Treasury swallows €1 billion carbon trading profit

The UK government’s latest carbon auction brings the total profit made from the scheme to €1 billion since 2008, despite attacks on the system early this year.

The latest auction by the UK Debt Management Office (10 February), sold 4.4 million EU set allowances available at a price of €14.36 (£12.18) per tonne.

Since the first auction in 2008, 77 million allowances have been auctioned. The Carbon Retirement - a group dealing with Carbon offsetting - believes €1 billion has now been raised.

The auctions are part of the EU’s Emissions Trading Scheme (ETS), which sees companies from one country buying allowances from countries that have reduced their emissions and have allowances to spare.

Under the scheme, countries can trade up to 10 per cent of their total emissions. Currently the UK sell around 7 per cent of their allowance, but this is set to rise in Phase III, starting in 2013, to 50 per cent, meaning total revenue could reach as much as €64 billion by 2020.

The UK’s financial benefit from the scheme is second only to Germany, who has made €2 billion Euros. Being a higher polluter, Germany has more allowances to sell. Other countries that have adopted the scheme include the Netherlands, Austria, Hungry and Ireland.

Currently all money generated by auctions goes straight to the treasury, with none earmarked specifically for low-carbon initiatives. Although Carbon Retirement believes trading is a positive step, they doubt the Government’s commitment to mitigating climate change.

In 2008, an Environmental Committee of the European Parliament’s (ENVICom) Directive stated that “at least 50% of the revenues generated from the auctioning of allowances” should be used for purposes including reducing greenhouse gases; developing low-carbon technologies and renewable energies; avoiding deforestation; shifting to low-emission transport; and research into energy efficiency.

 The Government’s response to the proposal stated: “Whilst earmarking clearly appeals to many stakeholders, it is an inefficient means of determining public expenditure priorities which should generally be looked at in the round, rather than by creating artificial links between particular spending programmes and specific revenue streams.”

Carbon Retirement believe earmarking would work, pointing towards examples taken from Germany, where €400 million is earmarked for both national and international green projects; and Denmark, where 50 per cent of CO2 tax revenue is given back to tax payers as compensation.

In the UK, a new Carbon Reduction Commitment (CRC) was launched in 2010 for large public and private organisations that are not already covered by the EU ETS.

It is the first mandatory carbon trading system and uses a range of reputational, behavioural and financial incentives, including an annual performance league table, to encourage organisations to develop energy management strategies and lower emissions by 1.2 million tonnes of CO2 by 2020.

The scheme covers around 25 per cent of UK businesses and is currently being overhauled by the Department of Energy and Climate Change. It has been accused of adding confusion for business and retaining the money from the sales of emissions allowances after 2012.

The Government is considering replacing the CRC with new green taxes and tries to reassure the public that this will not mean companies pay less.  Any costs not covered by the changes could be picked up by a new green tax, they say.

Attacks on the trading scheme have also been felt outside of the UK. In January 2011, all carbon registries in the EU ETS were closed in response to cyber attackers, who stole 475,000 emissions allowances from the Czech national registry.

The closure meant traders were unable to move allowances in or out of the spot market, and risked market disruption, and a drop in market confidence.

In the same month, the trading scheme was criticised as being nothing more than a financial vehicle. A group of Australian scientists suggested the scheme should be scrapped for a Carbon Swap bank, which would get around the obstacles of the trading system.

The carbon swap bank would allow direct deposits of sequestered carbon to be added and withdrawal of emission rights to be made. It would not work by direct swaps between a supplier of carbon sequestering technologies and methods, and those of the carbon polluter.

The next EU ETS auction in the UK will take place on the 10 March for another 4.4 million allowances.

 

Image: Bill Bradford | flickr