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

This study has calculated the additional profits that sectors and companies have made from the EU ETS from 2008 to 2015, distinguishing between three types of profits:
  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 market.
  2. Profits from using CDM/JI credits for compliance. Companies were entitled to a certain extent 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 on 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. 
Profits in each of these categories from 2008 to 2015 have been calculated for 15 sectors (in general the most polluting ones) in the 20 EU countries that are also part of the OECD. The analysis in this study differs from those 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 2015 European industry received additional profits amounting to over 7.5 billion euro through overallocation. This number was down from 8.2 billion euros of additional profits between 2008-2014 implying that the oversupply to industry was reduced in 2015 because of the cross-sectoral correction factor and benchmarks applied in the allocation since 2013. There are considerable differences in the extent of overallocation per country. Austria was the only country where industry did not gain additonal profits from overallocation.  Spain had the highest profits, totalling over 1.6 billion euro between 2008-2015. In addition, the 20 countries profited from using cheap CERs for compliance, yielding an estimated profit of over 780 million euro up to 2012. This source of profit continued after 2012 but could not be measured anymore due to changes in the monitoring regulation in the EU ETS.

The largest additional profit category derived from passing through carbon costs. There is plenty of empirical evidence that companies receiving free allowances pass through part of the value of these allowances onto product prices – as economic theory would predict. However, there is scientific uncertainty how much of the costs are exactly passed through. In a minimum variant we estimated that the additional profits in this category totalled over 16.7 billion euro for the 15 sectors in the 20 countries investigated. In an average variant, this cost category would increase to 29.1 billion of euros.


Sander de Bruyn
Ellen Schep
Thomas Huigen

Delft, december 2016

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


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