A recent Greenpeace investigation revealed how British companies are taking advantage of loopholes in the national emissions trading scheme (UK ETS). Another analysis published by the Oil Price Information Service (OPIS) last month showed that EU based companies are making millions using the same business model.

Operators in both EU ETS and UK ETS are allowed to keep their annual allocation of free allowances even if they decide to cease or halt operations as granting allocation is being made based on production and emissions data from the previous years.

The investigation conducted by Greenpace in the UK revealed how CF Industries was left with 630.000 carbon allowances after a permanent closure of its facility last year. The  same procedure was applied by Mitsubishi Chemical. One of the world’s largest chemical producers was rewarded with 155.000 of unused allowances following the closure of a chemical plant at the end of May last year.

“The Government is reviewing the rules on free allocation, but no changes will be made to the policy until 2026 at the earliest,” said Greenpeace. The authors of the report quoted Leo Murray, climate advocate “Turning carbon emissions into a commodity for trade has never been about what’s best for the planet or for people, but what’s best for financial markets.”

The situation is no different in Europe. “The free allocation is removed the year following a plant’s permanent closure. If a plant ceases operations on January 1 of a calendar year, it can still receive its allocation of free EUAs despite emitting little or no carbon for the rest of that year”, noted OPIS.

OPIS identified six cement plants operating in the EU which “emitted just hundreds of tons of carbon over a year but their operators were collectively handed over a million free permits that they could bank, use to cover the costs of emitting carbon at other installations, or sell to other parties on the secondary market for cash.”

Based on calculations made by OPIS, the plants “were issued with a surplus of €88.2 million in free European Union emissions allowances (EUAs) from 2019 to 2022”, despite emitting negligible amounts of carbon.

Without a doubt, the operators abuse the systems’ loopholes without breaking any law. According to OPIS, the European Commission’s Expert Group on Climate Change Policy discussed this summer “how to amend the rules on managing the issuance of allowances to installations that have ceased operations.”