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Public Policy: Using Market-Based Approaches choosing a less desirable property may have reduced some of the potential to engage in lobbying activity. Choice-based lettings has not, so far, involved introducing competition between different social landlords – although this is an option which might be considered in the future. Its benefits have therefore arisen mostly on the ‘demand’ side, in terms of improving the allocation of properties. One factor which indicates greater efficiency, however, has been a reduction in vacancy rates, as properties are re-let more quickly. The main benefit of choice-based lettings has been that potential tenants are more likely to occupy a property that meets their needs. Surveys of users have shown a high degree of satisfaction with the outcome of the process relative to the previous administrative system. It was also suggested to us that when tenants choose their own property they are more likely to take greater care of the property and will be more committed to their community. THE UK EMISSIONS TRADING SCHEME The UK, along with many other countries, has committed itself to reduce emissions of greenhouse gases. These gases are believed to be contributing to climate change, which is a threat to human health and sustainable development. The UK climate change programme involves a number of measures designed to reduce greenhouse gas emissions. We examined one of these: the UK emissions trading scheme. This scheme created a market in permits to emit greenhouse gases. Participation is voluntary, and firms could choose to enter the scheme and obtain permits in one of four ways. ● First, the Government held an auction where firms offered emission reductions relative to current levels in return for Government funding. Firms that were successful in this auction (known as ‘direct participants’) could use the market to sell permits generated from an over achievement relative to this target or buy permits to cover any under-achievement. ● Second, firms could enter into a ‘climate change agreement’. This involved agreeing to an emission reduction target with the Government which reduced the level of the climate change levy they were liable to pay. (The climate change levy is a tax on greenhouse gas emissions that is a separate instrument under the climate change programme). These firms could similarly use the market to sell permits generated from an over achievement relative to this target or buy permits to cover any under-achievement. ● Third, other firms emitting greenhouse gases could enter into separate arrangements to obtain permits in return for emission reductions. In practice, this option was never fully developed because of the then forthcoming EU Emissions Trading Scheme, so this option has not been available for organisations to use. 10
Section 1 – Introduction and summary ● Lastly, firms or individuals could participate as traders in permits, buying and selling in the market. In summary, participating firms agree to emission reduction targets with the Government. They receive allowances in return for exceeding these targets or can buy permits from other participants to make up any shortfall. If participants go beyond their targets they can sell allowances on the market. In effect this involved what is known as ‘grandfathering’, where firms receive an allowance based on their historic emission levels, and have to buy permits only if their emissions exceed these levels. While other tradable permit schemes involve firms buying permits from the Government, so they have to pay to maintain existing emission levels, the UK ETS involved direct participants offering emission reductions to the Government in the initial auction, and receiving allowances if they met these targets. This runs counter to some economic theory that suggests firms should have to pay to pollute. However, the ETS was a voluntary scheme and it was therefore felt necessary to provide an incentive for firms to participate. It appears that the initial auction was not as efficient as it might have been, since it led to the Government purchasing emission reductions for £18 per tonne of carbon dioxide when permits were later trading in the market for only £2-£4 per tonne of carbon dioxide. The Government argues that the high prices paid were not due to the auction design but to the fixed costs associated with participation in the scheme. The commitment that was undertaken by the voluntary participants included significant fixed costs, e.g. baseline monitoring and verification agreements, and the cost of instituting a new approach to carbon management. These costs suggest that the level of incentive would probably need to be significantly above the price at which permits traded in the secondary market. Overall, the scheme has been successful in terms of reducing emissions at low cost. It has created a liquid market in emission permits, and has provided UK firms with experience which will be valuable, for example, when they participate in the EU emissions trading scheme. The cost of reducing emissions under this scheme has been found by the UK National Audit Office to compare favourably with other Government schemes aimed at reducing emissions such as the ‘renewables obligation’. 1 It has also established a centre of expertise in emission trading schemes in the UK which will be well placed to exploit this expertise in the EU scheme and elsewhere. Participating firms have significantly exceeded their targets in the initial years of the scheme. The scheme has stimulated many firms to become more aware of their total energy consumption and opportunities to improve their energy efficiency which are economically viable, as well as beneficial to the environment. 1 The ‘renewables obligation’ requires electricity supply companies to purchase a specified quantity of their electricity from government approved renewable sources. 11
Page 1 and 2: DTI ECONOMICS PAPER NO.14 Public Po
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Page 5 and 6: Contents Acknowledgements vi Forewo
Page 7 and 8: Contents Section 11 Emissions Tradi
Page 9: Foreword There is increasing intere
Page 12 and 13: SECTION 1 Introduction and summary
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Page 22 and 23: SECTION 2 Using market mechanisms U
Page 30 and 31: SECTION 3 Lessons for the design an
Page 40 and 41: SECTION 4 Introduction This part of
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Public Policy: Using Market-Based A
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SECTION 8 Framework for assessing m
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Part IV Case Studies 73
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● the Green and White papers behi
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A prison failing to deliver on its
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Table 9.3 Companies providing priso
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Section 9 - Competitive Tendering o
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detect any deviation from a collusi
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at HMPS began as an equal mix of th
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(e.g. lighting). This impact could
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MARKET POWER The full benefits of c
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However, it should be noted that te
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on competition is uncertain. The ab
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Controlling for problems of asymmet
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Procurement process design One way
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however, financial deductions are m
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The Independent Monitoring Board at
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Figure 9.1: Difference between the
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‘While there were staff in the pu
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design the invitation to tender and
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and demand conditions. Second, we d
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DEMAND Anyone can apply to a local
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● Rent deposit guarantee by the l
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The Green Paper stated the Governme
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It was not an objective of ODPM or
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DESCRIPTION OF MARKET MECHANISM The
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Once the outcome is determined, fee
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DEVELOPMENTS OVER TIME The major mo
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Concerns about capacity constraints
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from those already located within t
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In several areas, registrations by
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Controlling for information problem
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extent though, it was competition b
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Section 10 - Choice-Based Letting i
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levels are reducing and new tenants
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desired effect of limiting points-c
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efficiency savings in some areas. T
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SECTION 11 Emissions Trading Introd
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Section 11 - Emissions Trading coex
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Section 11 - Emissions Trading emis
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A more detailed and diagrammatic de
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The costs of monitoring and reporti
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INITIAL ALLOCATION OF PROPERTY RIGH
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only 242 in the second year. The di
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COST-EFFICIENT EMISSIONS REDUCTIONS
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consultants to Defra of £11 per to
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Participation has helped us to rais
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Section 11 - Emissions Trading emis
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SECTION 12 Issues in the implementa
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