Emissions Scheme Improves Profits, Not Air

Paris, March 17 2006 at Inter Press Service
Julio Godoy

In France, the chemicals group Rhodia invested 20 million dollars in 1998 at its facility in Mullhouse near the border with Germany to reduce emissions of nitrous oxide, one of the most damaging greenhouse gases. Greenhouse gases such as nitrous oxide, carbon dioxide and methane are believed to lead to warming of the atmosphere and consequently to disruption of climate patterns.

In return for this small investment, Rhodia obtained carbon emission receipts (CERs) that are now valued at more than a billion dollars on the emission rights exchange system that has been operating in Europe for the past six months.

The company made similar investments at its facilities in Onsan in South Korea and Paulinia in Brazil. Under the Kyoto protocol, reduction of emissions a company produces through investments in developing countries also counts as savings for the purpose of its domestic emissions market.

Since the company has reduced emissions below permissible limits, it earned the right to sell its right to more emissions within its quota to companies producing more than their allowed limits.

The extraordinary return on investment from the trade in CERs has brought Rhodia unexpected profit. The company has been struggling for years with high raw material prices and a general slowdown in economic growth.

"As the political accord to establish a market-led mechanism to trade in greenhouse gas emission rights was reached, it was normal that private corporations such as Rhodia try to profit financially from it," Rhodia director-general Jean-Pierre Clamadieu said at a press conference.

The European Union, responsible for more than 22 percent of global greenhouse gas emissions, has agreed to cut them by eight percent from the emission levels recorded in 1990. To that end the EU created a system of emission rights in 2002 allocated to each country in relation to its past emissions.

Emission rights quotas can be traded on a special stock exchange system called Powernext based in Paris, which has been functional since June 2005.

In January this year Powernext registered transactions of 1.9 million tonnes of carbon dioxide emission rights, representing a growth of 163 percent over the average monthly volume traded between June and December 2005. "The carbon emissions market is in expansion, you can talk of a bull market," Powernext marketing director Thierry Carol told IPS.

While these figures suggest that the scheme is working successfully, environmental organisations say large firms are profiting from the scheme without producing a substantial reduction of emissions.

In Germany the five big energy firms are adding the cost of emissions to the prices they are charging consumers, a WWF report says.

WWF, an environmental group, estimates that the emission rights allocated to the five energy firms represent a maximum cost of some 400 million dollars a year. "But by adding the emission rights to their price calculation, the energy firms are cashing in up to 10 billion dollars per year," the report adds.

"The profits for the five German energy providers could soar to more than 75 billion dollars for the period 2005 to 2112," Matthias Kopp, one of the authors of the WWF paper told IPS. "The profits are completely legal."