A new report by Sandbag released on 20 July argued that the EU ETS (see EurActiv LinksDossier) is failing to follow the 'polluter pays' principle, and is in fact subsidising polluters by giving them a large number of free emission allowances instead.
The report estimated that the industries included in the scheme - except those in the power sector - are likely to earn as much as €5.4 billion by selling surplus credits accumulated during the second trading period, 2008-2012. The new entrants' reserve, set aside for those installations entering the ETS scheme, could hold another 300 million surplus permits by 2012, the report added.
The windfall profits result from firms selling their extra allowances to power companies, which by and large have to pay for all their emissions.
Moreover, the scheme includes a "generous safety valve" to counteract potential excess demand by allowing companies to buy offset credits from abroad, the report stated. The second trading period could see some 900 UN-administered CER credits enter the market, adding to what is perceived as increased "hot air" in the system, the report argues.
Sandbag stressed that as permits and offset credits are bankable up to 2020, nearly 40% of the effort required to achieve 2020 caps could be covered by extra allowances from the second phase ending in 2012.
To get the artificial market deliver on reducing emissions, its original purpose, the EU should take steps to tighten targets by 2020 and to cancel the New Entrants Reserve, the NGO underlined. Moreover, member states could offer tax breaks to companies that surrender their extra credits instead of putting them on the market, it proposed.
Ten sites dominate 'shame list'
Sandbag also launched a map yesterday (22 July), indicating which EU industrial installations are short of permits and which have surpluses. The data shows that just ten plants make up 60% of the whole EU surplus, three of them belonging to steel group ArcelorMittal.
Presenting the results in Brussels, Sandbag Director Bryoni Worthington argued that companies in countries with strong 'polluting' industries like Germany, Spain and Sweden have shown great skill in lobbying member states for free allowances, while new member states have distributed their free permits more equally between players.
Worthington said the European Commission had most likely failed to notice the skewed distribution of free permits when it approved the National Allocation Plans due to lack of resources. "I believe that the Commission was caught up by clever member state submissions," she told journalists in Brussels.
