A 250 million-pound ($404 million) U.K. government program that helps heavy energy users shoulder the cost of cutting carbon emissions must be tightened to avoid over-compensating polluters, a panel of lawmakers said.
The program was set up to curb the cost of carbon-reduction policies for industries including steel and chemical producers. It doesn’t take into account the profits they may have made from receiving free emission credits in the European Union Emissions Trading System, the Environmental Audit Committee said today.
The government “shouldn’t throw good money after bad by giving compensation to those already making windfall profits,” Joan Walley, the Labour Party lawmaker who chairs the cross- party committee, said in a statement.
The 250 million pounds was allocated in 2011 to ensure that energy-intensive companies wouldn’t move plants abroad to escape emission costs. It followed lobbying by the Confederation of British Industries, which said policies such as a minimum cost for emissions, or “carbon floor price,” may lead units of Tata Steel Ltd. and chemicals maker Ineos Group Holdings Plc to fail.
Tata in November said it planned to close 12 U.K. sites with the loss of 900 jobs to improve the competitiveness of its operations. It didn’t refer to the cost of complying with carbon regulations.
In the past three months, the government held a consultation on the compensation package, which will run from this year and pay out until April 2015. When Energy Secretary Ed Davey presented an energy bill to parliament on Nov. 29, he vowed to exempt large energy users from the costs arising from new carbon policies, and to hold another consultation this year.
The Environmental Audit Committee said today that large industrial companies across Europe have accumulated 4.1 billion euros ($5.4 billion) worth of surplus emission allowances because “overly optimistic” forecasts for economic growth meant more permits were allocated than needed.
“It is nonsensical that the government will compensate energy-intensive companies for the impact of the Emissions Trading System on their electricity bills, when those companies are making windfall profits from the very same program,” the committee said in an e-mailed report.
The panel recommended taking into account companies’ own generation of electricity, helping them form groups to bulk-buy power, and reining in compensation to businesses that have benefited from the Emissions Trading System by selling surplus permits.
The Department for Business, Innovation and Skills said it welcomed the committee’s inquiry and would respond in due course.
EEF, a manufacturers’ lobby group, said the committee had mixed up power-intensive companies with carbon-intensive industry, which face “different issues.”
“Electro-intensive industries face rising electricity prices driven up by the government’s climate-change policies and it is vital that they are properly compensated,” Steve Radley, EEF director of policy, said in an e-mailed statement. Carbon- intensive companies receive free emission allowances and it’s “vital that their free allocation continues.”
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