Updated: Heavy industry to make millions from EU ETS

Energy-intensive firms petitioning against change to the EU emissions trading scheme (ETS), stand to make millions from huge surpluses in allowances, according to climate change campaigning group Sandbag.

Using publicly available data, Sandberg calculates that at the end of 2010, 10 firms manufacturing steel and cement in Europe held more than 240 million surplus allowances under the ETS, worth approximately £3.6 billion.

An overestimation of the amount of carbon credits needed when the scheme was launched, coupled with the ability to buy offsets cheaply from outside the EU, has enabled the companies to create huge surpluses of allowances without making any efficiency savings claims Sandberg.

However, the steel manufacturers have responded arguing the surpluses have been a direct result of lower outputs due to the global financial crisis and any benefit will be outweighed by costs incurred through the ETS in future.

Metals manufacturer AcrcerlorMittal is named the biggest ‘carbon fat cat’ by Sandbag with an estimated 97 million surplus credits, followed by construction materials firm Lafarge with 29 million credits and Tata Steel with 23 million.

Under the ETS, which is now in its second phase, companies are allocated a number of free allowances and are allowed to carry them over into the next phase, due to start in 2013.

Sandberg’s calculations reveal that by the beginning of phase III the 10 firms it lists will have stored 330 million credits, worth more than £4.9 billion.

The organisations can then use the free credits or sell them on for profit. Sandberg claims that ArcelorMittal and Lafarge have already begun selling credits making £151 million and £264 million respectively.

“More and more businesses see that Europe’s future lies in a highly efficient economy with low pollution, and they are demanding reform of the ETS as essential to help them get there,” said Baroness Worthington, Sandbag’s founding director.

“With millions of spare carbon permits it’s no wonder that the carbon fat cats oppose reform of the ETS, but without action this central tool to direct investment into clean energy will be undermined.”

The steel manufacturers, however, argue that Sandbag has missed the context behind the ETS.

“From 2013 the ETS will start imposing costs that will greatly exceed any benefits thrown up by the unexpected severity and longevity of the recession,” confirmed a spokesman from Tata Steel.

The companies argue that with greater costs, the more energy-efficient steel manufacturers in Europe will not be able to compete with less efficient plants outside the bloc, resulting in an overall increase in global emissions from the sector.

Tata Steel says that energy-intensive industries are not campaigning against the ETS but requesting a level playing field in carbon markets so the costs imposed do not weaken European competitiveness.

“Without that, home grown industries’ ability to provide the materials necessary to build the low-carbon economy will be undermined and carbon emissions will rise because of imports transported from less regulated regions,” said a spokesperson.

ArcelorMittal agree, arguing that: “the best solution would be to have a global agreement with comparable reduction targets in all countries where steel is produced.”

ArcelorMittal’s spokesperson also confirmed the firm was reinvesting the profits from the sale of surplus allowances to improve its energy-efficiency footprint.

Sandbag, however, maintains that the massive surpluses of credits held by companies in the heavy industry sectors, like steel and cement manufacturing, is making the ETS untenable and the group suggests reforms are needed to ensure emissions reductions are made.

Sandbag supports a tougher target of a 30% cut in EU carbon dioxide emissions by 2020, lowering the number of allowances given during the next phase of the scheme and initiating action tacking the use of offsets.