Carbon Market Watch

For fair and effective climate protection.

Carbon leakage mythbuster: United Kingdom

14 Mar 2016

UK Mythbuster PDF (English)

Executive summary

UK_carbonleakage_mythbuster_coverThis policy brief interprets the findings of a new study by CE Delft that shows how energy-intensive companies in the UK have massively profited from their pollution to the count of €3.1 billion because they are deemed to be at risk of “carbon leakage”. “Carbon leakage” refers to a hypothetical situation where companies transfer production to countries with weaker climate policies in order to lower their costs. Under the current EU Emissions Trading System (EU ETS) rules, industrial companies that are believed to be at risk of “carbon leakage” are awarded free pollution permits.

  • Free allocation has resulted in significant windfall profits for corporations. Windfall profits occur when industrial companies are over-subsidised for their pollution. Energy-intensive companies in the UK made over €3 billion from the EU ETS during 2008-2014. The corporations in the UK that were able to make the most profits from the EU’s carbon market are Tata Steel (€870 million), Lafarge (€160 million), Hanson Cement (€125 million) and Total (€120 million).
  • European taxpayers are picking up the bill as governments forego income and lose out on revenues from auctioning these pollution permits. As a result of free allocation, less money is available for investments in the climate friendly transition of the European economy. In the 2008-2014 period, the UK government has given out 1.3 billion free pollution permits and has thereby missed out on at least €16.3 billion in auctioning revenues.

In the coming months, European policymakers will revise the current EU ETS rules for the post-2020 period. The policy brief concludes with recommendations how to change the current carbon leakage rules to ensure that further windfall profits are avoided.


Read national factsheet here

Read full CE Delft report here