I have written several times about the EU’s Emissions Trading Scheme, which I have described as “A dog’s breakfast“. They’re now trying yet again to “reform” it, so as to set the prices of CO2 emissions permits at the level they first thought of. I’ve had a number of communications from concerned citizens asking us to help to achieve the desired price. As frequently happens in these cases, I have drafted a standard reply which will be used by colleagues to respond to similar requests. I thought it was of sufficient interest to justify publishing.
Thank you for writing to us about proposed changes to the EU’s ETS system for emissions control. We appreciate your interest, but we take a rather different view of the matter.
First of all, there is still a lively debate about whether atmospheric CO2 has a material effect on climate, and estimates of “climate sensitivity” range from less than 1oC per doubling of CO2 to 3o+. Indeed some atmospheric physicists believe that negative feedbacks in the climate system may outweigh positive feedbacks, so the sensitivity could theoretically be negative.
Secondly, even if atmospheric CO2 is a factor, it is by no means clear that man-made emissions (generally estimated at around 3% of the total carbon cycle) have a major effect. It is entirely possible that the observed increases in atmospheric CO2 over recent decades could be the result of naturally-occurring cyclical changes in mean global temperatures, with the temperature driving the CO2 (out-gassing from the oceans) rather than vice versa.
Thirdly, in assessing the impact of man-made emissions, no account is generally taken of the benefits of higher CO2 levels. Atmospheric CO2 drives plant growth, bio-mass formation and crop yields, helping to feed a hungry world. Atmospheric CO2 is, quite literally, greening the planet.
Fourthly, it is open to question whether, even if we wish to reduce CO2 emissions, the ETS is an appropriate system. As you point out, its impact so far has been derisory, and repeated interventions designed to “reform” it appear to have failed. It was promoted as “a market mechanism”. There have been repeated adjustments – and you are now requesting a further adjustment — with the explicit objective of achieving a pre-conceived price level. But a “market mechanism” that requires repeated regulatory interventions to achieve some pre-conceived price is not, in fact, a market mechanism at all. It is simply a complex and cumbersome method of imposing what amounts to a carbon tax. It would be much better in economic terms, much cheaper and simpler, to cut to the chase and apply a straightforward carbon tax (if you want to disincentivise CO2 emissions, which, as noted above, may not be desirable in the first place).
Fifth point: the observed effect of the ETS (with other instruments designed to disincentivise emissions and increase energy costs) is to have a devastating effect on energy prices (and therefore on industrial competitiveness) in the EU. Across a range of energy-intensive businesses – steel, aluminium, chemicals, petroleum refining, glass, cement, paper — we are forcing plant closures, and driving jobs and investment out of the EU altogether. While politicians talk of rebuilding manufacturing industry to 20% of EU GDP, we adopt energy policies that have the reverse effect. As former Industry Commissioner Antonio Tajani put it, “We are creating an Industrial Massacre in Europe”. Hundreds of thousands of jobs are being lost across the continent.
Sixth: recognising the problem of energy intensive industries, we have created exemptions for them designed to prevent “carbon leakage” (which is an EU euphemism for driving jobs and production off-shore). These measures are proving insufficient to prevent off-shoring of energy-intensive production. But they do have the effect of shifting the burden of the ETS primarily onto small and medium enterprises – SMEs – the very businesses we’re told are essential to growth and employment. This is a perverse consequence.
Finally, the bitterest irony of all. These energy-intensive businesses often go to jurisdictions with lower environmental standards, and therefore result in higher emissions of CO2 than would be the case if production had remained in the EU. Anecdotal evidence from the steel industry suggests that a ton of steel made in Shanghai produces double the CO2 that would be produced for the same ton of steel in Sheffield. A formal study commissioned from Vivid Economics and published by the British government’s DECC (Department of Energy & Climate Change) stated that imported refined petroleum products imply a 35% higher level of emissions than the same products refined in the EU.
So in conclusion, the EU’s emissions policies, including the ETS, are not only undermining our economies but arguably are actually increasing global emissions. They are totally counter-productive. For this reason, UKIP will oppose measures designed to raise energy prices, and given the opportunity will seek the repeal of the ETS system.