LONDON, UK, January 20, 2004 – ICF Consulting's
initial analysis of the United Kingdom's (UK) Draft National
Allocation Plan for the European Union Emissions Trading
Scheme (EU ETS) raises several key issues.
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Concerns over windfall gains to power
generators will be limited by the new entrant allowance
reserve. This subsidises the carbon dioxide (CO2)
costs of new entrants and lowers the long-run power price.
- Allowing generators to use the four highest emitting years
between 1998 and 2002 will have a large averaging effect.
Because gas and coal prices have moved significantly during
this period in opposite directions, most coal and gas stations
will receive allowances consistent with high mid-merit rather
than base-load operation.
- Some installations covered by the scheme but with Climate
Change Agreements (CCA) in place may be better off opting
out of the EU ETS in the first phase and continuing with
their CCA.
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As electricity prices are expected to
rise as a consequence of EU ETS, continuing the Climate
Change Levy for electricity consumption will result in
many companies effectively paying twice for emissions
associated with electricity imported from the grid. This
may present significant commercial risks for UK companies
highly exposed to EU competition. Sectors at risk include
pulp and paper, steel, and chemicals.
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Companies not covered by the EU ETS and
without CCA would be hardest hit because they will pay
the full Climate Change levy and higher power prices.
Such sectors include plastics, rubber, and electronics.
"The critical short-term decision for UK companies
is whether to opt out their eligible emissions from the
EU ETS and keep them within the CCA for 2005-2007,"
says Abyd Karmali, ICF Consulting's Director of European
Climate Change Services. "Our analysis indicates that,
subject to European Commission approval, many companies
can benefit financially from opting out given the roughly
€10/tonne difference in forecast prices for UK ETS
versus EU allowances. Because companies cannot exchange
allowances between the two markets, this decision requires
careful analysis."
"The UK Government is the first of 25 Member and Accession
States to release details of its National Allocation Plan.
We have been saying for some time now that participants
in the EU ETS need to plan in earnest for operating under
carbon constraints, and the price rises from EU ETS should
begin to have a major impact on commercial decision making,
biasing carbon efficient investments," says Simon Allen,
President of ICF Consulting Europe.
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ICF International (Nasdaq: ICFI) partners with government and commercial clients to deliver consulting services and technology solutions in the energy, environment, transportation, social programs, defense, and homeland security markets. The firm combines passion for its work with industry expertise and innovative analytics to produce compelling results throughout the entire program life cycle, from analysis and design through implementation and improvement. Since 1969, ICF has been serving government at all levels, major corporations, and multilateral institutions. More than 1,800 employees serve these clients worldwide. ICF’s Web site is http://www.icfi.com.
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For Immediate Release
United Kingdom Contact: Abyd
Karmali
Tel: 44 (0) 20.7092.3005
United States Contact: Douglas
Beck
Tel: 1.703.934.3820
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