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Despite attempts to tighten up the European Emissions Trading
Scheme (EU ETS), the second phase of the scheme which began
this year could still see millions of euro of windfall profits
handed to energy companies that continue to use fossil fuels
to generate power.
That is the finding of a new report commissioned by the World
Wide Fund for Nature (WWF) and carried out by carbon market
analyst firm Point Carbon which suggests that electricity
generators across Europe could earn up to €71bn in windfall
profits between now and 2012, when the second phase of the
scheme ends.
The ETS is a cap-and-trade system designed to help minimise
carbon emissions from large emitting polluters. Companies
are allowed to produce carbon emissions up to a set quota
and are allocated carbon credits to cover those emissions.
Firms that exceed this carbon cap, however, must purchase
extra credits on the open market, while those companies that
do not reach their quota can sell their excess credits - giving
firms an extra financial incentive to curb emissions and not
exceed their quota.
The first phase of the scheme was seen by many as a failure
as the emission quotas were set too high - meaning the price
of carbon collapsed as the vast majority of firms were left
with excess credits to sell.
However, WWF claims that, despite a tightening of emission
quotas for the second phase of the scheme, which has led to
the price of carbon credits to climb to around €24 per
tonne, it is still failing to deliver emission reductions
because - just as in phase one of the scheme - power companies
are initially given free offset credits to cover their emissions
quota.
The report argues that, because the carbon credits have both
a monetary and a carbon value, the free credits amount to
free cash for companies that continue to rely on fossil fuels.
"The EU has mandated a 20 per cent cut in carbon emissions
by 2020 and, in the UK, we have a 15 per cent target"
- said Kirsty Clough, a spokeswoman for the WWF. "But
the emissions trading scheme isn't incentivising companies
[to curb emissions]."
The EU is currently reviewing plans for the trading scheme's
third phase in 2013, to see if free credits will still be
appropriate. Under proposals currently being considered, the
allocation of free credits to power companies would be axed
and firms would be forced to buy all the credits they require
at auction. Advocates of this approach claim it would place
a clear price on all carbon emissions, making clean energy
technologies more attractive by comparison.
Robin Oakley, climate campaign manager for Greenpeace UK,
argued that in the meantime, the ETS was continuing to fail.
"Power companies are proposing climate-wrecking new coal
plants across Europe - such as the one proposed by German
utility E.ON at Kingsnorth in Kent" - he complained.
"So long as dirty companies are going ahead with these
pollution factories instead of clean renewable alternatives,
the emissions trading scheme will have failed."
To download the report - Click
Here
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