to 8% of a facility’s compliance obligation and initially to U.S. based projects in only four areas (forestry, urban forestry, dairy digesters, and destruction of ozone-depleting substances).

Add unresolved concerns regarding offset buyer liability - which currently holds the buyer responsible if an offset is declared invalid – and the industry is still cautious about how the offset market will work.

In a parallel economic cost-vs-emission reductions debate that further highlights the distance carbon trading schemes need to travel to be acceptable in the US, lawmakers have passed an anti-airline EU ETS bill which bans the reporting of emissions by U.S. airlines to the EU or participating in the EU ETS. Concern for sky-rocketing airline fares and loss of jobs in the aviation sector is not restricted to the U.S., with European airlines also opposing the inclusion of aviation in the EU trading scheme by requiring airlines to surrender allowances equivalent to their carbon emissions when flying to and from EU airports.

So all eyes to California’s scheme: if it proves largely successful in achieving emission reductions with minimum economic cost and complexity of implementation, it may pave the way for similar legislation in the rest of the country and define the future of emission trading programs in the U.S. and elsewhere.