Windfall profits from Europe's system for trading industrial carbon quotas could discourage big regional polluters from doing anything to curb emissions. According to a new report by Sandbag, a UK non-profit group that analyses carbon market policy, 10 "carbon fat cats" have ended up with most of the permits to emit carbon dioxide that the EU issued in 2008. The permits are worth about ?500 million (Dh2.5 billion) today, but by 2012 their market value could rise to ?3.2bn, the group projected.
"Emissions trading is meant to be the central policy for cutting carbon dioxide levels," said Anna Pearson, the chief policy analyst at Sandbag. "The fact that companies are able to make large sums of money for doing nothing highlights that the trading scheme must be reformed and EU climate change targets strengthened." The group said the 10 companies stood to make carbon trading profits roughly equivalent to the EU's entire investment in renewable energy and clean technology under its economic recovery plan.
Under its emissions trading scheme, the EU allocates permits to emit carbon dioxide, the most prevalent greenhouse gas linked to global warming, to its member states to meet obligations laid out in the UN's Kyoto Protocol on climate change. The states then assign quotas to industries with high levels of carbon emissions. Companies emitting less than their carbon dioxide quotas can sell unused allowances to heavier emitters, in theory setting a price for exceeding emissions targets and establishing a financial incentive for improvement.
Unfortunately, no one foresaw the flood of excess carbon permits that the global recession unleashed, lowering their market value. With the economies of most European countries still showing anaemic growth, the electricity, steel and cement sectors that dominate the EU trading system are operating below capacity and pumping out less carbon dioxide than expected. Among the biggest beneficiaries, the steel maker ArcelorMittal collected 40 per cent of the excess 2008 permits, Sandbag reported. Lafarge, the cement maker, received 12 per cent. Corus, a European unit of India's Tata Steel, and the Swedish steel maker SSAB-Svenskt Stal ended up with 10 per cent each.
The companies accumulated most of the permits simply by being allocated more than they used, although some were also bought on the open market. After peaking at nearly ?30 per tonne in mid-2008, the European carbon price has fallen by 57 per cent to about ?13 last week, according to BlueNext, one of several European carbon exchanges. Groups such as Sandbag worry that low carbon prices give businesses little incentive to adopt new technologies for improving environmental performance.