EU Industry Got $27 Billion Carbon Plan Windfall, Study Says

Updated on
  • Companies profited from free permits, CE Delft reports
  • Iron and steel producers benefitted the most from ETS program

European Union industry landed a 24-billion-euro ($26.7 billion) windfall from an emissions cap-and-trade program that was intended to moderate emissions by putting a price on pollution, according to an environmental consultancy.

QuickTake The Cost of Carbon

Companies in the cement, petrochemical and steel industries gained most from the emissions trading system, or ETS, from 2008 to 2014, according to a study by CE Delft which was commissioned by Carbon Market Watch, an environmental lobby. European industry received too many tradeable allowances from EU governments for free, according to the Delft, Netherlands-based consultancy.

The 11-year-old ETS -- the world’s biggest cap-and-trade program -- is Europe’s flagship tool to impose pollution caps on companies across 12,000 installations. Credits are handed out or sold by governments to cover each metric ton of carbon dioxide companies emit. Some industrial companies have received more free pollution credits to prevent them from relocating to places with lax emission curbs.

Energy-intensive industries have urged policy makers to keep distributing free permits to companies to prevent the relocation of companies, known as carbon leakage. European regulators have signaled rules to prevent companies from relocating should continue.

Carbon Leakage

The report’s findings “bust open the industry myth of carbon leakage,” said Femke de Jong, EU policy director at Brussels-based Carbon Market Watch. The group wants the EU to overhaul the carbon market by gradually phasing out the allocation of free permits and accelerating the move toward full auctioning.

The actual windfall profit for the entire bloc is probably higher because only 19 of the EU’s 28 countries were considered, Carbon Market Watch said. The CE Delft study also concluded that companies passed non-existent costs for carbon credits on to customers. Companies were also able to import cheaper carbon-reduction credits, known as offsets, and then sell their free EU pollution allowances for a profit, according to the study.

The European chemical industry lobby Cefic disagreed that free permits should be phased out, pointing out that EU leaders pledged to keep the mechanism in the next decade when they reached a deal on climate targets for 2030.

“On top of this we do not believe this report is very helpful in this stage of the debate when we rightfully start to focus on how to make Europe attractive for investments and innovation,” said Marco Mensink, incoming director general of Cefic.

European steel lobby Eurofer also defended the concept of free allocation, saying it provides a safety net for industrial competitiveness and prevents emissions from leaking elsewhere. The impact of the cap-and-trade system on the steel sector should be considered in a longer time frame as the picture in the period analyzed by CE Delft was blurred by a recession, it said. EU pollution caps for up to 2020 were set before the economic crisis, which cut into industrial output.

“You will see that this historical surplus will be more than compensated by 2020,” Adolfo Aiello, Eurofer’s director for energy and climate, told a seminar hosted by Carbon Market Watch in Brussels on Tuesday.

(Updates with chemical industry lobby starting in seventh paragraph.)
    Before it's here, it's on the Bloomberg Terminal. LEARN MORE