Incentives to Sign Up to the UK Emissions Trading Scheme
On 24 July 2000, the government announced £30m of incentives available for companies to sign up to the UK Emissions Trading Scheme. This figure was obtained from results obtained by The Environment Business (then part of Volterra Consulting) for the DETR. The results came from The Environment Business' Incentives model.
As part of The Environment Business' discussions on the Emissions Trading Group (a group of companies set up to promote emissions trading in the UK), the case was put to the DETR that companies would not voluntarily sign up to emissions caps without a financial incentive. The DETR agreed with The Environment Business and asked The Environment Business for advice on the type of incentive that would be most effective.
The Environment Business considered many different types of incentives and set up a model to determine the relative merits of the three most feasible solutions. These were:
  1. a reduction in CCL payments
  2. a performance credit (i.e. £s per tonne of achieved carbon reduction)
  3. a tax credit per tonne of achieved carbon reduction
The model derived the behaviour of individual firms when offered the incentive and calculated the resulting reductions in carbon emissions, cost to government and number of companies who would join the Emissions Trading Scheme (ETS).
The results showed that the best incentive was a performance credit. This means paying a company a certain amount of money per tonne of carbon reduction for reducing their emissions by a certain percentage. Incentive payments are made on a yearly basis after the carbon reductions have been achieved.
A detailed report Emissions Targets - Modelling Incentives on the above process and modelling was written in February 2000.
The DETR then contracted The Environment Business (at that time part of Volterra Consulting) to extend their incentives model to provide detailed numbers which could form part of the bid for an incentive in the Comprehensive Spending Review.
The incentives model was extended to include over 3400 firms and to work with various levels of abatement costs. The companies in the CCL Negotiated Agreements were paid special attention.
The resulting report was included in the Spending Bid and the bid was successful. This report is confidential.