Climate action proponents cry foul at CO2 hedging by major emitters

Some of Germany’s biggest CO2 emitters have taken advantage of the EU Emissions Trading System (ETS) to ensure their own emissions remain low-priced, according to a Handelsblatt report by Jürgen Flauger, Kevin Knitterscheidt and Kathrin Witsch. Like the energy giant RWE, the Salzgitter steel group has managed to keep its CO2 risk under control by 2030 through carbon hedging, write the authors. An allowance that entitles the holder to emit one tonne of CO2 currently costs more than 60 euros. In 2020 it was only 25 euros on average. Salzgitter confirmed that it has secured itself against the risk with trading transactions through 2030. The company is estimated to have stocked up on allowances years ago when the price was still just a few euros a tonne. Climate proponents have reacted angrily to the practice of CO2 hedging by major emitters. "This is a structural problem and a sign that the ETS system has this legacy of excessive CO2 allowances," Greenpeace financial expert Mauricio Vargas told Handelsblatt. "This is of course contrary to the politically desired reduction paths." For companies in energy-intensive sectors like the steel industry, the price of CO2 is one of the greatest financial risks. With around 40.4 million tonnes of CO2, the industry alone is responsible for almost 5 percent of total emissions in Germany. Another German steelmaker, thyssenkrupp, has not stocked up on ETS allowances to the same extend Salzgitter had, writes Handelsblatt.

The effectiveness of the EU ETS for climate action had long been questioned as low CO2 prices failed to trigger a large-scale move away from the use of fossil fuels. However, structural improvements have led to rising prices in 2021.