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    109: The Footies #3: Taking the OPIS

    enJune 07, 2024

    Podcast Summary

    • Carbon market manipulationHeavy carbon emitters, like steel companies, can exploit the carbon market by buying large numbers of allowances due to their high carbon output, potentially driving up prices for smaller emitters

      The carbon market is an essential system designed to put a price on carbon emissions and incentivize companies to decarbonize. By requiring companies to buy carbon allowances based on their annual carbon emissions, the market creates an economic incentive for businesses to reduce their carbon footprint. However, as Umberto Ojrocha, a reporter with Opus, Oil Price Information Services, explained on the Private Eye Podcast, this system can be exploited by heavy carbon emitters, such as steel companies, which may need to buy a large number of allowances due to their industry's high carbon output. The price of carbon allowances can fluctuate, and if a company emits more carbon than the previous year, it may have to buy more allowances, potentially at a higher price. While the carbon market is an effective tool for reducing carbon emissions, it's crucial to ensure that the system remains fair and effective for all companies, regardless of their carbon output.

    • Carbon pricing in EUThe EU's carbon pricing system aims to balance reducing emissions with economic realities of heavy industry by issuing free allowances that can be sold, but some companies have emitted large amounts of carbon while still receiving a surplus of allowances.

      The EU implements a carbon pricing system to discourage carbon emissions and keep industries within the EU. Companies receive free carbon allowances, which they can sell if they decide to reduce emissions or temporarily halt operations. The value of these allowances increased significantly during the EU and UK energy crisis in 2023, reaching record highs of 100 euros per metric ton. However, there have been cases of companies emitting large amounts of carbon in a given year but still receiving a surplus of allowances. This system aims to balance the need to reduce emissions with the economic realities of heavy industry. Companies can still choose to leave the EU and set up shop elsewhere without facing carbon pricing, but they may miss out on the financial benefits of the carbon allowance system.

    • Carbon market loopholeThe EU carbon market unintentionally provides subsidies to highly polluting industries through free carbon credits, allowing them to generate revenue from inactivity

      The European Union's carbon market has led to some companies, even those with largely shutdown operations, receiving large amounts of free carbon credits. These credits, worth hundreds of euros per metric ton, can be sold to other companies or investment funds that need them to meet their carbon allowances or expect the price to rise in the future. This results in significant revenue for these companies, essentially creating money from inactivity. The system aims to decrease allowances for reduced activity levels, but the lag in the system means some companies benefit from this loophole for years. Essentially, the EU is inadvertently providing subsidies to highly polluting industries through these free carbon credits. This issue is not unique to the EU, as the UK also follows a similar system.

    • Carbon permits discrepancyIn 2023, certain UK companies with large carbon permit allocations reported minimal carbon emissions, revealing a significant discrepancy between reported emissions and permits received, mainly due to high natural gas prices impacting ammonia production and leading to plant shutdowns.

      During the year 2023, in the UK market, carbon prices skyrocketed, reaching around 75 pounds per metric ton, leading to a significant difference between reported carbon emissions and the carbon permits received by certain companies. Data journalists uncovered this discrepancy by examining public data spanning several years. Notable companies with large carbon permit allocations despite minimal carbon emissions included TotalEnergies, Inios, SABIC, and CF Fertilizers. These companies received substantial carbon permits due to the high cost of natural gas, which affected their ammonia production and led to plant shutdowns. For instance, CF Fertilizers, which shut down one of its plants in 2021 and didn't restart it, still received approximately 488,000 carbon permits from the UK.

    • Carbon credits market wealth creationThe carbon credits market led to significant wealth creation through high carbon prices, with one insplant operation generating over £38 million in 2023. However, concerns about potential abuse within the system were raised following investigations.

      The carbon credits market, despite generating relatively low emissions, has resulted in an unprecedented amount of wealth creation. For instance, a single insplant operation led to carbon credits worth over £38 million in 2023. This wealth creation was a result of record-high carbon prices, and companies could sell these vouchers to anyone. Satellite imagery was used to prove a significant reduction in carbon emissions, making it the first time a satellite was hired for reporting efforts in this context. Following the publication of the story, there were several investigations into the EU and UK systems, with some companies being uncommunicative. However, meeting minutes from a climate change group revealed concerns about potential abuse within the system.

    • Carbon permit abuseThe EU is addressing carbon permit abuse by stopping the allocation of free permits the day after operations cease, and the free allowance system is set to end in 2034. This encourages firms to decarbonize rather than shutting down to collect credits.

      The European Union (EU) is taking steps to address the issue of companies receiving free carbon permits even after shutting down operations, which could potentially be abused. The EU Commission recognized this issue and has proposed a change to the system, which will stop the allocation of free permits the day after operations cease. This is intended to encourage firms to decarbonize rather than simply shutting down to collect credits. Additionally, the EU's free allowance system is set to end in 2034 due to the introduction of a carbon border tariff. However, the legitimacy of the system could be undermined if this issue continues to be abused. In the UK, efforts have been made to address this issue, but a definitive answer on changes is still pending. Overall, these actions demonstrate a commitment from the EU to address potential abuses of the carbon permit system and encourage genuine decarbonization efforts.

    • Carbon emissions trading system reformThe UK government plans to reform its carbon emissions trading system to prevent companies from exploiting it and emitting minimal carbon while still receiving permits. The new regulations are not expected to be implemented until 2026.

      The UK government is planning to reform its carbon emissions trading system to prevent companies from emitting minimal carbon and receiving permits. The consultation for this change closed in March 2023, but the new regulations are not expected to be implemented until 2026. In the meantime, companies with high carbon emissions are encouraged to make the most of the current system. This news comes after investigative journalism revealed that some operators were exploiting the system to emit little to no carbon while still receiving permits. The UK government has acknowledged the issue and is taking steps to address it, but the change will not come into effect for several years. This story highlights the importance of holding companies accountable for their carbon emissions and the need for ongoing efforts to reduce overall emissions to mitigate the effects of climate change.

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