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Last Updated: Wednesday, 23 January 2008, 10:05 GMT
UK 'to ignore' EU pollution plea
By Roger Harrabin
BBC Environment Analyst

Big polluters in the UK currently have their carbon emissions capped

The government will ignore a plea from the EU to create a clean technology fund from a levy on pollution, BBC News has learned.

Instead the UK wants to divert the proceeds of the levy - which could stretch to 1bn a year - into general Treasury funds.

It will mean that all UK energy users, including households, will pay part of their energy bills to the Treasury.

The move is part of a huge EU energy announcement and may prove contentious.

But it is obscure and complicated.

A government source told BBC News that ministers hope the decision will avoid controversy.

This is how it will happen: At the moment big polluters in the UK have their carbon emissions capped as part of the European Emissions Trading System, the EUETS.

Trading system abuse

Firms are given a fixed number of carbon emissions allowances - and if they cannot keep pollution within those limits, they need to buy extra allowances.

The idea is to tackle climate change by making it more expensive to pollute.

Last year there was anger when BBC News revealed that energy generators in the UK were abusing the trading system.

They persuaded the energy regulator Ofgem that they needed to put up the price of energy to reflect the market price of carbon allowances.

But because they had been given most of their allowances free of charge they pocketed huge windfall profits, according to a government report.

The EU announcement will insist that power firms should buy some or their allowances. The figures will be revealed at lunchtime.

Treasury refusal

The allowances will be sold at auctions run by national governments. This will mean that part of the profits from the allowances will pass to member states.

The European Commission wants governments to ring-fence this new cash to create dedicated funds to transform Europe into a low-carbon economy.

But the UK Treasury has refused.

The funds from auctioning, a government spokesman confirmed, will go into general Treasury coffers.

A government source said they realised there was a risk this could be seen as a stealth tax and could undermine credibility of the EU's environment policies.

But he said the Treasury had an objection in principle to ear-marking any taxes.


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