Firms urged to plan ahead on greenhouse gas emissions

Manufacturers are being urged to turn their attention to managing their greenhouse gas allowances under the 2005 European Union (EU) Emissions Trading Scheme, set up to help the EU meet its reduction target under the Kyoto Protocol.

The scheme requires operators to hold permits for Schedule 1 activities, which includes energy activities so affects most of the large food and drink manufacturers. It works on a cap and trade basis, whereby an overall emissions limit allowed from the installations covered by the scheme is set and then distributed (in the UK this is done under the National Allocation Plan).

At the end of each year operators must ensure they have enough allowances to cover their actual emissions. These allowances can then be traded, as Derek Goodban, partner in the Energy and Regulated Industries Team at Wragge & Co explains: "If you have more than you need you can bank or sell them, or if you are going to be short you can buy them from the following year's allowances - a bit like using an overdraft."

There are two phases to the scheme. Phase one runs from 2005 to 2007; phase two from 2008 to 2012. But Goodban warns that operators should be looking at their compliance strategies now. "They shouldn't just rely on the following year's allocation because when it gets to 2007, and the scheme enters phase two, they won't be able to buy from their 2008 allowances," he points out.

The first compliance period ended last month as Food Manufacture went to press. "We weren't seeing a great deal of activity in the market, which suggests that a number of operators haven't turned their minds to it," says Goodban. If they still have some of their allowance left, many firms will probably just sit on it rather than realising its value now, he says. And if they have over stepped the mark, they might just be relying on the big reserve pot, which is fine for now, but not in long term, he adds.