Page last updated at 16:50 GMT, Wednesday, 22 July 2009 17:50 UK

EU soft on polluters, greens say

By Laurence Peter
BBC News

Arcelormittal blast furnaces at Fos-sur-Mer, southern France
Heavy industry produces about half of the EU's CO2 emissions

The EU's carbon trading system is too generous to industry, allowing windfall profits through the sale of emissions permits, a green campaign group says.

The UK-based Sandbag group says analysis of EU official data for 2008 shows industry could earn up to 5.4bn euros (£4.6bn) from selling permits.

Industry is accumulating surpluses of permits as the recession forces plants to reduce or halt production, it says.

But an EU official said it was too early to assess the system's impact.

"Let's not panic about it yet," said Barbara Helfferich, European Commission spokesperson for the environment.

She said the carbon price - about 14 euros per tonne of CO2 - had remained "relatively stable over the past few months".

"The best measure is the market - if there were an over-allocation of permits you would see the price radically drop," she told BBC News.

Accumulating permits

The second phase of the Emissions Trading Scheme (ETS) runs from 2008 to 2012 and covers about 50% of the EU's CO2 emissions, generated by power plants and energy-intensive industries such as cement, steel and glass manufacturers.

The EU decided to give most of the CO2 permits to these industries for free in the first and second ETS phases.

1. Integriertes Huettenwerk (Duisburg, Germany) - 10,810,776
2. Glocke Salzgitter (Salzgitter, Germany) - 5,100,330
3. ArcelorMittal Gent (Gent, Belgium) - 4,362,231
4. Corus Staal BV (Ijmuiden, Netherlands) - 4,179,278
Source: EU emissions log (CITL). One permit equals one tonne of CO2.

It is widely acknowledged that industry made big profits from the sale of CO2 permits in the first phase, from 2005 to 2007.

The Sandbag report says industry is likely to have 700 million surplus permits in the 2008-2012 phase, which it will either be able to sell for windfall profits or bank for future use, "depressing the price of carbon in the next phase of trading".

The group argues that the availability of these permits is a disincentive for industry to reduce CO2 emissions, undermining the EU's target of achieving a 20% cut in greenhouse gas emissions by 2020.

The group urges the EU to rescue the ETS by raising the target to 30% by 2020, or 40% if a deal is reached at the global climate summit in Copenhagen in December. A tougher target would mean making fewer CO2 permits available.

Planning for future

The BBC's environment correspondent Roger Harrabin says the research shows that Europe's power firms are still short of CO2 permits, so are buying up the surplus from cement and steel.

In effect, Europe's power consumers are indirectly subsidising through their power bills those firms worst hit by the downturn, he says.

Citing data from the EU's 2008 register of verified emissions and CO2 permits (CITL), Sandbag says just 10 European installations account for nearly 60% of the whole industrial surplus of CO2 permits.

Of these, three installations are run by the steel firm ArcelorMittal, accounting for 15% of the surplus, it says.

A spokesman for ArcelorMittal, Jean Lasar, said that in the first phase "we did make some profits - but we didn't design the system".

Emissions 'bank account'

In the economic downturn ArcelorMittal has stopped production at various sites in Europe, meaning CO2 emissions have fallen.

But Mr Lasar said the firm was passing on some permits to its partner energy utilities, who make use of gas emitted during steel production.

"We haven't sold any permits in this trading period... we are keeping them, we might need them at a later stage," he told BBC News.

"We can't be expected to shape our carbon strategy on what is happening now in the market. The long-term strategy is to significantly reduce emissions," he said.

The CITL register, which keeps a tally of verified CO2 emissions and CO2 permits, is "like a bank account - sometimes there is lots of money in there, sometimes not," Mrs Helfferich said.

"There are many permits in the CITL because they're traded back and forth, and now nobody is using them up. But the reckoning comes on 1 April next year, when the accounts are balanced out," she said.

She admitted that the first ETS phase had suffered from an over-allocation of permits, because "it was a kind of testing period - we had no idea what the overall emissions really were".

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