UK NAP rejection will cost £350 million – business leaders

London, 23 February: UK industry will face increased costs of around £350 million ($614 million) after the European Commission's decision to reject the UK's amended emissions plan, according to business leaders.

On Wednesday, the Commission announced it was rejecting "on the grounds of late submission" the UK's national allocation plan (NAP) for the first phase (2005-07) of the EU Emissions Trading Scheme (ETS). It would have increased the UK's overall allocation for the three years by the equivalent of 20 million tonnes (Mt) of carbon dioxide, to 756Mt. The Commission had been legally bound to consider the amendment it lost a court case against the UK government in November 2005.

"This is very disappointing. It does nothing to reduce carbon emissions. It simply increases costs to UK Plc by about £350 million," said David Porter, chief executive of the UK's Association of Electricity Producers. "We shall be seeking talks with the government to see what more can be done," he added.

"The £350 million costs of covering this misguided shortfall in the UK's carbon emissions allowance is unaffordable," said Matthew Farrow, head of environment for the Confederation of British Industry. "We will urge the government to pursue the case further," he added.

The government also expressed its disappointment at the decision. "We are considering our position, which includes possible further legal action," said a spokesman for the Department of Environment, Food and Rural Affairs (Defra). The government has two months to appeal against the Commission's decision.

The NAP sets out the number of allowances – effectively, the emissions targets – for installations in the five industry sectors covered by the EU ETS (power generation, iron and steel, pulp and paper, mineral oil refineries and building materials).

The Commission said it took note of the obligation to consider amendments "as long as these are notified prior to the deadline by which member states must take the final allocation decision. For the first trading period, the relevant deadline was 30 September 2004." The UK submitted its amendment to the Commission in October 2004.

The decision had been widely expected and so traders and brokers in the EU ETS said it had already been factored into prices. On Wednesday, the Carbon Finance mid-price for vintage December 2006 allowances was €27.33 per tonne of carbon dioxide compared with €26.65/t a week ago.