1. Aim: The aim of this assignment is to analyse the climate change, energy trading mechanisms and UK energy policy, operation of energy sector, use of renewable energy and show the working and relations of energy trading schemes.

2. Summary: As the years passes by the earth's temperature is rising, resulting in global warming and several calamities. The main cause is excessive carbon emission throughout the globe, the main source of carbon are the industries, transport, energy sector and residential emissions. Carbon emissions can be controlled and lowered by switching to renewable energy and by making attempts to reduce energy wastage.

In order to control the carbon emissions an international platform was setup by United Nations in Kyoto, Japan known as KYOTO protocol. Kyoto protocol placed an obligation on countries to reduce their carbon emission within a given time period. Many developed countries agreed to this commitment for the period of 2008-2012. Different limits were proposed to different nations based on their annual carbon emissions. UK alone committed to reduce its carbon emissions up to 20% by the year 2010. The UK commitments and reductions plan were stated in The Energy White Paper. In order to achieve these targets UK government introduced Climate Change Levy on commercial energy users, the main aim of this levy is to provide increase the energy efficiency and reduce the carbon emissions. It also allows the users to receive up to 80% discount in return for meeting efficiency and carbon savings.

UK government also introduced Renewable Energy Obligation and Emissions Trading Scheme (EU trading). EU Emissions Trading Scheme is divided in to two phases. The Phase 1 started in January 2005, it comprise of 15 European Union states. The main aim of this phase 1 is to control the carbon dioxide emissions from large commercial installations and factories.

The phase 1 also allowed its members to trade carbon among them. In the carbon trade all the installations should meet their cap by either reducing the emissions below the cap or selling the surplus or if the emissions remain higher than the cap they should buy the allowances from other participants in the market in order to meet the cap. In the year 2008 the phase 2 of ETS was introduced to support the Kyoto mechanisms, every organization trading through the ETS should meet the international obligations under Kyoto protocol, the period for the second phase is 2008 to 2012. In November 2008 the UK Government has held the first auction in ETS, distributing 4million allowances.

Renewable obligation (ROCS) is an incentivise the generation of electricity from renewable sources in the United Kingdom. It was introduced in England, Wales and Scotland in April 2002 and in Northern Ireland in April 2005.this started at 3% in 2003, rising gradually to 10.4 % by 2010 and 15.4% by 2015. The cost to the consumers will be limited by a price cap and the obligation is guaranteed in law until 2027.

Eligible renewable generators receive Renewable Obligation Certificates (ROCs) for each MWh of electricity generated, the suppliers meet the obligation by presenting the certificates. When the suppliers do not have sufficient ROCs to cover their obligation, they must make a payment in to the buyout fund. All these schemes have in common the ability to trade energy certificates and to reduce carbon emissions.

The changes in energy prices and carbon factor are analysed in this assignment. To show the operation of trading schemes and its feasibility is done by wind farm analysis.

3. Climate change: Climate change is defined as the rise in earth's temperature due to green house gas emissions by human actions, there are several affects of climate change on the world such as; melting of ice glaciers in the Antarctic resulting in the rise of sea level thus causing floods, droughts, earthquakes and several natural calamities. The UK's sea levelhas risen by about 10 centimetres.

In order to save the planet necessary and immediate measures should be taken to control the climate change. Several developed nations have come up with a platform and agreements to reduce their individual emissions and global emissions.

The figure above shows the global Co2 emissions for the tear 2000 metric tons. It can be observed that USA and China are the major Co2 emitters in the world.[1][2]

4. Kyoto protocol: Kyoto protocol is an international agreement took place in 1997 Kyoto, Japan by the United Nations to bind the targets for 37 industrialised countries including the European Union for reducing their greenhouse gas emissions. The target was to reduce 5% of emissions over the period of 2008-2012 against the 1990 levels.

According to the Kyoto protocol countries must meet their targets through national measures. Kyoto also allowed emissions trading among these countries. UK alone committed to reduce its carbon emissions up to 20% by the year 2010. Kyoto protocol practically came in to effect on 15 February 2005.

