European Union Allocation (EUA) creates legal titles to emit a given amount of CO2 distributed to industry. These titles are transferable, creating a market in carbon trading rights.
The European Union Allocation was overpriced at its initial offering, at ?30 a tonne. Within a year, the value of the market in EUAs doubled in value to ?205 billion. Unfortunately, 170 million too many were issued. Individual companies, particularly energy companies, soon noticed that they had millions of tonnes of EUAs they did not need, and so they sold their unused carbon licenses on, making huge profits. A 2005 report by IPA Energy Consulting found that the six UK electricity generators stood to earn some £800m in each of the three years of the scheme, by selling their spare EUAs.
A separate report by Open Europe, in July 2006, found that UK oil companies were also poised to make a lot of free money: £10.2m for Esso; £17.9m for BP; and £20.7m for Shell.
Who was paying for them? Universities and hospitals in the UK, underallocated EUAs, were buyers. The University of Manchester alone shelled out £92,500 for its carbon rights. Of course, once the big EUA traders had sold them on, the prices collapsed, leaving public utilities holding overvalued EUAs.
Hewlett Johnson, the 'Red' Dean of Canterbury used to say that if the capitalists could put a price tag on the air we breathe they would sell it back to us. Little did he know that fifty years later hospitals and colleges would be paying oil and energy companies for a legal title to a share of the atmosphere.