The UK will be the first country in Europe to hold a carbon credit auction under phase II of the European Union Emissions Trading Scheme (EU ETS), the government announced today.

The auction of four million allowances will take place on 19 November between 8am and 10am. Experts say the increased amount of auctioned credits will reduce distortions in the market: "Auctioning these allowances marks an important step forward in developing a system where market forces create financial incentives for major carbon emitters to reduce their emissions," says government environment minister Phil Woolas.

The auction will also be a first for the UK, as allowances were originally allocated for free in the first phase of the EU ETS, which ran from 2005 to 2007. The move led to large windfalls for UK businesses that were given too many credits due to inaccurate calculations. However, the government now plans to auction 7% of the credits over the second phase of the scheme, which runs from 2008 to 2012. A further25 million credits will be auctioned in 2009, with another 57 million over the final two years of the scheme.

The Treasury has appointed the Department of Environment, Foood and Rural Affairs (Defra) to conduct the auctions, and Defra has appointed the UK Debt Management Office (DMO) to act as its agent in running the auctions in Phase II. The government has not yet revealed how the money raised from the auctions will be used.