The Kyoto mechanism: Kyoto protocol offers additional means of meeting the targets through three mechanisms

1. Emissions trading

2. Clean development mechanism (CDM)

3. Joint implementation (JI)

To monitor the targets registry systems and international transaction log was used by the UN climate change department.[3]

5. Emissions trading scheme (EU ETS): In order to achieve the Kyoto targets emissions trading scheme was introduced it is also known as European Union Emissions trading scheme (EU ETS).

EU ETS allowed its members to trade their emissions certificates with other countries i.e., if one country have achieved it targets with excess certificates remaining with, that country can sell its excess certificates to other countries which have more emissions (requires emissions certificates). The members of ETS can trade their allowances by several means such as: privately with in a country and to other countries, over the counter i.e. using a medium or broker, spot market trading in European climate exchange. EU ETS was divided in two parts phase 1 and phase 2.

The main aim of this phase 1 is to control the carbon dioxide emissions from large commercial installations and factories. The phase 1 also allowed its members to trade carbon among them. In the carbon trade all the installations should meet their cap by either reducing the emissions below the cap or selling the surplus or if the emissions remain higher than the cap they should buy the allowances from other participants in the market in order to meet the cap. In the year 2008 the phase 2 of ETS was introduced to support the Kyoto mechanisms, every organization trading through the ETS should meet the international obligations under Kyoto protocol, the period for the second phase is 2008 to 2012. In November 2008 the UK Government has held the first auction in ETS, distributing 4million allowances.

Clean Development Mechanism(CDM): CDM allowed Kyoto's developed countries to invest in other ventures i.e. helping developing countries to reduce the greenhouse gas emissions. In this way the industrialised countries can reduce their emissions further. One more advantage in CDM is that the cost of emissions reduction in developing countries is much less than the cost in developed nations. The CDM is monitored by CDM Executive board under the guidance of United Nations Framework Convention on Climate Change.[4][5]

6. UK Energy Strategy: UK government committed to reduce the carbon emissions up to 20% by 2010 and about 60% by the year 2050. To achieve these targets UK government introduced its climate change programme which includes the climate change levy (CCL), Renewable Energy Obligation (REO) and UK Emissions Trading Scheme (ETS). The whole workout plan was stated in UK energy white paper.

The main aim of UK government is to increase the use of renewable energy and efficient energy. The London Mayor's Energy strategy is:

  • Use less energy (Be Lean)
  • Use renewable energy (Be green)
  • Supply energy efficiently (Be Clean)

UK government introduced levy on industrial sector with high energy consumptions, several energy efficiency standards have also be implemented to save the energy, renewable energy and Combined Heat and Power systems are used in the commercial and domestic sector (includes district heating through CHP) and the government also planned to reduce the domestic carbon emissions by 0.5 tonnes per year. To achieve the energy efficiency and carbon reductions the government also introduced new building regulations for domestic and commercial sectors. The use of efficient design techniques and insulating the building, huge amount of energy can be saved thus reducing the carbon emissions. By the year 2010 domestic electricity suppliers should supply 10% of electricity from renewable sources.

The UK emissions strategy also includes Establish an international framework to tackle climate change.

Strengthen EU ETS along with the global carbon market.

  • Provide legally binding carbon targets for the whole UK economy, progressively reducing emissions.
  • Make progress in achieving fully competitive and transparent international markets.

Gain access to fair energy resources.

  • Encourage energy savings through better information, incentives and regulation.
  • Provide more support for low carbon technologies.
  • Ensure the right conditions for investment.[6]

7. UK Energy White Paper: The UK energy white paper is sets out government's international and domestic energy strategy. It is also known as "meeting the energy challenge". The key policies are:

1. To put the UK on a path to cut carbon dioxide emissions by 60% about the year 2050, with real progress by 2020.

2. To maintain reliable energy supplies.

3. To promote competitive markets in the UK and beyond, helping to raise the rate of sustainable economic growth and to improve productivity.

