ETS & CBAM

The ETS & CBAM team is delivering two different articles intended for two different papers and one social media trailer promoting the first article.

1. The “Green Deal” – No Deal for EU Indigenous People. – For THE ECONOMIST

2. France exempts non-compliant companies from sanctions in the EU ETS – For Dagens Nyheter

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The “Green Deal” – No Deal for EU Indigenous People

For THE ECONOMIST by Nicolas Berlinger, Jakob Ranglin Gissler and Jonas Linde.

In the northern end of Europe, especially in Sweden, the expansion of green industries has been likened to the 1890s’ Klondike Gold Rush in Canada. Huge investments are being made in the north of Sweden, since energy is cheap, and resources are plentiful. 

The green industry is defined by their low carbon emissions. For example, Swedish companies lead the development in “green steel”, that is expected to turn the most heavy-emitting industry carbon neutral, with their mines and production sites in the north of Sweden. 

But the north of Sweden is also the region that Europe’s last indigenous groups – the Sámi – call home. The indigenous Sámi nation – without a sovereign territory – has received international fame lately as the “yolk” singing reindeer herders from the region close to the North Pole, when Disney incorporated their culture and language in their Frozen franchise.

The land of the Sámi – called Sápmi – got split into four countries during the time of Kings and Tsars from the 1300s onwards with a wave of settlers into Norway, Sweden, Finland and Russia. Their traditional way of living has been reduced ever since. 

Karin Kvarfordt Niia, spokesperson for the indigenous Gabna Sámi village on mining issues, speaks of a new wave of colonialism in Sápmi led by the green industry:

“In the first round, we got colonised by ‘Jesus’ – they took our gods away from us, our sacred places and also our language. In the next wave they took our land and destroyed our possibilities for our reindeers to graze. They also took a part of our pride. Now, we are being colonised by this ‘green’ industry.” 

Thus, the “second wave of colonisation” was led by the extractive industry and industrialization, and the Sami people are now being threatened by what has been named the solution to the climate disaster that the second wave ignited – the green transition.

In the two northernmost regions, with a current population of 340.000, this green transition backed by €110 billion in investments is expected to bring more than 100.000 new workers to the region by 2035, one of the biggest waves of “pioneers” the north has ever seen – and it is backed by the EU Green Deal.

The EU Green Deal

The Green Deal is the EU’s strategy for becoming the first carbon neutral continent by 2050. The deal is not only a green policy but also integral to the Union’s economic strategy, with at least one trillion euros pledged by the Commission to finance sustainable investments in the coming decade, drawing 30 per cent of its 2021 to 2028 budget for this purpose.

The presence of green companies in Sápmi is therefore not only driven by corporate or Swedish state interests. The EU has a big impact by channelling millions of euros to the region through various funds, like the Just Transition Fund, to finance the development of green technologies and new green jobs for the big industries.

Further, when looking into the EU emissions trading system (ETS), it becomes clear that the big players in the industry have profited from receiving millions of euros worth of EU carbon emission allowances.

EU emissions trading system (ETS) The ETS allows companies to buy or sell so-called emission allowances. It is one of the most important tools for reducing greenhouse gas emissions and meeting the EU's emission reduction targets. It is the world's largest emissions trading scheme and covers around 45% of the EU's greenhouse gas emissions.

Free allowances In order to ensure competitiveness of the EU industries there has been an allocation of free allowances to many big corporations. Many companies have received more allowances than needed. Sometimes, they have been able to sell the surplus of free allowances, creating profits of billions of euros.

The two major Swedish companies behind the development of green steel (SSAB and LKAB), also among the biggest emitters of CO2 in Sweden, have benefitted from the ETS by receiving free emission allowances, which means they don't have to pay for their emissions, thus generating a huge value. The Swedish steel giant SSAB’s Luleå facility combined with the annexed power plant has received free allowances worth a total of €902 million since 2008. The state-run mining company LKAB’s Kiruna facility is placed second, with €119 million in accumulated value.

List of Top 12 beneficiaries, in northern Sweden (from Gävle and above), receiving free emission allowances (EUAs) in the EU Emissions Trading System, 2008–2022.
The estimated accumulated value of allowances received for free, incl. added value of surplus allowances.

