Date published: 2006/05/01
The BBC says:
Power firms could make a £1bn windfall profit from the EU Carbon Emissions Trading Scheme, BBC News has learned.
The windfall is likely because many firms have benefited from increases in electricity prices brought about by the scheme without needing to make any extra investment in return.
Peter Bedson, from IPA Consulting, confirmed to the BBC that the unwarranted profit could reach £1bn.
...
The Conservatives said it was an example of government incompetence.Their environment spokesman Peter Ainsworth said: "MPs warned the Department of Trade and Industry (DTI) this would happen but they took no notice."
The windfall lies in the design of the EU emissions trading scheme, which works by governments setting a limit for the total amount of carbon that can be emitted from its heavy industry and the power sectors.
Instead of banning firms from exceeding the limit, governments hand the firms free pollution allowances up to a certain level.
If a firm can cheaply cut its pollution by installing better technology it will have carbon permits to spare.
If another firm is overshooting its pollution limit it will need to get hold of extra allowances. The firms can then trade carbon permits on the EU market.
Economists like it because it gives maximum pollution savings at least cost. But a true market scheme would see the permits auctioned, not given away by governments.
The system means that generators using high-carbon fuels like coal need to buy extra carbon permits.
That forces up the price of electricity overall, which benefits generators using low-carbon fuels like nuclear and gas. This is where the power firms have made their windfall profit.
Mr Bedson did a report on the issue for the DTI earlier this year.
Since then the price of carbon shot up and his revised estimates suggest that the resulting windfall will reach around £1bn.
This will depend on the future price of carbon, which is in doubt since the crash in the carbon price partly triggered by over-allocations of pollution permits to French generating.
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Government supporters will argue that there were bound to be problems when a large complex scheme like the scheme was set up, but that it was vital to design a scheme that would be supported by big business.They will hope that problems will be ironed out in future year when the scheme beds down.
Problems are happening across Europe. The price of carbon crashed last week, and the market is in disarray.
What a surprise, corporations know how to make money. Unfortunately the BBC fails to point out any wrong-doing, the story is just finger wagging. With so much money at stake, it is inevitable no matter what the rules of the game were, somebody was going to figure out (pretty easily) how to exploit the system. Of course the government could claw some of it back via an arbitrary windfall tax.
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