UK firms can close factories and make millions thanks to carbon market loophole
A loophole in a government scheme designed to encourage businesses to lower their emissions is giving companies that close factories the opportunity to make millions on the carbon market, an Unearthed investigation can reveal.
The UK emissions trading system (ETS) is a government-run cap and trade system designed to reward firms that manage to cut planet-heating emissions from their operations. But Unearthed, Greenpeace’s investigative journalism unit, has discovered that some big businesses have amassed millions of pounds’ worth of carbon credits simply for shutting down or idling plants.
US fertiliser giant CF Industries announced it would close its works in Ince, Cheshire in June 2022, leading to the loss of 350 jobs. Closing the facility halfway through 2022 meant CF’s annual emissions were much lower than the previous year, leaving the company with hundreds of thousands of unused carbon credits.
Unearthed has learned there is nothing to stop firms selling unused credits generated from closing a factory, under UK ETS rules, and the government has no way of clawing back unused credits once they have been allocated. That means CF is free to sell the Ince facility’s leftover 630,000 credits from 2021 and 2022, which are worth £49m at the average UK carbon price from last year.
CF followed the closure of its Cheshire factory with the announcement in late July that it would shut its ammonia plant in Billingham, Teesside, after that facility had been idle since the previous September, causing 38 job losses. That plant recorded a sharp drop in emissions in last year, thanks in part to being closed for the last four months of the year, leaving CF Industries with 249,000 leftover credits, worth £19.4m at last year’s average UK carbon price.
According to its most recent UK accounts, CF made £32m from the sale of carbon credits under UK ETS.
Another company, Mitsubishi Chemical, one of the world’s largest chemical producers, closed its Cassel works chemical plant in Billingham, Teesside at the end of May, leaving 205 staff jobless. Production at the facility had been halted since February 2022. The closure led to a dramatic drop in emissions from 2021 to 2022, leaving Mitsubishi with 155,000 of unused allocation, worth about £12.1m at 2022’s average carbon price.
The government is reviewing the rules on free allocation, but no changes will be made to the policy until 2026 at the earliest.
Commenting on the findings, Greenpeace UK’s policy director Dr Doug Parr said:
“This scheme is supposed to reward businesses that make genuine efforts to clean up their operations, not give carbon freebies to firms who shut down plants. This is an absurd loophole that the government can and should close. Ministers should also use this moment to take a broader look at whether the carbon market could work better. Free allocation of credits has traditionally been too generous – a problem that could be solved if ministers moved to auctioning allowances alongside establishing a carbon border tax. This would be a good way for the government to have better control of the scheme, end absurd freebies for firms closing plants and make sure this market does what it’s supposed to do: encouraging businesses to invest in cleaner tech.”
Alex Cunningham, a Labour shadow justice minister whose Stockton North constituency includes Billingham, told Unearthed: “Good local jobs were lost when Mitsubishi and CF Fertilisers closed their operations on Teesside so it is nothing short of outrageous that these companies continue to make tens of millions through the sale of their emissions credits due to a loophole in the UK ETS.” He added: “The government should look to close these loopholes immediately, and put a stop to this shameful profiteering on the back of lost livelihoods.”
CF Industries did not respond to requests for comment from Unearthed. Mitsubishi refused to tell Unearthed what it planned to do with its leftover free allocation, claiming commercial confidentiality.
You can read the full investigation here.
