(February 10, 2011) Revenues could bring in billions for the government each year, which campaigners say should fund green projects.
The UK government has made more than €1bn (£844m) selling carbon permits [PDF] to polluting businesses, and could make billions more each year for the next decade, research published on Thursday shows. But despite pressure from the European Union, none of the revenue raised is being directed towards green projects.
On Thursday, the UK netted around €63m from its latest auction of permits, the first since trading was halted for two weeks after hackers stole around €40m by exploiting flaws in the carbon trading system. The government plans to hold five more auctions this year, selling 17.5m permits, which could represent a gain to the Treasury of more than €260m at current carbon prices. From 2013, the government stands to make as much as €8bn a year, according to estimates from the UK’s Carbon Trust.
Ministers have resisted calls for the funds to be earmarked for green ends. The Department of Energy and Climate Change reiterated today that it was not government policy to hypothecate revenues.
Jane Burston, the director of Carbon Retirement, an offsetting company that buys EU carbon permits and takes them off the market, said the government’s reluctance to channel the funds into green projects made little sense, as there were examples of other revenues being diverted – such as the proceeds of the climate change levy, some of which are used to fund the Carbon Trust.
She pointed out that the European commission advised that revenues should be spent to improve member states’ environmental performance, but the government resisted this pressure. Putting the revenues into projects that cut emissions would “show that the government was serious” about tackling climate change, she said.
If earmarked for the proposed “green investment bank“, for instance, the funds would more than double the initial funding of £1bn agreed by chancellor, George Osborne.
Permit auctions started in 2008, when changes to the European Union’s rules on emissions trading meant member state governments were allowed to sell off up to 10% of their allocation of permits, which had previously been given out for free. The UK decided to auction 7%, covering the emissions of the power sector.
From 2013, about half of the total number of permits available are expected to be sold. The only companies expected to receive their permits free of charge are those in industries particularly vulnerable to competition from overseas businesses that are not subject to the same strict environmental regulations.
The enlarged number of permits available for auctioning will greatly boost the government’s revenues from the scheme, according to the Carbon Trust.
The buyers at the government’s auctions have been largely banks which sell the permits to companies – such as electrical utilities – needing to top up their emissions quotas.
Climate change minister Greg Barker hailed Thursday’s auction as proof of the robustness of the UK’s trading system, which made it less vulnerable to fraud. “Today’s successful auction is a testament to the high level of security the UK applies to its registry. Swift action meant that the UK was one of the first registries to reopen following the attacks,” he said.
He added that the government was putting pressure on the European commission and other member states to improve security levels overall, and rebuild trust in the market, which has been beset by troubles since its inception in 2005.
The recent spate of cyber thefts were only the latest in a long series of troubles for the carbon markets, which were set up in 2005 in order to put a price on carbon and encourage companies to become more energy efficient. Under the scheme, companies in certain energy-intensive sectors are awarded a quota of emissions. If they wish to exceed their quota, they must buy more permits from cleaner companies with spares. But in the market’s second year of operation, it was discovered that too many permits had been issued and the price crashed. Since then, the price has recovered but environmentalists have raised concerns that the scheme is not resulting in significant emissions reductions, and it has been subject to repeated attempts at fraud, including a VAT “carousel” fraud.
Fiona Harvey, Guardian.co.uk, February 10, 2011
Categories: Carbon Credit Watch