A loophole in the UK emissions trading scheme (UK ETS) allows companies to profit from unused credits by closing factories.
The ETS – which has been in place since 2021 – puts a limit on the total amount of greenhouse gases aviation, power and other energy-intensive industries can legally emit.
It also incentivises decarbonisation through a process of buying and selling emissions allowances, which companies must obtain for every tonne of emissions they produce each year.
Companies that are successful in reducing their emissions can sell their unused allowances to other firms.
An Unearthed investigations by Greenpeace found that businesses have amassed millions of pounds’ worth of carbon credits simply for shutting down or idling plants.
The investigation highlighted that US fertiliser giant CF made £32 million from selling carbon credits under the UK ETS.
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In June 2022, it announced it would close its factory in Cheshire. As it closed midyear, the company’s annual emissions were much lower than the previous year, leaving the company with hundreds of thousands of unused carbon credits.
Under the UK ETS rules, there is nothing to stop firms selling unused credits generated from closing a factory and the government has no way of receiving back unused credits once they have been allocated.
That means CF is free to sell the Ince facility’s leftover 630,000 credits from 2021 and 2022, which are worth £49 million at the average UK carbon price from last year.
CF followed the closure of its Cheshire factory with the announcement in late July that it would shut its ammonia plant in Teesside, after that facility had been idle since the previous September, causing 38 job losses.
That plant recorded a sharp drop in emissions in last year as it was closed for the last four months of the year, leaving CF Industries with 249,000 leftover credits, worth £19.4 million at last year’s average UK carbon price.
Greenpeace UK policy director Dr Doug Parr said the UK ETS is supposed to “reward businesses that make genuine efforts to clean up their operations,” rather than giving “carbon freebies to firms who shut down plants.
“This is an absurd loophole that the government can and should close. Ministers should also use this moment to take a broader look at whether the carbon market could work better. Free allocation of credits has traditionally been too generous – a problem that could be solved if ministers moved to auctioning allowances alongside establishing a carbon border tax.
“This would be a good way for the government to have better control of the scheme, end absurd freebies for firms closing plants and make sure this market does what it’s supposed to do: encouraging businesses to invest in cleaner tech,” Parr added.
