Report: EU ETS Could Increase Carbon Emissions

by | Sep 10, 2010

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The five-year period of the European Union’s emissions trading scheme (ETS) that ends in 2012 will deliver carbon savings of less than a third of 1 percent of total emissions, according to a report from emissions trading campaign group Sandbag, reports The Guardian.

The report, “Cap or trap? How the EU ETS risks locking-in carbon emissions” (PDF), indicates that only 32 million tonnes of pollution permits will need to be surrendered to meet the cap on greenhouse gas emissions, which is a small fraction of the 1.9 billion tonnes of carbon emissions covered by the ETS each year, according to the article. This is a result of lower industrial activity while the caps remain at the same level.

“The recession has rendered the ETS caps thoroughly obsolete,” says Sandbag campaigner Damien Morris, in a statement. “Unless they are adjusted to reflect our new circumstances, the EU ETS risks becoming an albatross around the neck of European climate policy, a carbon trap rather than a carbon cap, obstructing the mitigation efforts of the EU and its Member States. Our political leaders must address this by resisting exaggerated industry lobbying and agree to tighter caps,” he added.

The report also finds that the number of “hot air” permits held by steel and cement manufacturers have risen sharply, which were awarded in anticipation of high levels of production but with lower production as a result of the recession, they don’t need the permits, reports The Guardian. However, they can sell them on the open market or hoard them until the next ETS phase.

An earlier Sandbag and Carbon Market Data report found that ten organizations, primarily in the steel and cement industries, could share a surplus of €3.2 billion ($4.4 billion) of pollution permits by 2012 under the ETS. The organizations based the estimated surplus on permits sold from 2008 to 2012 at €14 ($19) per permit.

The top ten companies expected to benefit from the surplus include ArcelorMittal, Corus, Lafarge, SSAB – Svenskt Stal, Cemex, Salzgitter, U.S. Steel, HeidelbergCement, CEZ, and Slovenské elektrárne.

An ArcelorMittal spokesperson told The Guardian: “We do not know how many CO2 allowances we will end up with at the end of 2012 because it depends on the market developments in the next years. In any event, we will not sell CO2 allowances we have received from governments as we will need them for future production needs or, alternatively, we will invest them in energy efficiency projects in our plants. Therefore, any surplus allowances we will have by end 2012 do not constitute a windfall profit.”

The Sandbag analysis projects that the 1.8 billion permits likely to be carried over into the new phase in 2013 means carbon emissions could rise to a third higher than current levels.

Sandbag’s report makes several recommendations to fix the ETS. These include increasing the EU carbon reduction from 20 percent to 30 percent, setting caps for the next trading phase (2013-2020) based on actual emissions and not on the permits allocated, and canceling “hot air” permits. Another recommendation calls for an amendment to the ETS rules that will allow for the mechanism to respond to large drops in demand in order to prevent a flood of permits.

The Department for Energy and Climate Change (Decc) supports the increase of the EU’s 2020 carbon reduction target from 20 percent to 30 percent. A Decc spokesperson told The Guardian this would lead to “significant tightening of the EU ETS cap and improve the way the EU ETS works.”

European manufacturers, including industry lobby groups, are opposed to the higher carbon reduction target because they say it would impact their competitiveness.

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