green scheme

Energy companies have pocketed about £9 billion in free windfall profits

Alexandra Beier / Reuters

Tim Webb Energy Editor
Last updated August 27 2011 12:01AM

Every household in Britain has been overcharged an estimated £120 in utility bills as a result of an environmental initiative that is not working, an investigation by The Times has found.

Energy companies such as Scottish Power, EDF Energy and Centrica, the owner of British Gas, have pocketed about £9 billion in free windfall profits by manipulating a carbon trading scheme. The extra costs have come when energy prices are at a record high, but, according to the climate change group Sandbag, the total carbon emissions saved by the scheme are roughly equivalent to every person in Europe replacing two old incandescent lightbulbs with energy-efficient alternatives, costing about £3 each.

Jenny Saunders, the chief executive of the NEA fuel poverty campaign group, called on the energy regulator Ofgem to re-examine the scheme. ?People don?t understand where these additional charges from their suppliers are coming from,? she said.
When in 2005 Britain joined the European Union emissions scheme ? the world?s first carbon-trading initiative ? it was hailed as the cheapest and most effective way of tackling climate change. It requires heavy polluters, such as factories and coal power plants, to hold permits for each tonne of carbon they emit.

If companies want to emit more carbon than their allocation of permits allows, they have to buy spare permits on the open market.
By putting a price on carbon in this way for the first time, the hope was that companies would become more energy-efficient, and cleaner ways of generating electricity would be encouraged.

During the first few years, heavy polluters were handed the majority of their ?permits to pollute? free, in a deliberate attempt to reduce costs and prevent the energy industry from blocking the scheme. But companies have been secretly passing on the ?cost? of these free permits to consumers since the initiative began, justifying the move by arguing that they have an intrinsic market value.
Industry experts say that it is an open secret that companies are passing on this ?opportunity cost? to consumers, despite electricity bills running at a record annual average of £475 per household.

Richard Hall, energy expert at Consumer Focus, said: ?The EU [scheme] hasn?t been very successful and hasn?t shown good value for money for consumers. Many generators will have had a free windfall at the expense of higher costs for consumers.?
The industry refuses to acknowledge the practice in public. David Porter, chief executive of the British power station trade body, the Association of Electricity Producers , said: ?I?m absolutely confident that there is no wrongdoing.?
Stig Schjolset, analyst from the energy research company Point Carbon, said: ?Power generators are still passing on the full ?opportunity cost? of using up free permits to consumers. For them it?s a straightforward windfall.? He added that policymakers responsible for devising the scheme ?seemed a bit surprised? when companies took advantage of free allocations.
The loophole allowing energy companies to pass on the cost of permits was identified in 2007 ? but it will not be closed until 2013. A government spokesman admitted that the scheme ?was not perfect?.

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