A loophole in the European Union Emissions Trading System enabled energy-intensive companies in 19 countries on the continent to rake in €24 billion in profits from the system between 2008 and 2014, according to a report issued by CE Delft on Monday. Under the current EU ETS rules, industrial companies that are believed to be at risk of carbon leakage are eligible for free pollution permits. If companies receive too many free permits, they can then sell them on the market for a profit. Most profits of this type were made in Germany, the United Kingdom, Spain, France, and Italy, the report says.
“Carbon leakage” is a hypothetical situation in which companies transfer their production to countries with weaker climate policies to lower their costs. Such an action would then lower carbon emissions in the originating country, but increase carbon emissions in the destination state. Recent studies have suggested that the risk of carbon leakage has been somewhat exaggerated.
The EU is attempting to restructure the ETS as of 2020. The report recommends that to deal with the loophole, the restructured ETS “phase out the free allocation of pollution permits by gradually increasing the share of allowances to be auctioned from the current 57 [percent] to 100 [percent] in the future.”
