European power companies are making billions of euros in excess profits in the European Union's battle to beat global warming by cutting emissions of carbon gases, and consumers are paying for it, economists say.
The electricity generators are given, free of charge, permits to emit millions of tonnes of carbon dioxide which are currently worth around 20 euros a tonne, but are then charging consumers as if they had been made to pay for the permits.
Michael Grubb, Chief Economist at the Carbon Trust and Director of Climate Strategies, calculates that this practice which he says is economically justifiable gives the industry windfall profits of some 20 billion euros ($27.14 billion) a year.
"It is free money," he told Reuters. "It's how you'd expect companies to behave, but politically and morally it is going to be hard to justify making so much money out of a scheme designed to reduce emissions -- with consumers footing the bill."
But Chris Rogers, head of European utilities at J. P. Morgan, says this understates the scale of excess profits because it is based on coal-powered generation and ignores the low carbon generators such as nuclear and wind who nevertheless get the carbon-inflated price for their electricity.
"Let's just say that in Phase II of the EU trading scheme the power utilities will still be making very healthy profits. The compact they have to strike with governments is that they will invest this in clean energy," he said.
Under Phase I of the EU's emissions trading scheme running through 2007 smokestack industries including power generators were allocated free permits to emit carbon and allowed to sell any surplus to those who exceeded their ceilings.
