Europe Find Ways to Stop Windfall Profits from Carbon

Posted by: Mark Scott on August 6, 2009

A main criticism about carbon trading is that companies profit while customers pay higher fuel bills. The idea goes that utilities, who often receive their CO2 allowances for free, pass on (sometimes imaginary) costs to their clients, who are forced to pay for carbon emissions credits despite countries dolling them out free of charge. In Europe, that has led to billion-dollar windfall profits for some of the continent’s largest energy companies.

Yet times are changing. In a sign of things to come, Hungary will spend up to $80 million — roughly half of the revenue generated from selling excess CO2 allowances to other European countries — on making the country’s pre-fabricated communist-era buildings more energy efficient. According to the Budapest Business Journal, “home owners can apply for grants to cover between 35% and 60% of the cost of [home] improvements.”

The $80 million figure may be a drop in the ocean compared to the billions pocketed by utilities since 2005. And Hungary’s sale of excess allowances to other European countries isn’t exactly the same as full carbon auctioning. That would involve a blind auction in which companies, not countries, would bid for a set number of allowances.

But Hungary’s move to spend carbon revenues on increasing household’s energy efficiency is a step in the right direction. Expect more actions to come. From 2013, one-fifth of Europe’s CO2 allowances will be auctioned — a figure that will reach more than 60% of the European trading scheme by 2020. The U.S. Congress is taking similar steps to avoid windfall profits, though most credits will still be given out for free.

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BusinessWeek correspondents John Carey and Mark Scott, cover the green scene, keeping on top of the business aspects of energy, the environment and climate change, as well as the technologies, policies, markets and people that are shaping how the earth's resources will be used in the century ahead.

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