A flagship European scheme designed to fight global warming is set to hand hundreds of millions of dollars to some of the most polluting companies, with little or no benefit to the environment.
Dozens of multinationals stand to benefit from the windfall, which comes from the over-allocation of carbon permits under the European Emissions Trading Scheme. The permits, given by governments, are supposed to account for their carbon pollution over the next five years. But figures published by the European Commission show many companies have been allocated far too many permits, which they can sell for cash.
The scheme is supposed to only distribute as many permits as companies require, with one allocated for each tonne of carbon dioxide produced. The figures, compiled by the London-based Guardian and campaign group Sandbag, suggest that up to 9 million extra annual permits have been allocated to 200 companies across almost all sectors of the economy in the UK. Dozens of major companies such as Ford, Thames Water, AstraZeneca and Vauxhall are among those that could benefit.
One of the largest over-allocations is to Castle Cement, which makes a quarter of all British cement at three works in Lancashire, north Wales and Rutland. The figures show carbon dioxide emissions from the three plants have fallen from 2.3 million tonnes in 2005 to 2.1 million tonnes last year. Yet the firm has been handed enough permits to produce 2.9 million tonnes of carbon dioxide for each of the next five years.
A spokesman for the company said it would trade its surplus permits. At the current price of £21 (US$37.50), the company could sell those for £83.5 million over the five years.
Ford said it would consider selling an expected surplus of almost 80,000 permits, and AstraZeneca said it would sell from its expected 37,000.
Each company’s surplus was calculated using figures published by the commission on corporate carbon dioxide emissions for last year, and annual permit allocations for this year to 2012, under the ETS second phase.
‘magical logic’
The over-allocation comes from the way the government calculated the likely emissions of each site owned by the companies in the scheme. Each site’s allocation was based on average emissions from 2000 to 2003, but also took into account projected growth and improvements in energy efficiency. Campaigners say allocations were also influenced by lobbying. A source at a UK car firm, which has been allocated more than double the number of permits it needs, said they were given out based on “magical logic.”
Karsten Neuhoff, an expert in emissions trading at Cambridge University, said the over-allocation was “an indication of the bargaining power of industry.”
A few companies have been allocated fewer permits than they require. The tax-funded Leeds Teaching Hospitals National Health Service Trust, with an apparent annual deficit of 5,800, said it would need to buy permits this year.
The only sector to be given fewer permits than it needs is the electricity supply industry, which is more than 70 million short. The British government says this is because it is not subject to international competition, and can pass on the cost of buying permits to customers.
The under-allocation to the electricity sector means emissions overall will reduce by some 60 million tonnes a year.
Bryony Worthington, founder of Sandbag, said: “Hundreds of companies have been given a free ride while those that do have to buy permits can simply pass on the costs. That means electricity customers are effectively subsidizing heavy industry’s right to pollute, while being urged to make environmental sacrifices in their own lives.”
Defra would not discuss individual allocations. A spokeswoman said: “What matters is that regardless of individual fluctuations, all emissions in the scheme are constrained by the overall cap; if one installation increases its emissions, the same amount have to be cut elsewhere.”
ADDITIONAL REPORTING BY ALEXANDRA TOPPING
Emissions trading
What is the European emissions trading scheme (ETS)?
The world’s first large-scale carbon trading market, set up in 2005 under the Kyoto protocol as a way to use the market to reduce industry pollution.
How is it supposed to work?
Hundreds of polluting companies, including power generators, oil producers and car makers, have their direct emissions from fuel use capped by the European commission. Companies that produce more pollution than allowed must buy permits from cleaner rivals. In time, the cap is reduced and the price of carbon permits rises to the point where firms would rather invest in reducing their emissions.
Does it work?
Not yet. The first phase of the scheme, from 2005 to last year, is widely viewed as a disaster. European governments gave out too many permits to their companies, which then put them up for sale.
The result?
The price crashed to 0.1 euros in September last year. There was also criticism of the windfall received by electricity generators. These were the only companies to be given fewer permits than they required, but were allowed to pass on the cost to their customers.
What do the new figures show?
They refer to phase two of the scheme, which begins this year but is overdue. They show that as many as 200 UK companies — outside the electricity supply sector — have received too many permits again.
Why does it matter?
Because the UK permits are given out free, but have an asset value, the companies with too many have effectively been handed a subsidy. The over-allocation could also send out the wrong message. About half the EU carbon dioxide emissions are captured in the ETS, but governments have so far been reluctant to tighten the cap to squeeze the firms to reduce emissions. Most in the UK have effectively been given official permission not to reduce pollution for the next five years.
What next?
Companies can bank spare permits for use in the third phase after 2012, when their value is expected to rise, so the price should not crash again. How permits are allocated in phase three, currently being decided in Brussels, could make or break the success of the scheme. Campaigners want Brussels to auction the permits. Industry lobbyists are trying to maintain the current free-for-all.
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