	Company	Installation	Type of Activity	Est. value of acc. EUAs in million €
1	SSAB EMEA AB + Lulekraft AB	SSAB Luleå + Luleå KVV	Metal + Combustion/Heating	902.441
2	LKAB	LKAB Kiruna	Metal	119.453
3	St1 Refinery AB	St1 Refinery AB	Refineries	114.021
4	Smurfit Kappa Kraftliner	Smurfit Kappa Kraftliner Piteå	Pulp/Paper	107.447
5	Stora Enso Pulp AB	Skutskärs Bruk	Pulp/Paper	84.921
6	Domsjö Fabriker AB	Domsjö fabriker	Pulp/Paper	78.282
7	LKAB	LKAB Malmberget	Metal	76.456
8	Billerud Skog & Industri AB	Korsnäs Gävle	Pulp/Paper	75.873
9	Holmen Paper AB	Hallsta Pappersbruk	Pulp/Paper	70.921
10	Stora Enso Paper AB	STORA ENSO Kvarnsveden AB	Pulp/Paper	63.882
11	SSAB EMEA AB	SSAB Tunnplåt i Borlänge	Combustion/Heating	57.416
12	SCA Munksund AB	SCA Packaging Munksund AB	Pulp/Paper	52.379

Sámi losing ground to “green” industries

Sámi people have become a semi-nomadic population dedicated to the economic activity of reindeer herding, which is a core pillar of their cultural heritage. But the construction of wind parks, mines, and railroads for the green industry is tearing the reindeer lands apart. Not least the prevalence of wind turbines disrupt the migration of reindeer as they get disturbed by the noise.

There is little legal protection for indigenous rights in Sweden. The state has yet to ratify the International Labour Organization’s (ILO) article 169, the only legally binding convention on indigenous rights, and Sámi people often have little say in the expansion of the green industry.

But the protection of indigenous peoples’ rights has seen an upswing in Scandinavian court decisions in recent years. In 2020, the Swedish “Girjas case” became groundbreaking by referring to several international conventions, including the ILO 169, ending a decade-long court dispute. Yet, the Swedish legislation is still lagging behind, says the professor for Sámi Law at the Arctic University of Norway, Øyvind Ravna.

The legal developments in Sweden are intertwined with the ones in Norway. As the reindeer do not know the national borders, many of the Sámi with Swedish citizenship let their reindeer graze in Norway. Karen-Ann Hurri, a member of the Swedish Sámi Parliament, says that “in my Sámi village, we do have lands for grazing on the Norwegian side, so we are as much affected by Norwegian politics.”

Earlier this year, Sweden’s most known climate activist Greta Thunberg was among the demonstrators that were carried away by police when they gathered in Norway to block the entrance of the Ministry of Finance, 500 days after the Supreme Court ruled that Norway’s biggest wind parks location in Sápmi are a violation against international law. The state had simply ignored the ruling and left the wind parks in place and operating.

“That is, of course, strange, because if anybody else who is not the government, builds something on any other person’s land without the license they have to remove the things immediately”, says Øyvind Ravna.

Despite not being a member of the EU, Norway has been participating in the ETS since 2008, meaning that free emission allowances are awarded to companies in their part of Sápmi as well. Moreover, the government established a so-called “green alliance” with the EU in April this year, for cooperation on clean energy, among other things.

No place for indigenous people within the EU

The EU touts “no person and no place left behind” as one of the three goals of the Green Deal. Nevertheless, the Sámi people in the Nordic countries of Sweden and Finland are the only indigenous people in the EU, which appears to have made their predicament a peripheral issue in Brussels’ policy-making.

The ways of living for indigenous people have proved incompatible with the EU before. The Inuits of Greenland, who make up approximately 90% of the island’s population, used to be the second indigenous people within the EU. But a fear of suffering losses in their fishing industry – their major source of revenues – from EU legislation, made them leave the EEC in 1985.

