Three European facilities operated by Saudi Arabian chemical giant SABIC, U.K. conglomerate INEOS and French oil major TotalEnergies received a combined total of about $127 million in free carbon permits from the British and French governments, even though the plants were offline or emitting very little carbon, an OPIS review of official data shows.
Free carbon permits are handed to installations in hard-to-decarbonize industrial sectors that are subject to the U.K. and EU Emissions Trading Systems to prevent companies from being undercut by imported products from countries not subject to carbon levies.
Such allowances are allocated to EU and U.K. installations based on output in previous years, allowing some of the world's largest companies to receive credits for idled facilities. The credits could potentially be converted into cash by selling them to parties on the Intercontinental Exchange's secondary market.
The SABIC-operated Wilton 6 Olefins cracker in Teesside in northeast of England was allocated free U.K. emissions allowances from the government worth £81.81 million ($103.95 million) over 2021-2023, despite the fact that it was taken offline in September 2020, according to government data.
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Similarly, the INEOS-operated Seal Sands nitriles plant, also in Teesside, stopped producing chemicals in 2020, but received free U.K. allowances in 2021 worth about $12 million, while TotalEnergies, which stopped conventional refining at its Grandpuits refinery in France in 2021, received European Union emissions allowances last year worth nearly $11 million based on the average EUA benchmark price.
At the end of last month, OPIS identified three other examples of British facilities subject to the U.K. ETS that were granted free permits despite being either completely or mostly offline in 2022.
The Ince manufacturing plant near Chester, northwest England, owned by the U.K. subsidiary of American fertilizer giant CF Industries, was provided with free carbon allowances last year worth almost $50 million, despite having halted operations in 2021. The company did not respond to requests from OPIS over whether it sold the permits or returned them to the government.
Offline INEOS Plant Sold Nearly $19 Million of Carbon Credits in 2021
U.K. government data showed that INEOS's Seal Sands plant in Teesside received about 153,653 free U.K. carbon allowances for 2021 after the plant wound down operations over 2020. The allocation was more than 30 times its verified carbon emissions of 5,031 mt of carbon dioxide in 2021.
The benchmark December 2021 United Kingdom allowances futures contract averaged £63.03/mt in 2021, according to an OPIS analysis of ICE data. The value of the free UKAs the INEOS plant was issued for 2021 is roughly $12.3 million.
The plant also had a surplus of free EU emissions allowances in 2020, the last year it was subject to the EU ETS before transferring to the new U.K. ETS. European Commission data show that the plant produced 205,421 mt of carbon in 2020 — less than its allocation of 310,990 EUAs.
Annual company financial accounts for 2021 filed at U.K. company registry Companies House for INEOS Nitriles UK, the INEOS subsidiary that owns the plant, showed the company posted a profit in 2021 mainly because of the sale of carbon credits. That profit followed a slight loss in 2020 and about a $136.6 million loss in 2019.
"Operating profit increased from a loss of £12,174,000 in 2020 to a profit of £25,803,000 in 2021, driven by the sale of surplus carbon credits of £14,918,000 [$19.02 million] and the release of the closure provision of £7,520,000," according to the 2021 INEOS Nitriles UK company accounts.
"At the end of 2019 it was decided that closure of the acrylonitrile manufacturing plant at Seal Sands was required due to concerns regarding its environmental compliance and economic viability. Acrylonitrile production was separated from continuing activities, and decommissioning of the acrylonitrile unit began in 2020," the it said. "The company's strategy after closure of the acrylonitrile plant was to provide property rentals, services and utilities to third parties."
"The company is not a going concern as it has ceased to trade, thus the annual financial statements for 2021 are to be prepared on a basis other than going concern," one passage in the accounts reads.
In late 2019, the company said it would close the plant, eliminating about 145 jobs.
INEOS didn't respond to repeated OPIS requests asking it whether it had received permits in 2021 when the nitriles plant was offline and, if so, whether it sold those allowances to other parties.
The British government also did not respond to questions related to the allocation of permits to INEOS's plant.
SABIC Received $103.95 million in Permits over 2021-2023 for Inactive Cracker
Like all operational carbon-emitting U.K. plants, SABIC's Wilton Olefins 6 cracker was subject to the EU ETS before 2021. The cracker recorded 787,796 mt of carbon dioxide emissions in 2020 and was issued 795,816 free EU allowances that same year, according to EU Commission data.
At the end of September 2020, the cracker was shut by the company, while it converted the facility to a natural gas-powered cracker processing ethane feedstock. The first phase of the plan, known as the Teesside Improvement Project, will reduce the cracker's carbon footprint by up to 60%, making it one of the world's lowest-emitting facilities of its kind, according to the company, which also will examine the possibility of using hydrogen as a future, carbon-reducing fuel source.
The 2020 shutdown drastically reduced the facility's carbon emissions. According to U.K. data, Olefins 6 registered 20,681 mt of carbon dioxide emissions in 2021. In that same year, however, the British government issued the company 642,812 free UKAs, more than 31 times its verified emissions.
In 2022, the plant's emissions fell to 11,878 mt, but it still received 278,342 free UK carbon allowances, or more than 23 times its number of verified emissions.
