| Should you sign up to the UK Emissions Trading Scheme? |
| The Environment Business System |
| The Environment Business System combines the understanding
of policy issues, the risks involved and detailed analytical modelling. It takes into account the qualitative
effects from the decision making process and the quantitative effects of costs. The System considers
individually the decision processes of all large companies who could sign up (over 3400) and the interactions
between these decisions. The product is a range of likely outcomes for the market from which an informed decision
on participation can be made. |
| The System builds on two previous models by Volterra
Consulting. In November 1999, Volterra produced a report, commissioned by Blue Circle, "Emissions Trading:
The Evolution of a Market for Pollution Permits", in November 1999. This report contains findings from
Volterra's Trading Model. Volterra's trading model is a computer simulation
of how firms in the ETS may behave, based on maximising profits for a given emissions target. It outputs
the price of a tonne of Carbon in the market and the number of trades that take place. The model also allows
us to assess the stability of the market with various combinations of firms participating. Since this report
was published The Environment Business has built on this model so that it can include all large companies with
their cost structures and trading can take place bilaterally. |
| The second (incentives) model was used to measure the effects of a
financial incentive on whether companies would sign up for the ETS. It was adapted for the DETR and provided
the figures which were the basis for the Government's decision to allocate money to an incentive scheme. The
model considers all large firms and makes a cost / benefit decision for each of them on whether to sign up to
the scheme. |
| The Environment Business System combines these two models
with an understanding of how the scheme is likely to develop and the business politics and pressures involved.
This allows The Environment Business to determine the range of scenarios that might occur,
including different attitudes to risk, thus providing a range of possible outcomes. The effects of these outcomes
on your business will be analysed and explained, allowing a decision to be made on whether your business should
bid for a place in the scheme and the amount of incentive for which to bid. |
| A flow chart showing the main influences and decisions in
the system is shown below. |
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| Boxes show quantitative values or results from the models.
Circles show more qualitative judgements. Diamonds show the environmental impact. Parts in blue show inputs needed
from your business (only information on the cost curves of your business is needed, the Environment Business has
estimated cost curves for industries). |
| For more information, please contact Bridget Rosewell |
