Commodity Online

Warning that if the EU s Emissions Trading System (ETS) is not implemented properly it will spell negative impact, the WWF said that polluting electricity generators in Europe will reap another round of extraordinary windfall profits from the carbon trading scheme meant to curb their carbon emissions.

According to a study, commissioned by WWF from world leading carbon market analysts Point Carbon, estimates that the windfall to electricity generators in just the five states of UK, Germany, Spain, Italy and Poland over the current five year phase of the EU ETS could be between $36 111 billion.

This is an alarming situation where the real polluters are gaining benefits from a faulty ETS.

Windfall profits are generated when generators benefit from electricity prices reflecting the cost of carbon emissions while receiving the bulk of their carbon emission allowances (EU allowances) for free under National Allocation Plans.

Windfall profits are highest in countries that have a high level of pass through of CO2 costs into wholesale power prices, countries with emissions intensive (coal) plant setting the price the majority of the time, and countries that allocate the highest percentage of free allowances to the power sector, Point Carbon said in the report.

Coal fired power stations account for 20 per cent of the EU s total carbon dioxide emissions, and its grip on the European power sector looks set to increase with plans to construct 40 major new coal fired power stations in Europe in the next five years.

Point Carbon identified the free handouts of EUAs as the central mechanism of the windfall profits, which on various carbon price and cost pass through estimates are expected to be worth $22 53 billion to Germany s generators (70 per cent dependant on coal power), and $9.5 23.5 billion to UK generators where coal and gas thermal capacity is more evenly balanced.

The findings of the study are highly relevant to nations like the US, Japan and Australia, where the desirability and design of emissions trading schemes are being considered as key elements of national responses to the challenge of climate change.

WWF is concerned that power generators in these areas will lobby for free allocations under grandfathering schemes where allowances are provided for free to power stations on the basis of historic or anticipated emissions or benchmarking where free allowances are allocated on the basis of industry or emission reduction plans.