Industry's €5bn windfall

C&I Issue 15, 2009

Industry could reap a €5bn windfall from the over allocation of carbon permits under the EU’s Emissions Trading Scheme (ETS). The excess permits, according to a report by a not-for-profit climate change organisation, are a result of two problems: an excess of permits in Phase 2 of the ETS and no way to compensate for the bottom falling out of the permits market.

 Under Phase 2 of the ETS, an EUwide cap of 2.08bn t of CO2 has been put in place. The ETS currently covers around 10,000 facilities and power plants in the EU and requires them to trade permits for each tonne of CO2 emitted. Permit prices currently stand at just over €14, having traded at highs of more than €30/t of CO2 and lows of less than €0.1/t of CO2 at the end of Phase 1.

 The report, by UK campaign organisation Sandbag, blames the glut of permits on overly optimistic growth predictions, exacerbated by the global recession, which has reduced economic activity and, therefore, cut CO2 emissions. Sandbag predicts a surplus of 400m permits from this, as well as another 300m from the New Entrants Reserve by 2012. On top of this, industry has the option of buying offset credits from overseas, and the report predicts that this could add another 900m credits during Phase 2. This potential oversupply of 1.6bn permits could undermine emissions reductions, with many of these permits bankable for use in Phase 3 of the ETS.

 Alex Desbarres, senior renewables analyst at Datamonitor, says that some of the figures look over the top, but overseas credits have been in oversupply for the last three to four months. It is difficult to distinguish between emissions reductions resulting from the ETS or the recession, he adds, but emissions from those facilities involved in Phase 1 actually rose by 2.1%.

 ‘Inevitably, while every effort has been taken by legislators to ensure the cap for Phase 2 was challenging, no one could have seen the impact of the recession,’ says Nick Sturgeon, head of climate change and energy at the UK Chemical Industries Association.

Become an SCI Member to receive benefits and discounts

Join SCI