Professor John Fitzgerald of the ESRI calls it “daft”. I go further and call it a serious scandal. But what upsets us both is an EU scheme that gives valuable permits to major corporate polluters and then allows the lucky recipients either to sell them or to charge the public for them.

The scheme in question is the Emissions Trading System which was set up to limit the amount of carbon dioxide released into the atmosphere by the Europe’s biggest users of fossil fuels so that the EU can meet its international obligations under the Kyoto Protocol.

Almost everything about the ETS is wrong. First, its time horizon is too short. It came into operation at the beginning of last year and is due to run until 2008, although it has been announced that a similar scheme will continue to 2012. Donal Buckley of IBEC told me recently that this is far too short a period to allow industry to plan. Firms building cement factories or power stations need to be able to look 25 years ahead.

Second, it only covers 45% of the EU’s CO2 emissions. Only large energy users, currently 20 megawatts or above, are involved. So small firms and the petrol, gas and coal you and I use are left out. So is the fuel used by the airlines, the most rapidly increasing source of emissions. With these exemptions, no wonder almost every EU country is having trouble keeping its CO2 releases within the limits it agreed.

The third problem is the way that the emissions permits are distributed. Under the ETS, each member state prepares a National Allocation Plan which its sends to Brussels for approval. This lists the number of tonnes of carbon dioxide emissions permits each of its major polluters will receive. The biggest recipient in Ireland is the ESB which gets permits for 11 million tonnes a year, 4.4 million tonnes of which goes to the coal-fired power station at Moneypoint.
The Irish government, with the best interests of big business at heart, thoughtfully gave more permits to each eligible company than they required. This allows them either to increase their pollution or to sell their permits to companies outside the country who need more.

The current value of a permit to emit a tonne of CO2 is about €22, higher than many commentators expected. This is because the recent rise in the price of natural gas is causing electricity producers to use their coal-fired power stations more intensively rather than their gas ones. As a result, they need more permits because coal is a dirtier fuel. However, the price of permits is likely to go much, much higher if the EU gets really serious about restricting emissions and drastically cuts the number of permits being issued.

All sorts of questions need to be asked about these arrangements. For example, why are valuable permits being given away? Why aren’t they being auctioned, so that the companies have to buy them for whatever they are worth from month to month? Presumably, naïve politicians thought that, if the permits were given out rather than sold, it would enable electricity, glass, aluminium and cement to be cheaper. If so, they were hoodwinked by smart lobbyists who would have known that since the permits would acquire a market value, firms would factor in the price they could have obtained by selling them as the cost of using them in their production processes.

This has been found to have been happening. Last September, the Energy Research Centre of the Netherlands (ECN) released a report ‘CO2 Price Dynamics: The Implications of EU Emissions Trading for the Price of Electricity’ which analysed the effect that the free allocation of emission allowances had had on the price of electricity in Belgium, France, Germany and the Netherlands. It found that a significant part of the market value that the permits had acquired was being passed to consumers through higher power prices. The electricity producers had increased their profits as a result. The report concluded that the free allocation of emission allowances was a highly questionable policy option and suggested that auctioning allowances might be better.

In other words, even though the emissions permits came free, the price of electricity, and, doubtless, that of cement and all the other products made by the big emitters, is going to go up, if it has not already done so, by just as much as would have been the case if the permits had been sold by the 25 national governments. The difference is that the companies receiving the permits stand to make big windfall gains, while the national governments will not have the revenue they need to compensate their less-well-off citizens for the higher energy and other prices they are having to pay.

In short, the free permits constitute a massive subsidy - at €22 a tonne, €1,425 million in Ireland alone - to the polluting industries concerned. Moreover, the fact that it has been announced that the permits will be given away after 2008 as well encourages the owners of polluting plants to keep them open so that they can benefit from the subsidy again. If the firms had had to buy the permits, however, the dirtiest plants would have had to close.

The scheme has already created serious competitive distortions. Ecocem has a plant in Dublin docks which makes cement out of waste material from the steel industry. As a result very little fossil energy is required. Since the ETS began, however, the three big Irish cement companies have been buying the steel industry waste, too, because for every tonne of it they buy, they can save themselves an emissions permit. This means that they can afford to pay up to €22 a tonne more for the raw material than Ecocem, which hardly seems fair.

Or take the battle between timber frame houses and cement block ones. The timber frame manufacturer uses energy but does not get any emissions permit subsidy whereas the cement manufacturer does. Overall, smaller firms and low energy users are being penalised while heavy energy users are being rewarded. Imagine the outcry there would have been if the government had just given Ireland’s three cement producers, Quinn, CRH and Lagan, a lump of cash each. But giving permits is no different since, as they are tradable, they are essentially cash. The only surprise is that it’s taken so long for the outcry to start.

Feasta does not believe the permits should be auctioned by governments as they are not any governments’ to sell. Instead, as the right to emit CO2 is a human right, permits to emit should be given on an equal basis to each one of us. They would be issued, say, twice a year and every time they arrived, we would take them to the bank or the post office and sell them for whatever they were worth at the time. The banks would sell them on to producers of fossil fuels, not energy users. A coal mine, for example, would need to buy enough permits to cover the emissions from every tonne of coal it produced, and an international team of inspectors would check that they had done so.

We want this done on a worldwide basis but, until that happens, we’d like personal emissions permits issued throughout the EU. Accordingly, we are inviting EU NGOs Non Governmental Organisations) and business associations to join a campaign to get the giving of permits for 45% of the EU’s emissions to big energy users scrapped, and replaced by one in which permits for 100% of emissions are given equally to the EU’s people.

The big advantage of personal permits is that, as the emissions restrictions get tighter and tighter and drive the price of permits up and up, ordinary folk will be getting the money for those permits rather than the big polluters. And that money will, in part, offset the higher prices we will have to pay for everything we buy as the higher cost of fossil energy use gets passed on to us, the consumers. If the present ETS is continued, the big polluting companies will get that money instead.

Organisations and companies wishing to join the campaign for ETS reform should contact Feasta at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it

Endnotes
http://www.ecn.nl/docs/library/report/2005/c05081.pdf