109: The Footies #3: Taking the OPIS

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Page 94, The Private Eye Podcast.

Hello, and welcome back to page 94 in this exciting mini-series all about the shortlisted entries for this year's Paul Foote Awards.

Each day for six days, we are talking to brilliant investigative hacks who've been shortlisted for the prestigious Paul Foot Award for Investigative Journalism.

So let's find out without further ado who today's entrant is.

My name is Umberto Juarez Rocha.

I'm a reporter with Opus Oil Price Information Services and we're part of Dow Jones and we cover carbon markets.

The essence of this market is by putting a price on carbon.

You have the incentive to not pollute or decarbonize.

Find better ways to make a product without emitting that much carbon.

On an annual basis, say if you emit 100 metric tons of carbon, you have to surrender 100 carbon allowances.

And this price of carbon varies.

Obviously, there's a lot of supply, but sometimes there's years where companies emit more carbon.

The price of the demand goes up, the price of carbon goes up.

And the market is based on the price of carbon.

Can I just check?

You have to buy those 100 allowances.

Say,

if my company is going to emit 100 tons of carbon, I need to buy 100 units to cover that amount of emission.

Okay, so I've bought 100 units as a company because I'm going to make money with these polluting products that I sell, but this is a way to incentivize me so that next year I hope I can only have to buy 90 units, for example.

Right.

And yes, so if you emit more carbon the next year, you have to buy more allowances.

They may or may not get more expensive, but you have the incentive to want to scale back the amount of carbon you produce on an annual basis.

Okay.

This sounds like a good system.

And I hope you're about to tell me what went wrong with it.

Yes.

So essentially, depending on the company that you are, if you're, for example, a steel company, you're going to emit a lot of carbon.

The EU wants to keep you in the EU.

They don't want you leaving the EU to go somewhere else to set up shop.

And you don't have to worry about a carbon price at all, say, in

another country.

The carbon price is not a thing in other countries.

The EU does this.

The UK does this.

Some other countries are starting to do this.

but you can still leave and set up shop somewhere else and you don't have to pay a carbon price.

You can emit as much carbon as you want.

There are no penalties.

No penalties on these externalities.

What went wrong here is that these companies,

for example, there will be a plant in, say, in 2020.

Towards the end of the year, the the plant shuts down, it's gonna close operations, but in 2021 it emits 10 tons of carbon that were released.

Okay.

So almost nothing.

Almost nothing.

Very little.

There was actually a case with Total Energies.

Their refinery in Grand Puis in France emitted 78 metric tons of carbon in one calendar year.

How much, sorry?

78.

Okay, so 78 metric tons of carbon.

Okay.

An entire calendar year.

Okay.

And in that year, they received 122,509 carbon allowances.

So, and these are the allowances that are granted by the EU exactly to keep these industries here, because they know that a steel mill, for example, will have to produce enormous amounts of carbon.

Correct.

So it's a kind of.

Why is that?

So it depends.

Some companies wound down operations saying maybe we'll close, maybe we won't close.

After the invasion of Ukraine by Russia, we saw natural gas prices went up, energy crisis in the EU and the UK.

With good reason, some companies said we might halt operations, we might

wind them down.

But as to the decision of closing, that depends if you time it right, you can still get these carbon allowances that you get for free

and not emit carbon in that year.

And they're worth a lot of money.

Yes.

Because you can then sell them?

Yes.

And so the price of carbon did go up in 2023 to record highs.

In the EU, they reached 100 Euros per metric ton.

For perspective, these were trading at around 5 euros per metric tonne in 2005, 2008.

So a huge, huge increase in the past two, three years.

So if my steel mill has shut down or is trading at minimal levels, 78 tons of carbon in a year, but I've got 122,000 tons worth at 100 euros per ton.

Pretty big sizable gain.

That's fantastic.

it's great who am i selling them to anyone who's willing to buy them

there's a there's a secondary market on this where companies can anyone can well not anyone companies registered in this system can buy them and why are they buying them

because they so so some companies might actually need them to surrender their allowance to cover their allowances others there's investment funds that have entered this space they buy them and they can hold them for as long as they want because it is expected that the price of carbon will go up to around 200 300 euros per metric ton towards the end of the decade.

Right.

So

it's in their interest to buy these bonus credits that I've been given for free.

So a lot of money is being generated from nothing.

Why has the system gone wrong in that way?

Why are these companies with almost shut down steel mills still receiving this huge number of credits?

In theory, there is a system that allocates for if there's a 15% reduction in activity level changes, your allowance is decreased.

So

there are some mechanisms to try to address that.

However, when the change is so big,

it's a bit of a lag for the system to catch up.

It might take one year, it might take two years, might take three years.

But in the meantime,

at a time when carbon prices are really high, you're getting an insane amount of carbon allowances, which you can then keep, sell.

So, what we're describing here is effectively free money being given out by the EU to highly polluting industries, which are then selling those goods on.

We call them as vouchers, because they're essentially money creation but in the form of permits.

And the UK does this as well.

It has the same system because obviously the UK was part of the EU, so they were both under the same carbon market.

They have split, but the UK model follows the EU one.

Okay.

This is happening in the UK as well.

Yes.

Oh dear.

When did this come to your attention first?

The EU and the UK publish every year a list of we've given X free allowances to these companies because it's public information, it's public data.

