The UK's biggest polluters will reap a windfall of at least £6bn from rising power prices and the soaring value of carbon under the new European carbon trading scheme that critics say fails to correct the flaws of the system it replaced.
From yesterday, the second phase of the European Trading Scheme (ETS) took effect. Analysts have predicted that the price of carbon for 2008, already trading at about £22 per ton, could nearly double under the new regime, which sets much lower emissions ceilings for the participating countries than those that existed under the recently ended first phase. Critics argue, however, that the scheme, under which nearly all allowances are granted free of charge rather than having to be bought by big polluters, has created a distorted market in which the worst offenders will enjoy bumper profits while incurring no extra underlying cost for producing greenhouse gases.
Under the "Phase Two" of the ETS, which runs until 2012, 104 million tonnes in annual carbon allowances have been allocated to the major UK power generators, the single biggest source – about one-third – of the UK's total of CO2 emissions. At £22 per ton, those allowances are worth about £2.2bn (£1.6bn) annually. That amount could rise dramatically. Analysts at Deutsche Bank predict that under the more stringent thresholds, the carbon price will rise to £35 per ton this year, while UBS forecasts an increase to £30.
Under the ETS, companies can sell any excess allowances and pocket the profits. They can also pass on the implied increase to generation costs to customers though higher energy tariffs, thus benefiting from the system without the desired effect of also being encouraged, through the payment of large carbon bills, to invest in new clean generation technologies. Jake Ulrich, the managing director of Centrica, said: "If companies and individuals are to be made to reduce their output of CO2, the ETS needs to be structured to make polluters pay. To do this, we need to eliminate the current free handouts of allowances to emit, which give big windfalls to polluters and do not encourage development of clean generation."...MORE