NGO calls on firms to retire EUETS credits

An NGO has formed to look at allocations under the EU emissions trading scheme and call for firms to retire surplus credits. UK plants could have a surplus of 9 million allowances this year, although data is uncertain.

Around 200 firms have been allocated more allowances than they need in the second phase of the EU emissions trading scheme, according to new environmental NGO Sandbag. Launched in September, it is the first NGO to focus specifically on the EUETS.

It aims to reveal which firms have been overallocated allowances and pressure them into retiring their surplus. It is currently UK-focused, but will also be examining allowances in other European countries. The Guardian newspaper is its media partner.

Phase II of the EUETS began in April, and runs until 2012. Allocations for the phase were set in 2006. Industrial sectors were awarded allowances based on business-as-usual emissions projections. These were then shared between installations based on their emissions between 2000 and 2003 (ENDS Report 375, pp 40-41 ).

The UK, like most European governments, was heavily criticised for overallocating allowances in phase I. For example, some 63% of UK plants received more allowances than they needed in 2006 (ENDS Report 397, p 9 ). The vehicles and engineering sectors received 55% more allowances than needed.

Sandbag is analysing emissions allocations under phase II, and has so far done so for 475 of the 907 installations covered. The group is comparing 2007 emissions data for UK plant with their average yearly allocation. According to its initial analysis, some 200 installations have received more allowances than required in 2008. The surplus amounts to almost 9 million allowances - equivalent to 3.7% of the UK’s total cap for phase II of 238 million tonnes of CO2 per year. A map showing surpluses is available on Sandbag’s website.1 Firms overallocated allowances could make a major profit. As ENDS went to press, allowances were selling for €22.9 (£17.80) each, although firms can also bank them into future years.

Bryony Worthington, founder of Sandbag, said it needs to refine some of its figures to take account of the expansion of the EUETS to include new processes and sectors previously regulated by the UK’s own climate change agreements scheme. However, she says firms need to be pressured into retiring credits now rather than wait for the dataset to be complete. "If they bank credits, they’ll just be banking hot air and that will cause problems later."

There could be a benefit for firms cancelling credits: "Many of the companies with surpluses are household names - like Toyota and Thames Water - and if they do not sell their credits, they will be held up as examples to others. It would be great PR."

Of the sectors that appear to have surpluses - including iron and steel and car manufacturing - the largest is cement. Lafarge appears to have been allocated 46% more allowances than it needs - equivalent to 2.3 million tonnes of CO2. Castle Cement appears to have a surplus of over 800,000 tonnes. However, Sandbag now says its analysis only includes process emissions - not those from energy use - so the surpluses may not be anywhere near these figures.

When contacted by ENDS, both Lafarge and Castle Cement said they expected to be in surplus this year, due to energy efficiency improvements and a 10-15% drop in demand for cement.

A spokesman for the Engineering Employers Federation, the manufacturing sector’s trade body, said the level of any surplus could not be gauged until 2008 emissions data was available. "We’d hope the allocation is about right, but no one can predict perfectly. Allocations are for the whole five years of phase II and any apparent surplus has to be examined across that period."

Some firms appear to have already reacted to Sandbag’s campaign. Ford said it would spend revenue from selling surplus allowances into achieving further CO2 cuts at its plants. Ford has a surplus of 79,184 tonnes in 2008, according to Sandbag.

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