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Emissions trading – would you like fries with your carbon?

 

Recently, the fight against climate change suffered a serious blow as MEPs in the European Parliament narrowly voted against a plan to shore up the EU’s struggling emissions trading scheme (ETS). The proposals – known as ‘backloading’ – would have pushed up the price of carbon, which had sunk to record lows.

EU Flags.EU Flags © European Union 2013 – European Parliament

In fact, ahead of the vote, the price for a tonne of carbon was less than the price of a hamburger. As the aim of the ETS is to put a realistic price on carbon pollution, to drive investment away from carbon-intensive processes and towards cleaner ones, such a low price is a major problem, undermining the effectiveness of the entire scheme.

Crucially from a UK perspective, the votes of Conservative MEPs were instrumental in defeating the measures. Despite the fact that the UK coalition government and Conservative ministers supported backloading, many Conservative MEPs rebelled and voted against the plans.

As a result, UK businesses now face paying amongst the highest prices for carbon in the EU. This follows the coming into force this April of the UK’s carbon floor price, introduced by George Osborne, the Chancellor, which increases the price of carbon for UK businesses if ETS prices drop too low – a situation which backloading was seeking to start rectifying.

In other words, a Conservative rebellion in the European Parliament against measures that would have helped increase the price of carbon across the EU has resulted in some UK energy intensive businesses facing a potential competitive disadvantage compared to their European counterparts.

“Catastrophic”

The backlash was swift, with the Financial Times reporting just a couple of days after the vote claims by UK business groups that they faced “catastrophic” problems in the wake of the vote, as the combination of the no vote and the carbon floor price left UK energy intensive businesses facing the prospect of competing on an uneven playing field with their European competitors.

Difficult as it is to believe that Conservatives have managed to deal a double blow to both their claims to be a party of business and the greenest Government ever, they seem to have managed it. It is, however, perhaps not that difficult to believe if it’s seen in the context of the government’s other green policies and rhetoric.

Take the green investment bank; a great idea in principle, the GIB will not be able to borrow on capital markets until the UK’s national debt is coming down, meaning that it is undercapitalised (that is, it doesn’t have enough money to lend) – and undercapitalised banks cannot properly offer loans, rather obviously reducing their effectiveness as banks.

Or the Green Deal, the Government’s domestic energy efficiency programme. Launched to great fanfare, the Green Deal could have revitalised the building trade and cut peoples energy bills along with carbon emissions from their homes, but for a determination by ministers to tinker with it, pushing costs up and incentives to take it up, down.

Or take the government’s support for renewable energy; in the face of George Osborne’s persistent opposition to support for renewables, business confidence in investing in the sector has declined, discouraged by persistent governmental infighting over the issue and the appointment of an energy minister, John Hayes, who was actively hostile to wind farms.

Although Hayes has now been moved, there is a cumulative effect of hostility to green measures from Conservative MPs, a Chancellor who insists that “we’re not going to save the planet by putting our country out of business”, attacks on environmental regulation, the lack of support for green measures – the list goes on – which is that a perception builds of, at best, little joined-up thinking on green issues in the government; at worst, deliberate opposition.

Just not cricket

The maddening and deeply confusing thing for environmental groups, and a significant cross-section of both green and mainstream businesses, is that the contradictory polices, rhetoric and actions do not make sense either from the perspective of addressing serious environmental problems or supporting businesses.

'Put the right price on pollution' banner at the EU Parliament.‘Put the right price on pollution’ banner at the EU Parliament. © Greens / EFA

To suggest, as the Chancellor did above, that there is an either/or choice between saving the planet or economic recovery is simply not the case –in fact, the opposite is true, as the ‘green economy’ in the UK is one of the largest and fastest growing sectors of our economy.

So to the ETS vote; for the Government to support its reform, only for businesses to then see Conservative MEPs to vote down the proposals is like, to paraphrase Lord Howe’s famous resignation speech from Margaret Thatcher’s government, rather like sending your opening batsmen to the crease only for them to find, the moment the first balls are bowled, that their bats have been broken before the game by the team captain.

In others words, maddening, confusing and very, very frustrating. But where does the ETS go from here? EU climate commissioner, Connie Hedegaard, has pledged to fight on to save the ETS, but many have expressed doubts as to whether European member states will be able to agree on reform within the near future.

This means that there is likely to be a renewed interest in domestic climate policies, potentially resulting in a tangled spaghetti soup of rules for businesses operating across different EU member states to deal with – so the long-term consequences for the no vote could be to make life more difficult for companies across Europe.

And the impact on climate change? Well, despite some encouraging initial progress on the deployment of renewable energy technologies, European action to prevent dangerous climate change will remain woefully inadequate until Europe puts a meaningful price on carbon.

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