TheCompensators* » Carbon allowances given out for free using outdated information

Carbon allowances given out for free using outdated information

According to a new study new study led by CE Delft an independent research and consultancy organization, the European Commission is currently using an “outdated” list that grants free carbon emission allowances to industries, which have a risk of relocation abroad also known as carbon leakage. If the carbon leakage assessment would be brought into like with current data, according to CE Delft’s analysis, the number of industrial recipients that would receive free allowances would be halved.

In 2009, when the EU’s impact assessment was released, the European Commission agreed to grant free allowances to 60% of the sectors that are covered by the ETS to reduce the risk of carbon leakage. Bryony Worthington, founder of the environmental group Sandbag stated that the EU’s 2009 impact assessment, using today’s data is completely outdated and irrelevant.

CE Delft’s study, found three flawed assumptions that no longer hold in today’s world.

  • Carbon prices were expected to hit €30 a tone by 2020. However, carbon prices are currently between €4 and €5 a tone – and could even fall to zero if the back loading proposal is rejected in the European Parliament next week.
  • Exposed sectors were slated to overshoot their benchmarked free allowances by 60%. Yet due to the economic recession, “an exposure rate of 20% now seems more likely”.
  • Non-EU countries were not predicted be participate in the ETS. However, countries such as Croatia, Iceland, Norway and Liechtenstein have already joined the scheme and in addition, Australia and Switzerland are set to link up with the ETS in 2015.

Damien Morris, a senior policy officer for Sandbag, stated that, “in total, manufacturing sectors accrued roughly 680 million spare allowances over 2008-2011 worth some €10.5 billion as a result of what the Commission has previously called an ‘unintended over-allocation’.” If a new list were to be developed to decide free allocation, firms that would work with crude oil and natural gas extraction would still be entitled to free allowances. However, industries such as cement, basic iron and steel, refined petroleum, lime and paper would need to auction their allowances.

The European Commission has acknowledged that its carbon leakage list is outdated, and hopes to implement a new benchmarking list in 2016.

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