Calculation of additional profits of sectors and firms from the EU ETS 2008-2015

This study calculates the additional profits that sectors and companies have made from the EU ETS from 2008 to 2014, thereby distinguishing three types of profit:

1. Profits from overallocation of free emission allowances. In many sectors/countries, free allowances have been granted in excess of verified emissions, allowing industries to generate additional profits by selling this surplus in the marketplace.
2. Profits from using CDM/JI credits for compliance. To a certain extent, companies were entitled to use cheaper CDM/JI credits for compliance. This has created additional profits, since many companies have used these credits for compliance and sold the saved freely obtained allowances in the ETS market.
3. Profits from passing through the opportunity costs of freely obtained allowances. There is ample empirical evidence that companies have been able to pass through (part of) the carbon costs in product prices. Although the allowances were granted free of charge, the majority of sectors were thus able to pass through the opportunity costs of these allowances in product prices, thus making so-called windfall profits.

The profits made in each of these categories from 2008 to 2014 have been calculated for 15 sectors (in general the most polluting ones) in 19 countries. The analysis in this study differs from that in earlier studies on this subject by our having corrected for allocation of waste gases to the iron and steel industry, which have been transferred to the electricity sector on a statistical basis. In our view this yields a more accurate estimate of the extent of overallocation to the iron and steel sector compared with other studies.

Our results show that between 2008 and 2014 European industry received additional profits amounting to over 8 billion euro through overallocation. There are considerable differences in the extent of overallocation per country. Spain saw the highest profits, totalling over 1.6 billion euro. In Sweden as much as 33% of emission allowances were issued in excess of verified emissions, creating substantial additional profits for Swedish industry. In relative terms, overallocation was least for Slovenia and Poland, where 88% of allocated allowances had to be used for compliance, leaving 1/8 of allowances for sale in the carbon market. It was above all between 2008 and 2012 that additional profits were made through overallocation.