Tuesday, May 19, 2009

Carbon windfall profits seen for EU industry

From Reuters:
European Union moves to exempt industries such as steel, refining and cement from the cost of buying carbon permits risk handing them windfall profits and could blunt EU green investment, analysts say. Heavy industries in Europe and the United States are battling hard to avoid paying for permits to emit carbon dioxide, saying the added cost will harm their ability to compete with overseas rivals, for example in India and China.

EU leaders reached a deal in December to curb carbon dioxide emissions to a fifth below 1990 levels by 2020, but to clinch that agreement they were forced to promise some countries such as Italy and Germany opt-outs for sectors at risk from 2013.

That risk list of sectors is currently being fine-tuned in Brussels according to a complex formula that looks set to hand pollution permits from the Emissions Trading Scheme (ETS) worth billions of euros to the most polluting sectors -- steel, cement, and refining.

At stake is around 4.5 billion euros ($6.13 billion) a year for the steel industry, roughly 5 billion for cement and just under 4 billion for refining, says analyst Olivier Lejeune at New Carbon Finance in London.

Help for the cement industry in particular hangs in the balance, hovering close to the threshold for support.


But by giving manufacturers ETS permits for free, the EU risks handing them windfall profits, as it did in previous years with the power sector, analysts say.

Windfalls are generated when companies pass on the cost of the permits regardless of whether they were free or not, profiting by millions in the process.

"It will not lead to the same level of windfall profits as it did in the power sector," said Susanne Droege at the German Institute for International and Security Affairs....MORE

Well that's comforting.