The ten companies holding the largest number of surplus emission allowances under the EU's cap-and-trade system stand to make a profit of 3.2 billion euros in the 2008-2012 trading period, according to a new analysis of EU data.
The research, published on 3 March by climate NGO Sandbag, compared the emissions allowances that different companies had received under the EU's emissions trading scheme (EU ETS) with their actual emissions. It found that the overly generous free allocation of permits, compounded by a drop in production following the global downturn, had added significant assets to many companies' books.
According to the report, steel giant ArcelorMittal alone could cash over €1 billion from unused EU allowances by 2020. Taken together, the top ten companies, dominated by steel and cement firms, shared 35 million surplus permits in 2008, worth around €500 million at current carbon prices.
Sandbag warned that the large profits made by a few companies "raise questions as to whether EU companies are operating within a level playing field". It pointed out that the surplus permits held by steel and cement companies were counterbalanced by the power sector, which is required to deliver the majority of emissions reductions under the trading scheme.
RWE and E.ON, the two utilities most short of permits, had to make more emissions reductions or pay for more allowances than the required net reductions of the entire scheme in 2008.
The recession meant that the carbon cuts required under the EU ETS were achieved, but the scheme failed to fulfil its original purpose of providing incentives to develop low-carbon technologies, Sandbag warned.
"There might be an argument now to subsidise industries that are suffering, but don't do it through an environmental scheme," said Anna Pearson, head of policy at Sandbag.
She further warned that the problem will be carried over to the next trading phase, which begins in 2013, as many companies will be shielded from having to make any cuts in future as they can simply bank their unused credits to meet new requirements.
"There's going to be a hangover effect because all these companies are allowed to bank these millions of permits over into phase three," Pearson said.
The report's release coincided with the news that ArcelorMittal had lost a legal challenge against the ETS in the EU's General Court (EURACTIV 03/03/10). Ironically, Sandbag said that the company might now be relieved about this, "given just how much money they can make from the position they find themselves in".
ArcelorMittal spokesperson Jean Lasar said the company had set a target to reduce its carbon emissions by 8% by 2020 and was working on developing new technology that is capable of reducing emissions considerably.
"Until such technology becomes a reality, the company has a requirement for carbon credits in order to maintain a European steel industry," he said.
But Sandbag's Pearson warned that the problem of surplus credits is part of a bigger debate about where the EU's climate policy should go. She said the findings justify increasing the EU's 20% emissions reduction target to 30% by 2020 to ensure a higher cap under the EU ETS.
In addition, the NGO called for access to international offset credits to be limited and permits held by member states in their new entrants' reserves to be cancelled. Revisiting the design for trading post-2012 would also be necessary to adjust decisions on carbon leakage, benchmarking and power-sector auctioning levels to take into account the large number of surplus permits from the previous phase, it said.
The EU's emissions trading scheme (EU ETS; see EURACTIV LinksDossier) has since 2005 required some 10,000 large industrial plants in the EU to buy and sell permits to release carbon dioxide into the atmosphere.
The first trading phase saw a gross over-allocation of permits, sending carbon prices tumbling. The number of permits was slashed by 10% for the second phase between 2008-2012, but the global downturn and its accompanying drop in production has pushed prices down.
To correct the problems, a revision of the scheme for the third trading period starting in 2013 was agreed in December 2008, tightening the emission cap to 21% below 2005 levels. Under the revised scheme, electricity producers will need to buy 100% of their CO2 emission permits at auction by 2020.
EU official documents
- European Commission:Emission Trading System (EU ETS) website
NGOs and Think-Tanks
- EURACTIV Czech Republic:T?žký pr?mysl vyd?lá miliardy eur na povolenkách