UK firms have been making millions in unused carbon credits by closing or idling factories due to a loophole in a Government decarbonisation scheme, according to campaigners.

Greenpeace’s Unearthed investigation unit analysed the UK emissions trading scheme (ETS) – a Government-run cap and trade system designed to reward firms that cut emissions from their operations.

It found that US fertiliser giant CF Industries was allocated hundreds of thousands of unused carbon credits after it closed two factories in the UK last year.

The firm first shut its works in Ince, Cheshire, in June 2022, leading to 350 job losses.

This meant its annual emissions were much lower for 2022 than the previous year so it received hundreds of thousands of carbon credits.

Under ETS rules, there is nothing stopping firms selling unused credits generated from closing a factory – rather than from specific decarbonisation efforts, Unearthed found.

The investigation also discovered that the Government has no way to claw back unused credits once they have been allocated to a company.

CF Industries is therefore free to sell the Ince facility’s leftover 630,000 credits from 2021 and 2022, worth £49 million at the average UK carbon price from last year.

The company also announced in July 2022 that it would close its ammonia plant in Billingham, Teesside, after the facility had been idle since the previous September, causing 38 job losses.

The plant then recorded a sharp drop in emissions for 2022, leaving CF Industries with 249,000 leftover credits, worth £19.4 million at last year’s average UK carbon price.

According to its most recent UK accounts, CF made £32 million from the sale of carbon credits under UK ETS.

Meanwhile, Mitsubishi Chemical, one of the world’s largest chemical producers, closed its Cassel works chemical plant in Billingham, Teesside, at the end of May this year, making 205 staff redundant.

Production at the plant had been halted since February 2022 and its closure led to a dramatic drop in emissions from 2021 to 2022, leaving Mitsubishi with 155,000 of unused allocated carbon credits, worth around £12 million at last year’s average carbon price.

The Government is reviewing the rules on free allocation, but no changes will be made to the policy until 2026 at the earliest, according to Unearthed.

Commenting on the findings, Greenpeace UK’s policy director, Dr Doug Parr, said: “This scheme is supposed to reward businesses that make genuine efforts to clean up their operations, not give carbon freebies to firms who shut down plants.

“This is an absurd loophole that the Government can and should close.

“Ministers should also use this moment to take a broader look at whether the carbon market could work better.

“Free allocation of credits has traditionally been too generous – a problem that could be solved if ministers moved to auctioning allowances alongside establishing a carbon border tax.

“This would be a good way for the Government to have better control of the scheme, end absurd freebies for firms closing plants, and make sure this market does what it’s supposed to do: encouraging businesses to invest in cleaner tech.”

Meanwhile, Labour MP Alex Cunningham, whose Stockton North constituency includes Billingham, said: “Good local jobs were lost when Mitsubishi and CF Fertilisers closed their operations on Teesside so it is nothing short of outrageous that these companies continue to make tens of millions through the sale of their emissions credits due to a loophole in the UK ETS.

“The Government should look to close these loopholes immediately, and put a stop to this shameful profiteering on the back of lost livelihoods.”

A Department for Energy Security and Net Zero spokesman said: “The UK ETS is helping us meet our ambitious climate commitments, cutting emissions by over 48% since 1990, faster than any other G7 country.

“Where a company closes or leaves the UK, their allowances are no longer distributed in the following year.

“As previously announced, we are reviewing free allocation rules to make the system as robust as it can be while continuing to support UK businesses through the transition to net zero.”

CF Industries did not respond to requests for comment from Unearthed, and Mitsubishi refused to tell Unearthed what it plans to do with its leftover free allocation, claiming commercial confidentiality.

The PA news agency has contacted both for comment.