However, we were very interested with the prices of natural gas going through the roof, carbon prices are going up, which is a market that, you know, in past years was at five Euros per metric ton.

The UK was at, it made its own carbon market in 2022 after Brexit.

So prices were low, but in 2023, prices went through the roof 100 euros per metric ton.

UK, around 75 pounds per metric ton, really, really high prices.

So we were interested in seeing what the difference was between companies' reported carbon emissions and the carbon permits that they were getting.

And so we were focusing on the big differentials of which companies were getting the most for having emitted little to no carbon in 2023 and years before as well.

And how did you go about that?

Is it simply a matter of asking and they'll tell you?

Or were some people maybe a little uncommunicative?

We wish.

We got a mix of responses, but the data is public.

So we looked through years and years of data.

We had data journalists go, we went through these seeing how much, seeing the differential in carbon emitted and the carbon permits that you received.

And then from there, we narrowed it down to a couple of companies.

You know, we had Total Energies, In EOS in the UK, Sabic, which is Saudi Arabia Saudi from Saudi Arabia.

CF Fertilizers was a big one.

They had two plants in Innce and Billingham fertilizer companies.

They also get free allowances because it is very expensive.

The price of natural gas went up.

Ammonia production just couldn't keep up with the price of that.

So they shut down one of their plants in 2021, but they never restarted it.

However, in 2022, they received around,

and let me make sure I have this number right, but they received around 488,000 carbon permits in the UK.

So again, you emit very little, but these are record high prices.

You get vouchers for these carbon permits, which you can then sell to anyone.

So that would be, is that more than 30 million pounds?

I'm thinking less.

Trying to do our maths.

Yeah, so

for the INS plant, it was 38 million pounds.

Right.

And we based this price on the average price of carbon throughout that calendar year.

Okay.

So it could have been 38 million at a time when UK carbon prices were at an all-time high.

Okay, I see.

So, I mean, we talk a lot about wealth creation.

This is maybe an unintended and enormous amount of wealth creation.

Yes.

Did you get a satellite involved at one point?

We did.

We wanted to gauge the history of

the carbon emissions that were happening, I think, at the INS plant.

And we did see that there was a dramatic reduction in the amount of carbon emitted.

So again,

the facts that they had reported were true, but we wanted to really get a sense of that.

And the satellite imagery really helped to prove that.

I think you were the first Paul Foot nominee to ever hire a satellite as part of the reporting effort.

So that's extremely exciting.

What happened next?

What happened after you...

published your story.

So we had a number of stories dating back to May of 2023 in the EU and the UK systems.

We bothered EU and UK officials a lot, companies.

Some companies were communicative, others not so much.

But towards the end, we found, so following up with the EU, bothering them, pestering them on this, we found, I found the copy of a meeting minutes.

They had this extra group on the climate change, on the laws and the policies.

But in the meetings of a June meeting, they said, you know, the system can be abused.

by operators who you know shut down in one part of the year but still receive their allowances for that year, even though they emit little to no carbon.

And the EU Commission recognized that there could be abuse of the system.

And the most recent development was in December they opened a consultation on changing that to, as opposed to letting you get the free allowances for the rest of the calendar year,

it stops the day after operations have ceased.

Oh, it really cuts down on the amount of time that you can get these permits.

So whereas before you basically were given an entire year to collect these permits, now as soon as the day after operations have ceased, you're done.

You receive nothing else after that.

Okay.

And that hopefully, I presume, will restore this mechanism of encouraging firms to actually decarbonize rather than simply shutting down a plant and they get their credits anyway.

Yes, we hope so.

And also the EU, the free allowance system, is actually ending in 2034 because of the introduction of the carbon border tariff.

But it'll essentially end it by 2034.

However, there is plenty of time until then.

And if this continues to get abused, then what is it really takes away some of the legitimacy of this system, which is encouraged to make polluters pay, not give them free permits so they can then sell when carbon prices are high.

So that sounds like a very concrete result in the EU itself.

What about the UK?

Yes.

So the UK, we presented our stories.

Again, we've talked to officials from the Department of Energy Security and Net Zero.

bothered them about this a lot, but it was at a conference in October last year that we asked one of the deputy officials face to face, is this going to change?

And by December, they opened a consultation on changing this allowance or changing the allowance system similar to the EU, the day after, you know, to prevent operators who are emitting little to no carbon from getting these vouchers, these permits, they will be changing that system.

But it won't happen.

There's a consultation at the moment.

We're actually closed in March, but these changes won't actually come into effect if approved by 2026.

So there's some time.

Okay.

But they are looking into it more seriously after this reporting.

So what you're saying is if you're a polluter, hurry while these credits last.

There is some time.

But the change is there and it's coming.

It's a fantastic story.

It's so interesting.

I wish we could talk about it all day.

Congratulations again on your nomination, Hamilton.

Thank you, Andy.

There you have it.

Thank you so much for listening.

We hope you've enjoyed that little insight into the world of investigative journalism.

There will be another one of these tomorrow.

If you just can't wait for that, then feel free to subscribe to the magazine instead, private-eye.co.uk.

Thanks for listening.

We'll be back again shortly with another one.com.

A happy place comes in many colors.

Whatever your color, bring happiness home with Certopro Painters.

Get started today at Certapro.com.

Each CertaPro Painters business is independently owned and operated.

Contractor license and registration information is available at Certapro.com.

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