Before the introduction of the European Union emissions trading scheme (ETS) in 2005, the British government launched a domestic emissions trading scheme with an objective to incentivise cost-effective reduction in greenhouse gas (GHG) emissions from industry. It was also an opportunity to develop British expertise in emissions trading know-how, with an eye to developing an export market for related services.
The scheme represented an investment of £215 million of support for reductions in emissions of GHGs, including CO2, methane, nitrous oxide and ‘F’ gases. There were 35 participants in the voluntary scheme, many of them large industrial facilities.
The National Audit Office (NAO, the watchdog charged with monitoring the effectiveness of government spending) appointed Byrne Ó Cléirigh and Frontier Economics to investigate whether the scheme, as implemented, represented value for money.
Byrne Ó Cléirigh undertook a detailed analysis of the ‘additionality’ of GHG emissions savings, as reported and verified under the scheme. We conducted on-site technical assessments on the four largest emitters in the scheme. Together they were due to receive over £100 million in supports over the scheme’s life and represented 80% of the reported reductions at the time of assessment. We compared the verified emissions savings with what would have occurred under ‘business as usual’ conditions, which were defined as including the projected impacts of compliance with a range of existing EU and UK environmental obligations.
We found that a large portion of the reductions (34%) were not ‘additional’ even though the reductions had been correctly verified and thus admissible for support in accordance with the scheme rules. This discrepancy was largely due to difficulties in establishing accurate retrospective baseline emissions over a very short period of time.
The fact that the scheme incorporated diverse types of GHGs also led to some ‘non-additional’ reductions. It also contributed to significant variation in the costs associated with abating a tonne of CO2 equivalent (CO2e). The scheme had used a descending clock allocation method, which meant that all participants were paid the same rate per tonne of CO2e reduction below their baseline emissions, irrespective of which GHG was being reduced. Our assessment revealed that the reductions achieved at some sites could have been incentivised at a much lower cost through alternative means, e.g. through grant funding of certain abatement technologies.
Within the NAO, the outcome from our work was considered to have great merit and the NAO team involved received an award for the project.