The Quebec Ministry of the Environment granted free allowances this year corresponding to 14.5 million tonnes of CO2 to major polluters subject to the carbon market. Thanks to this gift, certain industries, including the aluminum industry, will probably not have to pay a single dollar to comply with the mechanism.
Seventy-nine companies qualify in 2023 for “free allocations” of emission units distributed by the government, according to a list published by Quebec on January 20. These units allow companies to cover part or all of their greenhouse gas (GHG) emissions without purchasing allowances or offset credits.
Some companies have made gains
Offered each year, the free allowances — which correspond to approximately one-third of the GHGs in the carbon market — aim to protect the “competitiveness” of industries subject to international competition. They are used to prevent a Quebec plant from moving to another country. Industries dedicated to the local market, such as fuel distributors, do not receive any.
Beneficiaries of free allowances include aluminum smelters, cement works, mining companies, refineries, paper mills, metallurgists and chemical companies. Rio Tinto, Suncor, Ciment McInnis, Lafarge, Glencore, Valero, ArcelorMittal, Kruger and Parachem are among them.
Almost all emissions
According to the most recent GHG register available, the free allowances cover almost all the emissions of the companies that are lucky enough to collect them. In 2021, 79 companies shared 19.8 million free units, each corresponding to one tonne of CO2. These free allocations thus covered 96% of their GHG emissions subject to the carbon market, calculated The duty.
In its documentation, the Ministry of the Environment does not reveal how many free allowances each of the 79 companies obtained, but only the total distributed. “The quantities of emission units allocated free of charge by establishment or by sector of activity are confidential information and therefore cannot be shared”, specifies a spokesperson by email.
Coming up against the same confidentiality policy, the Chair of Energy Sector Management at HEC Montréal estimated last year how many free allocations were obtained by the thirty largest emitters in Quebec in 2020. Its estimate is based on the ministry’s formula for calculating free allowances, which is public, and on the data it has managed to collect on the activities of the companies.
Result: the aluminum and cement sectors would have received free allowances corresponding respectively to 101.1% and 100.9% of their annual emissions. “In other words, instead of paying an amount to cover their GHG emissions, the government gave them more allowances and therefore some companies made gains. [financiers] “, notes the researcher Arthur Vié in his report published in August 2022.
New rules in sight
Do companies that receive all of their emission rights for free lose all interest in reducing their GHGs? “In theory, no,” replies Mark Purdon, holder of the Chair in Decarbonization at UQAM. They can still decide to reduce their GHGs, then resell their allowances obtained for free on the carbon market. Does it actually work? We should see…”
It should be noted that the policies concerning free allowances are in the process of evolving. Let us first note that the government has already reduced their number for the period from 2021 to 2023. The fact remains that certain companies that are particularly “vulnerable” to international markets continue to receive all their emission rights free of charge, underlined in December 2021 by researchers from McGill and Ottawa universities.
It should then be noted that, as the government announced last summer, new, less generous allocation rules will come into effect from 2024. A fraction of the free units will no longer be given to companies, but rather sold at auction. The proceeds will go to the said companies so that they can carry out studies or GHG reduction projects. The fraction of allowances thus placed on deposit will gradually increase over the years.