The study, prepared by analysts Point Carbon for WWF, estimates that windfall profits in five European Countries – Germany, Italy, Spain, Poland and the UK – could amount to more than £50 billion over the five years of the second phase. More than half of these profits could be made in Germany where generators could cash in by as much as £27 billion.
This is based on a price of carbon of €32/tCO2. But even based on a carbon price of €21/tCO2, generators in the five countries could still make windfalls of £18 billion says the report. EU carbon allowances are currently trading at €23.53.
Power generators receive windfall profits by passing on the costs of carbon to their customers, even though they receive allowances to cover their emissions for free.
The report concludes that windfall profits will be highest in those countries with liberalised energy markets where costs can be easily passed on to customers, where coal dominates, and where there are high levels of free allowances.
UK generators will receive just under 100 million free allowances a year between 2008-2012. One allowance equates to one tonne of carbon dioxide. In 2006, they emitted 181MtCO2.
"Handing free pollution permits to power companies is like handing them a cash bonus as, in the lack of international competition, they simply pass on the value of the permits to their customers," said WWF climate campaigner Kirsty Clough.