4. To ensure that every home is adequately and affordable heated.

Based on the increasing energy demand 30-35 GW of new electric generators should be installed in 20 years and renewable energy should contribute 5% of the UK's consumption by the year 2020.

In the white paper also gives the overview of energy market i.e. increasing the use of renewable and efficient fuels. Reducing the use of fossil fuels (coal and nuclear energy), Climate change Act, UK low carbon transition plan, government energy strategy and renewable obligation.[6][7]

UK low carbon transition plan: The plan was published on July 15 2009; it details the actions to be taken by 2020 to cut carbon emissions by 34%. It is predicted that by the 2020:

  • Over 1.2 million people will be employed in green jobs.
  • The efficiency of 7 million homes will be upgraded, with 1.5 million homes using renewable energy.
  • 40% of electricity will be generated from low carbon sources.
  • Gas imports will be 50% lower.
  • The average new car will emit 40% less carbon compared to 2009 levels.

8. Renewable Energy strategy: The EU and UK has setup goals to produce 10% of electricity from renewable sources by the year 2010 and 20% by the year 2020. Majority of renewable sources used are wind energy and solar energy. UK government introduced Renewable energy obligation (ROC) it supports the renewable electric market in UK, also renewable energy is exempted from the climate change levy. [8]

Renewable Obligation Certificates (ROC) was introduced in April 2002. It is certificate provided to the electricity supplier in the UK to promote renewable source energy, ROC is an registered electronic certificate issued by Ofgem. For the year 2008/2009 the level of renewable energy is 9.1% and 10.4% for the period 2011-12. If the electricity suppliers do not have sufficient ROC for the obligation then they have to pay an equivalent amount in to a fund, which will be paid back on a pro-rated basis on presenting the ROCs.

If the supplier has met the criteria of producing the required amount of electricity it will get an ROC. Agents can claim ROCs on behalf of small generators. ROC can also be traded under the Emissions Trading scheme.

The Renewable Sources accepted by the ROCS are

1. Wind energy

2. Biogas

3. Hydro electric

4. Landfill gas

5. Sewage gas

6. Tidal energy

7. Solar energy (photovoltaic cells)

8. Energy crops

9. CHP (eligible when good quality from fuel supplier)

The buy-out price of ROC is 45/MWh

9. Climate Change Levy: The Climate Change Levy (CCL) was introduced in April 2001, it is an energy tax of about 15% added to the energy bills of UK business and public sector. CCL promotes the UK's Climate change programme to reduce carbon emissions. The levy is charged on taxable supplies such as electricity, natural gas, petroleum, coal and coke. The commodities which are non taxable are oil, fuel gas, heat, steam, low value solid fuel with market value of 15/tonne, waste.The Levy is applied per unit consumption of energy.

CCL for electricity = 0.0043 per KWh

Gas = 0.0015 per KWh

Liquid gas = 0.0096 per KWh

Any other commodity = 0.0117 per Kg

CCL also helped to reduce 0.3% in National Insurance contributions.[8]

Climate Change Agreements (CCAs): To control the pollution and due to the international competition UK government gives 80% discount from the levy for the sectors that agreed targets for improving their energy efficiency and reducing carbon emissions.

There are ten major energy intensive sectors and thirty small sectors with climate change agreement. some are:

  • Aluminium
  • Cement
  • Ceramics
  • Chemicals
  • Food & drink
  • Foundries
  • Glass
  • Non-ferrous metals
  • Paper
  • Steel

Only renewable electricity is exempted from the levy. The organisation can get exemption from the levy by producing the Levy Exemption Certificate (LEC) to HM customs and Excise. Monthly LEC is issued by Ofgem on generation of 1MWh renewable electricity.

10. Inter relation between CCA and ETS: The emissions from the energy are covered by CCA and also included in ETS. The operator can get allowances from both trading schemes for same reductions in emissions. If the emissions are high then operators are forced to both allowances, also known as double counting.

