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Carbon intensive industries get an unexpected slap by Europe’s Judiciary

In April the Court of Justice of the European Union ruled against a case by carbon-intensive industries that had sought additional free pollution permits from the EU’s Emissions Trading System (ETS).  The Court’s declaration backfired on the companies when it ruled that the allocation of free permits had in fact been too generous, giving the Commission 10 months to recalculate the amount of free permits for the period up to 2020. 

The ruling is a slap in the face for big polluters  ̶  such as Esso, ExxonMobil, Shell and Tata Steel  ̶  who brought the case against the Commission claiming that they had received fewer free permits than they were entitled to.  Experts at Thomson Reuters say that the ruling could lead to a cut to the future free allocation for industry by up to 1.6% of a total of 6.6 billion free permits in the 2013-2020 period.

The decision by the Court has come as little shock to many climate NGOs including Carbon Market Watch who are calling for an end to the overgenerous hand-out of free pollution permits.

The below graph by the European Environment Agency shows that in every year since the start of the EU ETS, industries have received more free permits than justified by their verified emissions. Recent findings from CE Delft have highlighted that European manufactures made gains in excess of €24 billion from the EU ETS, with some of the biggest emitters  ̶  including the ones who brought on the case  ̶  benefitting the most.

allocation graph ETS

Predicting the future

Last month’s ruling stands in stark contradiction to the existential threats made by industry in Europe.

These scaremongering claims by some of EU’s heaviest emitters must not be allowed to undermine the ETS, in light of the ongoing negotiations on the future of the EU ETS. Both the Paris Agreement and future carbon price forecasts go a long way to dispel the notion of ‘carbon leakage’.

At the moment, however, the EU ETS is paying the polluters and creating substantial windfall profits for the biggest emitters, at the expense of the climate and the taxpayers. The current reform of Europe’s Emission’s Trading System is a once-in-a-generation opportunity to fix or let fail legislation that will determine our ability to tackle climate change until the end of the next decade.

When drafting their ETS remedies for the future, decision makers should thus consider making the polluters pay and re-investing the revenues in the climate friendly transition of the European economy.

If the many studies and the recent court ruling do not already give enough reasons to consider this  ̶  try common sense.

by Andrew Coiley & Femke de Jong

Graph: European Environment Agency


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