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 operating at at reduced rates, an
OPIS review of official data showed.
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
2000, according to government data.
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.
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.
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 did not respond to requests for comment.
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.
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."
This content was created by Oil Price Information Service, which
is operated by Dow Jones & Co. OPIS is run independently from
Dow Jones Newswires and The Wall Street Journal.
--Reporting by Humberto J. Rocha, hrocha@opisnet.com and Anthony
Lane,
alane@opisnet.com; Editing by Jeff Barber,
jbarber@opisnet.com
(END) Dow Jones Newswires
June 22, 2023 08:50 ET (12:50 GMT)
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