ArcelorMittal is the biggest beneficiary of the EU Emissions Trading Scheme

(07/12/2009)

According to climate change NGO Sandbag, the UK’s richest resident, Lakshmi Mittal, CEO and major shareholder of the steel giant ArcelorMittal, could make over £1 billion between now and 2012 from his company’s participation in the EU’s Emissions Trading Scheme. ArcelorMittal has over 14 million emissions permits that it does not need in 2008, a figure which Sandbag estimates will rise to 80 million by 2012 making it by far the biggest beneficiary of the scheme across the EU.

Sandbag has written to CEO Laksmi Mittal urging him to commit to cancelling his company’s unneeded emissions permits in what would be the largest act of climate philanthropy on record. If cancelled the 80 million surplus permits would prevent 80 million tonnes worth of pollution going into the world’s atmosphere, equivalent to the annual emissions of Denmark, the country where critical climate change talks are just commencing. Such an act would also come close to matching the cuts required the UK’s whole carbon budget between now and 2012.

In 2005 the EU implemented the world’s first large scale emissions trading scheme, know as the EU ETS. The scheme put in place an emissions cap on heavy industrial sectors and power generators within the EU. For each tonne of carbon that polluters were allowed to emit, an emissions permit (EUA) was issued. These permits were given out for free to companies who, to comply with the scheme, had to make sure they had enough permits to cover their pollution. The theory was that the cap would result in a shortage of permits and would mean companies either had to cut their carbon emissions, or buy extra permits, thereby paying for emissions reductions elsewhere.

For the first three years of the scheme, known as Phase 1, things did not go to plan. Following intense lobbying and high profile claims that the scheme would harm business and mean job losses, the cap on emissions was set too high and therefore too many permits were issued. Most companies found themselves in a position to sell surplus permits on the market generating windfall profits, until the price of carbon reached zero. Thus the great potential the scheme had for cutting emissions was not achieved; instead the scheme became a cash cow for many of the businesses it covered.

The EU ETS is now into Phase 2 of trading which will last until the end of 2012. This time around industrial companies are the main beneficiaries. Even before the recession they had many more permits than they needed. With 2009 one of the worst years on record for industrial production, these companies will now be sitting on vast numbers of unused emissions permits. If these are sold we will see a repeat of the huge windfall profits from Phase 1, and if not, the permits will be banked to allow future pollution undermining the integrity and ambition of the EU’s post 2012 climate targets.

Anna Pearson, Head of Policy at Sandbag commented: ‘ArcelorMittal received its emissions permits for free and could choose to cancel them; we’re calling on them to trade in the windfall profits they could make, for positive action on climate change. This would set an example to not only business and industry worldwide but to our global leaders set to meet in Copenhagen in the coming fortnight.’

‘European politicians need to sign up to more ambitious targets and tougher limits on pollution in Europe and under the EU Emissions Trading Scheme so that in future, industrial companies like ArcelorMittal actually have to cut their emissions rather than being handed windfall profits. The carbon market will only deliver what politicians ask it to, so it’s up to our leaders to make it tougher and to enable it to make a much greater contribution to tackling climate change.’

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