The Department for Environment, Food and Rural Affairs (DEFRA) has published a report detailing the 2006 UK results under the EU Emissions Trading Scheme (EU ETS). The report shows that the power sector was 45.9M allowances short compared to actual emissions. Power stations emitted 181.5Mt CO2 in total.

David Porter, Chief Executive of the Association of Electricity Producers, said: "During 2006, high gas and low carbon prices encouraged fuel switching to coal. Coal also replaced some nuclear generation. This guaranteed security of supply, but led to higher than projected emissions for the sector.

"Generators operate in a competitive market place where they have to take price, sustainability and security of supply into consideration. Balancing these elements is often difficult. Producing electricity at competitive prices and meeting emission limits will continue to be a challenge for the electricity businesses.

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"Short-term, electricity generators are reacting to the new carbon-constrained world by investing in efficiency improvements and renewable energy. In the longer run, they will also want to invest in new gas, clean coal and possibly nuclear generation."

The power station sector was the only sector in the UK Phase I NAP to be allocated less emission allowances than it needed to continue 'business as usual'. The sector was tasked with delivering all UK emission reductions within Phase I of the EUETS (67MtCO2). Defra's report shows that half of the installations in the power sector were short and had to buy allowances in the market or borrow them from their allocation for future years.

The Commission tabled a draft directive on the EU ETS post-2012 in late January. This provided vital clarity about emission limits out to 2020, helping companies make long-term investment decisions. UK electricity companies are contemplating £20-30 billion of investment in new power stations over the next fifteen years and information about CO2 emissions limits is crucial to this.

(GK/JM)