Lucrative Carbon Credit Trading in Europe
Carbon Credit Trading Takes Off in Europe Amidst a Price Surge, Boosting Corporate Bottom Lines
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Europe's largest polluters are raking in huge profits by selling carbon credits that they were given for free or at a very low cost over the past decade. As demand for carbon credits increased, companies holding cheap credits have started to cash in and sell them more aggressively. Concurrently, the recent Russian invasion of Ukraine caused some industrial companies to cut production, leaving them with surplus credits they don't need. This has allowed businesses holding cheap credits to make even more profits by selling their excess credits on the open market.
The recent surge in EU carbon credit prices has created an opportunity for companies to sell off their excess credits at a significant profit. From 2013 to 2021, carbon credits averaged around €14 per ton, but following the Russian invasion of Ukraine, prices have skyrocketed to nearly €100 per ton. Companies that held onto unused or surplus credits have been able to cash in on this sudden price increase, generating significant revenue through the sale of these credits.
These credits were intended to help companies transition to the new carbon market, but critics say that they were given too many. The idea behind giving free credits to industrial firms was to prevent them from moving their factories to countries with weaker climate policies. However, environmental activists argue that subsidized carbon credits are counterproductive because they do not require companies to reduce their emissions. As a result, some 260 firms have accumulated nearly 702 million surplus credits since 2005 and big polluters got nearly €100 billion in free or cheap carbon credits over the past decade.
One of the biggest challenges facing the carbon credit market is the lack of transparency in trading activities. The European Union publishes data on carbon credit transactions three years after they occur, which can make it difficult for market participants to make informed decisions in real-time. Furthermore, there is no comprehensive listing of current trading data for the carbon credit market. This makes it challenging for investors and regulators to evaluate the performance of the market and identify potential issues or trends.
List of Large Polluter Carbon Credit Sales
Despite the lack of transparency in the carbon credit market, The Wall Street Journal has conducted an analysis of publicly available financial statements to gain insights into the carbon credit sales data of various companies. The analysis was cross-referenced with a list of more than 200 companies that voluntarily disclosed receiving free credits in reports submitted to the corporate transparency non-profit CDP.
Finnish paper and packaging giant Stora Enso Oyj sold €59 million worth of carbon credits last year, according to company reports and a spokesperson. The company received €160 million in free credits in the same year, and it claims to be one of the world's largest private forest owners. Stora Enso has reduced its emissions by 27% since 2019, but its gains from carbon credit sales were offset by higher electricity prices.
Spanish energy company Repsol SA made less than €5 million from carbon credit sales. The company is one of Europe's top carbon emitters and has received a significant number of free and cheap carbon credits. Repsol currently holds €611 million in allowances, which it intends to use for trading opportunities.
Finnish oil and gas producer Neste Oyj sold 550,000 carbon credits, generating approximately €44.1 million in revenue based on the average price of credits in 2022. The company was given 2 million credits for free last year and had already accumulated a stash of credits.
Romanian aluminum producer Alro SA sold more than €10 million worth of carbon credits, while also receiving €163 million in government subsidies, according to annual reports. Aluminum production is highly energy-intensive, and the surge in electricity prices in 2022 was a significant factor in Alro's decision to sell credits.