The exit was preceded by a legislative change that made them an autonomous territory of Denmark in 1979. The Sámi, however, have no such territorial autonomy, and therefore less say against Swedish industrial projects, which makes international human rights laws their strongest safeguards.

Stefan Mikaelsson, Vice Chairman Sàmi Parliament (Photo: Nicolas Berlinger)

Green Deal Goes Global

How Sweden and the EU are dealing with their last indigenous people could be a precedent for how countries will be dealing with indigenous communities worldwide. The European Parliament in April approved the implementation of the carbon border adjustment mechanism (CBAM) by 2026. CBAM is a tariff on carbon emissions for countries outside of the EU to make them comply with EU standards. This is likely to accelerate the global green transition.

Without accompanying human rights provisions, there is a risk that conflicts similar to the ones in Sápmi will escalate –  green industries are already expanding on indigenous peoples’ territories worldwide.

Anders Lindberg, press officer at LKAB, defends the raw material extractions in Sápmi: “There will be a change for a lot of people, not just in northern Sweden, not just Sámi people, reindeer herding, but for everyone, everywhere. And this has been our message to EU politicians and to Swedish politicians.”

Alexander Dunlap, book-author and scholar at the University of Helsinki, who researches the green extractive industries’ adverse effects on populations, has a radically opposite view to Lindberg. Yet, his conclusion is similar: “This trajectory affects everyone. This affects Swedes. This affects indigenous people. This affects everyone you know.”

Experts and stakeholders seem to agree: the green transition will affect everyone, everywhere. But the conflict in the north of Sweden begs the question of how sustainable the green transition really is.

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The original version of this article is written in Swedish and aimed for publication in Dagens Nyheter. English version below (not updated with feedback from seminars, only the original article in Swedish has been updated). Visualizations are not translated.

Not-updated English version:

France exempts non-compliant companies from sanctions in the EU ETS

DN's investigation reveals that France is one of the countries that didn't enforce any financial penalties on companies that violate EU rules on CO2 emissions trading. "If there are systematic shortcomings in one or more countries, it could have consequences for the legitimacy and effectiveness of the entire emissions trading system," says Jonas Ebbesson, Professor of Environmental Law at Stockholm University.

By: Jonas Linde, Jakob Ranglin Grissler, Nicolas Berlinger, Solène Du Roy, Mahmoud Naffakh, Yann Dorée, Hadrien Valat, Chiara Raber, Luzius Zöller

According to Article 16 of the EU Directive (2003/87/EC), companies that do not surrender allowances corresponding to the previous year's CO2 emissions before 30 April shall be penalized with a fine of €100 (approx. 1100 SEK) per tonne of CO2e. DN's investigation, carried out by journalists from the Crossborder Journalism Campus (CJC) project, shows that France has systematically applied exemptions to the implementation of sanctions in emissions trading, in violation of the EU directive. These exemptions include companies that are in judicial liquidation or are new to the market and therefore fail to surrender the right amount of allowances in time.

Olle Palmqvist, administrator at the Emissions Trading Unit at the Swedish Environmental Protection Agency, says that such circumstances are not taken into account in Sweden and that exemptions to the EU Directive can only be applied in a so-called force majeure situation where companies, due to special external circumstances beyond their control, are prevented to surrender emission allowances in time. The French authorities write in an email "The ministry is monitoring each of these situations carefully. At this stage, the situations have been resolved without resorting to the implementation of a financial penalty for non-return", which is a violation of the EU Directive.

Data from the European Union Transaction Log (EUTL), the EU's tool for monitoring emissions trading, shows that between 2013-2021, 290 installations in France did not surrender the correct amount of allowances on time. In Sweden, these companies would be penalized, and this should apply to France as well as all other Member States since it is written in the EU Directive governing the carbon market. Marianne Moliner-Dubost, an expert on climate and atmospheric pollution legislation from the University of Lyon, confirms that there is no legal basis in the EU or in French national legislation that allows authorities to exempt companies from the €100 per tonne penalty.

Jonas Ebbesson, professor of environmental law at Stockholm University, says that it is difficult to determine what the consequences of this may be, as it depends on whether it is a widespread problem throughout the trading system or just a few isolated cases.

