Carbon sale to swell government revenues

By Nina Chestney-Analysis

LONDON (Reuters) - The government will take hefty revenues from its first carbon emissions permit auction on Wednesday rather than earmark the money for consumers or the climate it aims to protect, analysts and lobby groups said.

The Department of Energy and Climate Change DECC.L will auction 4 million permits out of a total 84 million from the second phase of the European Union's Emissions Trading Scheme (EU ETS), which runs from 2008-12.

It plans to auction a further 25 million of the credits, called EU Allowances (EUAs), next year.

Wednesday's sale, which could set a model for more in the coming months, will raise around 56.14 million pounds for government coffers, based on Tuesday's EUA price of 16.8 euros per tonne.

The government could have boosted cash flow further by holding the auction when the EUA price starts to rebound from a 19-month low, Point Carbon analysts said.

"The auctioning of carbon allowances is a new form of taxation. Someone else is paying and the (government) doesn't even have to argue that taxation has increased," said UBS analyst Per Lekander.

The ETS aims to put a price on greenhouse gases such as carbon dioxide, which scientists say cause dangerous climate change, to persuade companies to reduce their emissions.

Under the scheme, participants receive a set quota of emissions permits, which are issued by governments into accounts held at national emissions registries.