Legislation Note: Emissions Trading in the United Kingdom: The Greenhouse Gas Emissions Trading Scheme (Amendment) and National Emissions Inventory Regulations 2005 and the Greenhouse Gas Emissions Trading Regulations 2005

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A greenhouse gas emissions trading scheme is an arrangement in which allowances to emit such gases, usually measured in tonnes of carbon dioxide equivalent, are allocated to industrial plant and recorded in a central register. The emissions of greenhouse gas from that plant are then measured, in accordance with protocols, and reported to a central authority at regular intervals. At the end of a specific period, usually a year, the actual emissions from the plant are totalled and the operator of the plant is obliged to surrender the equivalent number of allowances. Where the actual emissions are more than the allowances that have been allocated to the operator, that operator may purchase allowances in the market place in order to meet its target under the scheme. The prevailing price for the allowances will reflect market demand. Conversely if the operator has excess allowances, due to lower emissions, it may sell the allowances in the market place. The scheme will usually be enforced by means of permits to operate which include conditions on, for example, monitoring, reporting and verification of emissions. An advantage of an emissions trading scheme is that it drives technological innovation and achieves emission reductions at the plants and times where they are most economic, regardless of geographic location.

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