"The system is not broken because one country occasionally fails to issue sanctions, but if there is a systematic failure, then obviously it can impact the effectiveness and credibility of the whole system. It took a long time to build up confidence in the system, there was enormous skepticism among many people in the beginning, including me. But it has proved to have a regulating effect and in many countries, this is the only climate regulation in place."

Thomas Hahn, Associate Professor of Ecological Economics at Stockholm University, says it is shocking that France is making these exemptions. Hahn says that it is something we take for granted that the sanctions in the system work.

"No policy instrument is better than its sanctions. The consequences of the system not working become even bigger when, as in Sweden, there is a debate about abolishing national policy instruments and relying entirely on the EU. When countries such as Hungary, Poland, and Bulgaria discover what France is doing, they will say 'We won't do this either because we can't afford it', and when other countries follow suit, everything collapses." says Hahn.

Johan Pettersson, a lawyer at the Ministry of Climate and Enterprise, Photo: Regeringskansliet

The graph reveals that France is not the only country that has not issued any sanctions. However, the investigation does not reveal if other countries have non-compliant companies that should be sanctioned, nor if other countries also make exceptions to Article 16 of the EU Directive (2003/87/EC).

Helén Axelsson, Energy and Environment Director at the industry association Jernkontoret, says that it is strange that France has not issued any sanctions. However, she believes that no company would make investment decisions based on this since it must be assumed that the European Commission will correct it. Therefore, it is a very uncertain competitive advantage.

“The European Commission is responsible for ensuring that Member States implement EU directives. Unfortunately, there are sometimes countries that get away with not following the rules. I suppose France is an expert on this and Sweden is not" says Helén Axelsson.

Johan Pettersson gives a more nuanced picture. He points out that Sweden also has ongoing dialogues with the Commission where the Commission thinks that Sweden has not implemented certain EU directives correctly. In these cases, it is Johan Pettersson's job to defend Sweden's interpretation and he sometimes finds it difficult to convince the Commission of how Swedish legislation works. The dialogues with the Commission regarding national infringements first take place at an informal level before they are formalized and, although it is rare, it happens that the Commission sues member states in the European Court of Justice, who decides the outcome. "This could happen in the case of France, who risk receiving large fines," says Jonas Ebbesson.

According to research by Daniel Kelemen, professor of Political Science and Law at Rutgers University, and Tommaso Pavone, assistant professor of Law and Politics at the University of Arizona, the number of infringement cases issued by the Commission has decreased by 67% between 2004 and 2018. They argue that the decrease is not due to fewer infringements but due to the Commission making a political choice not to enforce the law. Kelemen and Pavone argue that the EU is prioritizing its role as a political cooperation organization over its role as a technocratic judiciary and that there may be some friction between these roles. The EC thus, avoids overly aggressive enforcement, as it would risk support for the Commission's policy proposals. Johan Pettersson also testified that he believes the Commission sometimes has to pick its battles. This could explain why France is not reprimanded.

DN has tried to reach the Commission to hear how they have handled the case of France violating the EU directive governing emissions trading and not sanctioning their own companies with any financial penalties. Tim McPhie, spokesperson for climate and energy, says they do not comment on pending court cases. However, the EU's national infringement databases do not contain any cases related to the EU Emissions Trading Directive.

In Sweden, the Swedish Environmental Protection Agency is responsible for sanctioning non-compliant companies. There are certain penalties that Member States can choose to implement in addition to the minimum requirements of the EU Directive. These include fines for companies operating without a permit, or if they are late in verifying their emissions. This fee is set at SEK 50 000 in Sweden, a rather low penalty compared to the €100 for each missed emission allowance not surrendered on time. By 30 March each year, companies must verify their emissions with a licensed verifier and then surrender the corresponding number of allowances by 30 April.