The average prices of the UKA December year-end futures contracts in 2021 and 2022 were £63.03/mt and £79.18/mt, respectively, according to an OPIS review of ICE data. That amounts to £40.51 million in 2021 and £22.04 million in 2022 in free UKAs for the Olefins 6 operator, a combined £62.55 million.
Olefins 6 is scheduled to receive the same amount of free UKAs, 278,342 until 2025, according to the latest U.K. government data. The British government issued its free allowances for 2023 in February, meaning that SABIC has been granted an additional £19.26 million in allowances for 2023, based on the average UKA benchmark price over the first five months of this year. From 2021 to 2023, SABIC will have received a combined £81.82 million in free UKAs based on the yearly average prices.
It's unclear whether the cracker will come back online this year. One OPIS source with knowledge of the upgrade said on-site building work will continue and pick up pace over the three-month period starting in July.
The 2021 accounts for SABIC UK Petrochemicals Ltd. filed at Companies House in October 2022 do not offer specific data related to free allowances allocated to the plant, but do say the company "is allocated an allowance of CO2 credits on an annual basis. The company must submit annual returns which have been independently verified of actual emissions ... Currently the company is in surplus against its annual allowances due to the decision to temporarily shut down the cracker from the end of September 2020."
A spokesperson for the U.K.'s Department of Energy Security and Net Zero told OPIS that the SABIC-operated installation had initially received 642,812 UKAs in 2022, but that the amount was reduced to 278,342 UKAs as part of the 2022 activity level change process.
"The relevant regulatory body for an installation is responsible for managing allocation levels depending on what activity has taken place. This includes any overallocations," the official said.
Entities that receive free allowances must submit activity level reports to their respective regulator by the end of March on an annual basis, DESNZ said. "The 2023 ALC process has not yet been completed, so the outcome of any further ALC changes is not yet known. Any approved changes are regularly updated to the published allocation table," the spokesperson added.
“SABIC conducts its business in full compliance and in accordance with all regulations relating to the UK-ETS scheme, including all requirements for reporting of relevant data to the regulatory body,” a SABIC spokesperson said. “We continue to invest and strengthen our asset base, reducing our carbon footprint by up to 60%.”
Grandpuits Emitted 78 Mt of Carbon in 2022, Received $11 Million in EUAs
TotalEnergies' 93,000 b/d Grandpuits refinery in France went offline in 2021, and EU data show the amount of verified emissions at the installation fell sharply. The refinery emitted 474,903 mt of carbon dioxide emissions in 2020, 65,149 mt in 2021 and just 78 mt in 2022.
The refinery received 518,207 free EUAs in 2020 and it was handed 249,139 EUAs in 2021, leaving it with surplus allowances in both years. For 2022, the year in which it emitted just 78 mt of carbon dioxide, the installation received 122,509 free EUAs - more than 1,570 times its actual emissions and with a value of €9.68 million ($10.95 million), using average benchmark prices for that year.
In a September 2020 news release, the company said it intended to spend more than a half billion euros to convert the refinery into a "zero-crude platform" by 2024. This is expected to include the production of renewable diesel, bioplastics, plastics recycling and the operation of two photovoltaic solar power plants.
An EU Commission spokesperson told OPIS via email that when plants halt operations, "the allocation is stopped the calendar year following the year of cessation ... And for activity changes, the allocation is adjusted for the calendar year following the two calendar years used for the determination of activity levels (average of two years)."
The spokesperson said that when installations have closed, the free allocation shall be set to zero for the year following the shutdown. When an allocation is corrected due to a permanent closure or emission activity change, the domestic government authorities require that the overallocation be returned.
"Once the free allocations are adjusted in the registry, this triggers an obligation of return of excess allowances," the representative said.
OPIS asked about what happens to an installation operator's obligations to return its free allowance allocation if it is in the process of being repurposed while continuing to emit very low levels of carbon, as in the case of Grandpuits. The spokesperson said at the beginning of June that the commission would consult its experts. Roughly two weeks later, it said the consultation was continuing.
The spokesperson also confirmed that TotalEnergies received its 2022 allocation of EUAs for Grandpuits, adding: "We are currently assessing information from the national authorities on possible adjustment to this installation."
TotalEnergies, the French Ministry for the Ecological Transition and the French Deposits and Consignments Fund did not respond to multiple requests for comment.
CF Industries Silent Over $48 Million in Free UK Allowances for Ince
OPIS reported on May 24 that in February 2022 the Ince ammonia manufacturing plant near Chester in northwest England, was issued 488,602 free allowances worth £38.68 million at average benchmark prices.
The plant, however, was taken offline in September 2021 and has not returned to operation, a CF Industries representative told OPIS last month. In 2022, the company tried to sell the mothballed plant to UK Nitrogen, but the negotiations ended without a deal after the British government refused a request for a loan to help restart the plant, British media reported last summer.
CF Industries has not responded to repeated OPIS inquiries over whether it sold or returned the 2022 allowances it received from the U.K. government.
OPIS also asked the British government for aggregate data on how many 2021 and 2022 free UK allowances were returned by all installation operators.
A DESNZ spokesperson told OPIS in late May that the agency was waiting for the information from the country's Environment Agency and that it "may need to consult lawyers."
Jeff Barber, firstname.lastname@example.org