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Use emissions trading revenue to fund green projects, says think tank

The UK must use emissions trading revenue to fund low carbon technologies and energy efficiency schemes, a leading think tank claimed today.

The Institute for Public Policy Research (IPPR) said that the £54M raised through the Government's sale of the UK of carbon emissions allocation today should be spent on initiatives to meet the UK’s climate change obligations.

The Government today held Europe's first carbon allowance auction in Phase II (2008 - 2012) of the EU Emissions Trading Scheme (EU ETS).

Four million allowances were sold at a total value of £54m excluding VAT, or £13.60 per allowance, Euro/Sterling exchange rate 0.8428.

The EU ETS puts a cap on emissions from around 12,000 installations throughout the EU, including the energy and heavy industrial sectors. These sectors are collectively responsible for close to half of the EU's emissions of carbon dioxide.

Other European states, including Austria, Hungary and the Netherlands have pledged to put the money they raise from ETS back into climate change, energy and environmental programmes and IPPR today called on the UK government to do the same.

IPPR said the money should go to improving the energy efficiency of homes (with priority given to helping poorer people faced with rising fuel bills), investing in low carbon technological innovation and help meet the cost of dealing with climate change in poorer countries.

The think tank said that the revenue could be directed into a separate fund, similar to Norway’s oil windfall fund, with decisions on investing the resources overseen by the Committee on Climate Change or a similar independent body.

IPPR co-director Lisa Harker said: "There are many urgent needs – both domestic and international - when it comes to tackling climate change, and using the money raised from this auction is one way of ensuring that these needs are addressed during the economic downturn.

"This is a great opportunity to help poorer households make their homes both cheaper to heat and warmer, and create jobs through investment in new green technologies. The UK Government should follow the lead of other countries and establish a clear link between charging companies for their carbon emissions and investment in measures to help reduce emissions."

During phase II of the EU Emissions Trading Scheme (ETS), states are permitted to auction up to 10% of their national allocation. The UK will be auctioning 7%, or about 85M allowances (equivalent to 85M tonnes of CO2), over the period 2008 – 2012. The first auction of 4M allowances took place today. This will be followed by an auction of 25M allowances during 2009.

The UK was the first EU nation to auction its allowances for Phase II, and energy and climate change minister Mike O'Brien said: "Today's first Phase II auction demonstrates continued UK leadership in reducing carbon emissions as part of the fight against dangerous climate change.

"The EU ETS is central to keeping the price of tackling climate change as low as possible to industry and the economy. We want more auctioning in the future - and are already planning to
auction 100% of the allowances needed by the power sector from 2013. This auction highlights the importance of using the market to drive down emissions and create incentives for the development of low carbon technology."

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