Polluting electricity generators in Europe are set to reap another round of extraordinary windfall profits from the carbon trading scheme meant to curb their carbon emissions, a new report revealed today.

The study, commissioned by WWF from world-leading carbon market analysts Point Carbon, estimates that the windfall to electricity generators in just the five states of UK, Germany, Spain, Italy and Poland over the current five year phase of the EU Emissions Trading System (ETS) could be between 23 and 71 billion Euros ($US 36 -111 billion ).

Windfall profits are generated when generators benefit from electricity prices reflecting the cost of carbon emissions while receiving the bulk of their carbon emission allowances (EU Allowances) for free under National Allocation Plans.

“Windfall profits are highest in countries that have a high level of pass-through of CO2 costs into wholesale power prices, countries with emissions intensive (coal) plant setting the price the majority of the time, and countries that allocate the highest percentage of free allowances to the power sector,” Point Carbon said in the report.

Coal fired power stations account for 20 percent of the EU’s total carbon dioxide emissions, and its grip on the European power sector looks set to increase with plans to construct 40 major new coal fired power stations in Europe in the next five years.

WWF has always supported the EU ETS as a crucial mechanism to tackle emissions within the EU, but notes that careful implementation is required for such schemes to achieve their potential. “We have long been critical of the ETS design faults that provide cash for coal in the name of emissions reductions”, said Sanjeev Kumar, WWF Emissions Trading Scheme Coordinator at WWF. “But Europe’s experience should be a stark warning to the rest of the world on the danger of free allocations of pollution permits.”

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