Where the windfall blows

27 January 2009

How best to combat climate change? EU leaders supposedly solved this conundrum at the end of last year, doing what they called an 'historic' deal on a complex package of climate and energy measures. But Eurocorrespondent has scrutinised the legislation and can reveal something else: an 'historic' windfall-profit-in-waiting for Europe's most polluting industries. By Stephen Gardner The windfall will be generated by the EU's main climate policy measure, the emissions trading scheme. This caps the emissions of polluting heavy industry, and requires big firms such as steelmakers to buy extra emission allowances if they pollute beyond their cap. However, up to the cap, most allowances are given to firms for free. If firms cut their emissions, they can sell any excess and make a tidy profit. This, in fact, is nothing new, and arguably provides an incentive to cut emissions -- the whole point of the scheme. But December's climate deal includes an obscure rule that, when combined with effective industry lobbying, is set to blow the windfall up to scandalous proportions. Crucially, firms can bank allowances they currently receive for free, and hold onto them into the next phase of the emissions trading scheme. Until now, the amount of free allowances given to companies has been decided by individual governments, who have predictably been subject to massive lobbying, threats that firms will relocate to India or Ukraine, and other standard blackmailing tactics. And the blackmail has worked. Heavy industry has been given far more emission allowances than it needs. Take steelmaker Corus, for example. From 2005-2007, its annual carbon dioxide emissions were around 26.5 million tonnes. But for each year from 2008-2012, it has been inexplicably given 34.5 million allowances -- or a surplus of around 32 million over the four years (which will probably be far more considering the economic downturn). Corus just needs to sit on these until the emissions trading scheme's next phase (2013-2020), when the emissions cap will be tightened up, allowances will be in shorter supply, and the carbon price rises to, say, €30. Hey presto, almost €1 billion -- for free! To make readers feel even better about this, it should be pointed out that it is they who will pay for this. The generous surpluses given to steelmakers, cement firms and the like have been counterbalanced by extremely stingy allowances given to power companies, who must go to the market to make good the shortfall. But as they can pass the cost through into power prices paid by consumers, it means they don't lose out either! As Brussels likes to point out, everyone's a winner when it comes to fighting climate change (er, except all the households scrambling to pay their rising electricity bills). A version of this article originally appeared in Private Eye.

 

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