The UK is to impose a cap of 238 million tonnes of carbon dioxide a year on industry during the 2008-12 phase of the EU Emissions Trading Scheme (ETS), it announced today.

At a press conference in London, Environment Secretary David Miliband said this equates to a 29.3Mt annual reduction on "business as usual", or the maximum cut in emissions envisioned when the UK announced its national allocation plan (NAP) for initial public consultation in April.

However, the UK has shifted its baseline, after an upward revision of projected emissions, meaning this will result in a 238Mt cap, not the 234Mt announced as the tightest possible annual allocation in April. Miliband defended this decision, insisting that the draft NAP published today would still require the same amount of "effort" from industry.

The UK is also planning to auction 7% of its total allocation. Miliband announced that the UK government will launch a fund to invest in "non-nuclear, low carbon technologies and energy efficiency". The size of this fund is being held back until the next spending review in 2008. Miliband would not be drawn on whether this "new money" will be diverted from the auction of allowances. Each installation will be able to use Clean Development Mechanism and Joint Implementation carbon credits to cover up to 8% of its allocation, which they will be able to bank year-on-year throughout the second phase of the EU ETS.

Germany has also published its draft NAP, cutting the cap on emissions from 495Mt in the first phase to 482Mt in the second phase. Germany revised this downward in the light of certified emissions data for 2005, which revealed a 21Mt surplus. The figure of 482Mt includes 11Mt for installations that have been added to the scheme in the second phase, such as crackers.