Emissions Aristocracy of just 30 companies spews out half of the greenhouse gases covered by the European Union’s Emissions Trading System (EU ETS), representing a quarter of the EU’s carbon footprint, a CMW report uncovers. Some pollute for free or even profit from their pollution.
It has been a difficult year for the climate, yet the EU’s top emitters continue to pollute with impunity. These top polluters represent a range of sectors, from power generation, to steel and cement production and oil refinement and petrochemicals, that in combination cause a whopping 50% of the total emissions registered under the EU’s Emissions Trading System (EU ETS), a new Carbon Market Watch analysis reveals.
Building upon existing research, this first-of-its-kind report (released on 27 November 2023) pinpoints which companies are polluting the most under the European carbon trading scheme, which are not paying for their greenhouse gas emissions and which sectors are not delivering on their decarbonisation promises.
“The EU ETS allows an Emissions Aristocracy to pollute without footing the bill,” declared Lidia Tamellini, Carbon Market Watch policy expert on EU industrial decarbonisation. “This report spotlights how these already hugely profitable companies are granted freebies. Rather than the polluter paying, it is the planet and society left carrying the tab.”
The European Commission recently released its report on the performance of the EU ETS for 2022, but looking only at installations and sectors doesn’t tell the full story. A deep dive into the emissions data revealed some shocking realities.
The true cost of ‘free’ allowances
There is no such thing as a free lunch. The same should go for emissions. However, under the EU ETS, this is not the case. Although each company in the Emissions Aristocracy turns over impressive yearly revenue, many receive ‘free allowances’. This means they are not footing the bill for the climate damage caused by the planet-warming greenhouse gases they pump into the atmosphere.
The EU ETS is a market-based climate policy instrument designed to encourage industries and companies to lower their carbon emissions by placing a cap on the total amount of greenhouse gases (GHG) they are allowed to emit. Targeted at heavy industry and the power sector, the policy is driven by the ‘polluter pays principle’, meaning polluters are required to bear the environmental and social cost of their actions.
Many of those named and shamed in this report are prominent players in their sectors. The multinational energy company RWE is the biggest emitter in the EU, whilst ArcelorMittal, ThyssenKrupp and HeidelbergCement provide heavy industry’s presence in the top 10.
In 2022, the EU ETS covered a total of 3,515 companies. That the top 30, representing less than 1% of the total, emitted more than 50% of the scheme’s total emissions and roughly 25% of total EU emissions for 2022, shows that these companies clearly have a disproportionately large role in fuelling the climate crisis and should be held accountable for taking insufficient climate action.
The report shows that for major polluting sectors like steel, cement and petrochemicals, the EU ETS forces little pressure for emission reductions to happen at anything other than a glacial pace.
In 2022, around €47.6 billion were handed out in free allowances to those sectors – effectively a licence to pollute at no cost. With the latest EU ETS revision requiring all ETS auctioning revenues to be spent on climate-related purposes, the loss in funding is relevant enough to cause missed opportunities in terms of development of new technologies, support for vulnerable households and SMEs, and mitigation activities.
“The 1% do not feel the pressure to change their ways. They are cross border in their business, and global in their damage,” explained Tamellini. “In our report those who had to pay for their greenhouse gas pollution show steeper declines in their emissions. The EU ETS must stand up to top polluters and make them pay in full for their emissions.”
The European Commission is in the process of building its post-2030 climate framework. Regarding the EU ETS, confronting how polluters are circumventing paying the full cost of their climate-degenerating emissions outputs should be an absolute priority.
Carbon Market Watch is calling for the development of a more effective EU ETS, that is aligned with achieving economy-wide 2040 climate neutrality. Key to this is phasing out free allowances for heavy industries and fully implementing an auctioning system way earlier than is currently planned: the latest EU ETS review envisions free allocation to continue until 2034. And with the 2040 climate game plan taking shape, it’s the perfect time for the European Commission to set stricter rules for big emitters that will really make the polluters pay.
“As the hottest year on record draws to a close, CMW demands that the European Union and its top polluters cool the jets,” outlined Lidia Tamellini. “Closing the loopholes in the EU ETS is essential. The Emissions Aristocracy has had it easy for too long.”