Royal Dutch Shell and Elsam, Denmark's largest electricity generator, have swapped carbon pollution permits, establishing the first trading link between the only two government backed emission trading schemes in the world. Trading of carbon emissions is seen as the best of way of minimising the cost of reducing greenhouse gases that add to global warming. Under the innovative swap, Shell has taken Danish allowances from Elsam in return for UK allowances given to the Danish company. “It is not a huge deal in volume or financial reward,” said Albrecht von Ruffer of Natsource-Tullett in London which brokered the deal. “But it is significant because it proves there will be trans frontier deals even in the absence of allowances being formally interchangeable between national schemes.” Shell has operations in Denmark, which have to comply with mandatory Danish emission cuts, so can use its allowances from Elsam to meet its Danish pollution reduction target. Elsam produces no electricity in the UK, but stood to lose any excess allowances in the Danish scheme that is slated to end next year. It therefore decided to turn this excess into UK permits which it can carry forward in the new UK scheme due to last until 2006, or just sell on the London market. “The deal achieves real commercial objectives for both companies,” said Garth Edward, head of Shell emission trading in London. He urged the UK government to set out a “road map” showing how Britain planned to integrate its scheme into a planned EU one. His counterpart at Elsam, Leif Winum, stressed the need for a pan-European scheme “so we can get the carbon dioxide reduction where it is cheapest”. Efforts to have the widest possible emissions trading market, and therefore maximum carbon reduction at minimum cost, took a severe blow when the US dropped out of the Kyoto protocol. Even designing a common scheme for Europe is proving hard. The Danish scheme is based on emissions cuts imposed only on electricity generators. The UK scheme is focused on energy consumption, and is based on voluntary emissions cuts from all sectors except electricity and oil companies. The European Commission's proposed scheme is a mixture of the two - based on mandatory emissions cuts covering a wide range of energy generators and users.