UK cement companies set to gain from ETS

UK cement companies set to gain from ETS
Published: 15 September 2008

A flagship European scheme designed to fight global warming is set to hand hundreds of millions of pounds to some of Britain’s most polluting companies, with little or no benefit to the environment, an investigation by the the influential UK Guardian newspaper has revealed.

Dozens of multinational firms stand to benefit from the windfall, which comes from the over-allocation of carbon permits under the European emissions trading scheme. The permits are given to companies by the government, and are supposed to account for their carbon pollution over the next five years. But figures published by the European Commission show that many companies have been allocated far too many permits, which they can sell for cash.

The figures, compiled by the Guardian and the campaign group Sandbag, suggest that up to 9m extra annual permits have been allocated to 200 companies across almost all sectors of the British economy, from steel and cement making, to car manufacturing and the food and drink industry.

One of the largest over-allocation of permits is to Castle Cement, which makes a quarter of all British cement at three works in Lancashire, north Wales and Rutland. The figures show carbon dioxide emissions from the three plants have fallen from 2.3Mt in 2005 to 2.1Mt in 2007. Yet, under the ETS, the firm has been handed enough permits to produce 2.9Mt CO2 for each of the next five years - an annual surplus of 829,000 permits.

A spokesman for Castle Cement said: "Castle Cement will not require all its allocated permits to cover CO2 emissions in 2008 as we continue to reduce our impact on the environment in line with our sustainability strategy.

"Total CO2 emissions from our three works are likely to be less than in 2007 due to further improvements in efficiency, increased use of low-carbon fuels and a weakening demand for cement caused by the general economic downturn. Surplus credits will be traded."

At the current price of UK£21, the company could sell its surplus permits for UK£83.5m over the five years.

Each company’s surplus was calculated using figures published by the European Commission on corporate CO2 emissions for 2007, and annual permit allocations for 2008-12, under the ETS second phase.

The over-allocation comes from the way the government calculated the likely emissions of each site owned by the companies in the scheme. Each site’s permit allocation was based on average emissions from 2000-2003, but also took into account projected growth and improvements in energy efficiency.

Karsten Neuhoff, an expert in emissions trading at Cambridge University, said the over-allocation to so many companies was "an indication of the bargaining power of industry". He said: "We may agree as a society that we need to cut emissions, but when it comes down to individual companies and then individual installations and individual behaviours, we say ’oh no, we can’t cut them here’. Everyone is a special case."

The environment department Defra said it would not discuss allocations for individual companies. A spokesperson said: "It is of course impossible to predict what any company or installation’s exact emissions for the next five years by looking at their emissions in 2007.

"Decisions on allocations were made on a sound historical basis. It is natural that economic, sectoral, production and technical factors will see emissions at individual installations differ from the predictions.

"What matters is that regardless of individual fluctuations, all emissions in the scheme are constrained by the overall cap, if one installation increases its emissions, the same amount of emissions have to be cut elsewhere."