11.Copenhagen climate summit: The COP15 climate summit took place in December 2009, 192 countries around the world attended the conference to take immediate actions on climate change. New developed and developing countries came forward with the commitment of carbon reductions; the countries should submit their commitments by 31 January 2010. UK stands by its domestic commitment to reduce emissions by at least 34% by 2020, and more if the European Union moves to a total 30%..The summit also aimed to introduce real scrutiny and transparency to ensure emission targets are put into effect, with mandatory reporting every two years for developing countries and improving the commitments of each country, major developed and developing nations agreed to tackle the global warming and limiting the raise in earth's temperature to 2 degrees. The summit did not proved to be completely successful as many developing countries like china, African countries refused to commitments due to economic and political problems.[9]

12.Renewable Energy: Renewable energy is completely generated from natural resources such as solar energy, wind energy, tidal energy and geo thermal energy. there will be no levy or tax on renewable energy in EU and UK.

To meet out the emissions cut target UK government is increasing the use of renewable in energy production sector. The most commonly used renewable energy in UK is geothermal energy and wind energy. wind energy generation is increasing by 30% annually with worldwide installed capacity of 121000 MW in 2008. Electricity generated from wing farm will be less than 10 pence/KW. Inorder to get efficient and economical electricity the location of wind farm is very important, offshore wind farms have good efficiency and output when compared to onshore wind farms.

Photovoltaic cells are compact and can be easily fitted anywhere, it is widely used in small power generation in homes, universities, automobiles etc. The efficiency of PV cells is very less, the generation completely depends upon the weather condition and length of day (duration exposed to sun). The use of PV cells are increasing day by day and thus making it more economical in the global market. The disadvantage of PV cells is the payback period is very large.

Geothermal energy is the heat energy recovered from the earth's crust and converted in to electricity, one of the main advantages of geothermal energy is that it will never run out, environment friendly and it is very economical. Heat pumps are used to extract the heat from earth. UK has increasing number of installations every year.

Combined heat and power (CHP) is also a green, energy efficient and economic technology. The UK government strongly supports the development of CHP, even the CHP is eligible for CCL exemption if it a good quality. The important advantage of CHP is heat energy can be used along with the electricity.

Biomass fuels are produced from natural extracts. The process is very difficult i.e. collection of biomass, dry, fermented and then burned to produce energy, new technologies are able to effectively use biomass fuels. UK has one of the largest biomass generation plant. The government is improving the usage of biomass in electricity generations.[10]

13. Conclusion: The analysis shows that there is a immediate need of green fuels to the world in order to reduce the green house gases and control the climate change, also the world need support and coordination from all countries to reduce the global emissions. EU and UK government are introducing new plans for saving energy and reducing emissions to achieve the committed targets, these include the promotion of renewable energy. The energy trading market is growing rapidly thus helping the economy and energy sector. The energy trading schemes and taxation are ways to promote renewable energy. In the future the use of fossil fuels and other non eco friendly fuels will be reduced by switching over to renewable. The awareness of climate change should be raised in every country in order to protect the future.

14. References

[1].Department for Business Innovation & Skills, 2009, Climate change. Retrieved 22/9/2009 from

[2].Directgov ,2009, Understanding climate change and related links, retrieved 27/9/2009 from

[3].Kyoto protocol, 2009, Kyoto protocol, retived from

[4].Department of Energy and Climate Change,2009, EU Emissions Trading System. Retrieved on 6/10/2009 from

[5].European commission, 2009, National Allocation plans FAQ .

[6].HM Government, July 2009, The UK Renewable Energy Strategy 2009. Retrieved on 30/9/2009 from

Department of Energy and Climate change, 2009, Digest of United Kingdom Energy Statistics 2009. Retrieved 4/10/2009 from

[7].Department of Trade and Industry, May 2007, A White Paper on Energy. Retrieved on 30/9/2009 from

[8].HM Revenue & Customs 2009, Climate change Levy. Retrieved on 4/10/2009 from

[9].United Nations Climate Change Conference,2009, Copenhagen summit, retrieved on 1/1/2010 from

[10].The renewable energy centre, 2009, Renewable energy,

[11].London south bank university,2009, Prof Tony Day: energy utilisation and economics notes, from

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