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How does the Scheme work?
The scheme is split into phases:
- Phase one runs from 1 January 2005 to 31 December 2007
- Phase two runs from 1 January 2008 to 31 December 2012.
Limits on the amount of carbon dioxide that permitted installations can emit are set for each phase. This was carried out by Defra in Phase I and will be done by the Environment Agency on behalf of UK regulators for Phase II.
Operators of installations covered by the scheme are then free to trade in allowances. For example, for an installation that has emitted less than its allowances, the operator may sell the surplus allowances to another operator whose installation has emitted more carbon dioxide than its limit allows. This flexibility enables operators to meet the national limit at lowest cost.
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