The staff DN spoke to at the Swedish Environmental Protection Agency and the Swedish Energy Agency who administer the emissions trading system say they are making great efforts to help companies make sure they don't miss the April 30th deadline. After that, they have no choice but to enforce the €100 per tonne CO2e penalty according to the EU directive, even if someone forgets to surrender allowances by mistake. In Sweden, the Swedish Environmental Protection Agency has enforced fines of SEK 76.2 million to companies violating Article 16 since the inception of the EU ETS in 2005. The companies receiving the largest fines are Billerud (SEK 19.5 million, 2006) and Findus (SEK 15.6 million, 2012). For comparison, between 2013–2020, Germany enforced €2.45 million in fines on companies violating Article 16.

	Sanctioned companies in Sweden 2005-2021	Year	Amount of fine (SEK)
1	Billerud Korsnäs AB	2006	19 475 417
2	Findus Sverige AB	2012	15 616 484
3	Befesa ScanDust AB	2006	12 149 785
4	Borås Energi och Miljö	2006	5 151 784
5	Neova AB	2012	5 092 739
6	LLC Atran	2014	4 340 570
7	Rättviks Teknik AB	2010	2 771 321
8	AB Fortum Värme samägt med Stockholms stad	2012	2 571 142
9	Haparanda Värmeverk	2006	2 399 095
10	E.ON Värme Sverige	2006	2 091 941
11	Trollhättan Energi	2006	1 463 371
12	Hedemora Energi AB	2012	982 330
13	Svanskog Bruk	2006	610 287
14	PMI Global Services Inc.	2012	562 540
15	Stenungsund Energi & Miljö	2006	438 792
16	Karlshamn Energi	2006	258 887
17	HK Scan	2015	112 000
18	ENA Energi AB	2012	59 794
19	Occidential Petroleum Corporation	2012	30 014
20	Umeå Energi AB	2012	29 897
21	Föreningen Flygande veteraner	2012	858

One of the exceptions applied by the French authorities is for companies that are new to the market and cannot surrender the right amount of allowances in time because they are waiting to receive the free allocation of allowances. When asking Olle Palmqvist from the Swedish Environmental Protection Agency, he tells us that no such considerations are made in Sweden. Each year in the ETS, about half of the allowances are allocated for free to companies based on production volume and a benchmark determined by the average of the 10% most emission-efficient plants producing the same product. To access the free allocation, companies must be in production for a full year before they can apply. Both Olle Palmvqvist and Marianne Moliner-Dubost confirm that this is not an exception for which there is legal support, neither in Sweden nor in France.

Tim McPhie of the Commission points to two court cases that provide legal guidance on these issues in the EU. One of the cases is Billerud Korsnäs AB against the Swedish Environmental Protection Agency (2013) where the European Court of Justice ruled that the penalty level of €100 per tonne is not negotiable, and a strict interpretation of the penalty and the deadline of April 30 apply regardless of any mitigating circumstances (except force majuere).

The court case reveals that Billerud had the right number of allowances available on its account before April 30, 2007 (95% of all allowances were allocated for free in 2005-2007). The company intended to surrender these but failed due to an internal administrative breakdown. This mistake cost them 19.5 million SEK.

Frida Sveider, currently responsible for emission allowances at Billerud, says that Billerud has changed its routines so that each individual mill is not responsible for handing over emission allowances, it has been centralized to the main office. They have established a rigorous process with recurring meetings to ensure that they don't miss the deadline of April 30th. Billerud does not want to comment on the French case.

The unwillingness of the French authorities to implement sanctions and the lack of reprimand from the Commission raises the question of whether member states and EU citizens can trust the emissions trading system to reduce emissions. Thomas Hahn says that when companies notice that emission allowances are becoming more expensive and at the same time see that sanctions are not enforced, we risk ending up in a situation where companies do not pay for their emissions and then the system does not work: "It is very, very serious”, says Hahn.

This article is part of “Crossborder Journalism Campus”, an Erasmus+ project of the University of Gothenburg, Leipzig University, and Centre de Formation des Journalistes in Paris. Additional reporting: Solène Du Roy, Mahmoud Naffakh, Yann Dorée, Hadrien Valat, Chiara Raber, Luzius Zöller.

Text: Jonas Linde, Jakob Ranglin Grissler, Nicolas Berlinger, Photo: Hadrien Valat, Regeringskansliet, Graphic: Jonas Linde, Jakob Ranglin Grissler, Nicolas Berlinger