Limits on carbon dioxide emissions for installations across Scotland were published today. The National Allocation Plan places limits on nearly 120 of Scotland's largest emitters, covering over 40 per cent of Scotland's carbon dioxide levels. Environment Minister Ross Finnie announced the plans, forming part of the EU Emissions Trading Scheme, which allows organisations to trade in the emerging European carbon market. The scheme will drive down carbon emission levels in a cost-effective manner.

Mr Finnie, said, "The Scottish Executive is committed to tackling the causes of climate change and adapting to its unavoidable impacts. In global terms, Scotland's greenhouse gas emissions are small but are still important in terms of the contribution to climate change. As a developed country, Scotland must work with other developed nations to limit its emissions.

"Our objective is to strike a fair balance between the need to protect the environment and the needs of our economy and society. Emissions trading will be a major contributor to this by offering a flexible and cost-effective way to achieve emission reductions.

"Today's announcement offers certainty on emissions allocations for the next three years to organisations involved in Scheme.

"Emissions trading now provides an added incentive for Scotland's largest emitters to contribute to wider efforts to protect our planet for future generations".

The UK Registry, which enables allowances to be transferred to other accounts both within the UK and in other participating countries, will go live this week.

EU Emissions Trading Scheme

The EU Emissions Trading Scheme (EU ETS) is one of the policies being introduced across Europe to tackle emissions of carbon dioxide and other greenhouse gases and thereby combat the serious threat of climate change. The Scheme commenced on 1 January 2005. The first phase runs from 2005-2007 and the second phase will run from 2008-2012 to coincide with the first Kyoto Commitment Period.

Emissions (initially carbon dioxide - the most significant of the greenhouse gases causing global warming) are reduced by a fixed amount overall but at least cost to regulated sources. EU Member State governments are required to set an emission cap for all installations covered by the Scheme. Each installation is allocated tradeable carbon dioxide emission allowances for the phase in question.

If a participant manages to reduce emissions to below the level of allowances allocated to it, they will have a surplus of allowances left over. These surplus allowances can be kept for use in future years in the phase, or can be sold to other participants. Alternatively, a participant may choose to allow their emissions to rise above the level of allowances allocated to it, and instead buy extra allowances from others to cover the shortfall.

Emissions trading therefore provides an incentive for participants to reduce their emissions to below the level of allowances allocated to them, as they can sell the surplus to others. Consequently, those participants who are able to reduce emissions at a relatively low cost will do so, while those participants for whom the costs of reducing emissions are very high, are likely to choose to buy allowances from others rather than reducing their own emissions.