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Half-baked and irrelevant

The EU's much heralded Emissions Trading Scheme will do nothing to tackle the problem of climate change.

December 1, 2004
4 min read

New Year’s Day sees the launch of the EU’s Emissions Trading Scheme (ETS), the European Community’s mechanism to reduce carbon dioxide emissions to Kyoto Protocol targets. Although the scheme covers industrial emissions rather than those from domestic use or transport, it is important for two main reasons: it demonstrates inter-governmental thinking on tackling climate change, and it’s used as an excuse for inaction over emissions in other areas. When environment secretary Margaret Beckett’s response to any questions over transport emissions (aviation emissions in particular) is ‘the ETS could sort it out’, then this mechanism has to be worth checking out.

The ETS covers heavy energy-using industries: electricity generators; oil refineries; iron, steel and minerals industries; and paper, pulp and board manufacturers. Companies are given quotas for carbon dioxide emissions; these are divvied up in accordance with National Allocation Plans submitted to the EU by the member states. The UK government has got into a slight pickle over just how many allowances it can get away with, but more on that later.

As of January, when they’re getting down and dirty with their manufacturing each company in the scheme will have to decide just how dirty they want to be, or what level of carbon dioxide they want to emit. For though each will be given a limit for emissions, the potential to trade means that this cap is not the end of the story.

Companies that emit more than their allocation will be able to buy allowances from other companies that made emission cuts. Some may decide it is cheaper to pay the fine for exceeding their allocations, rather than spending on energy efficiency or on buying allowances from elsewhere. The market will make everything work out and emissions in the European Community overall will reduce. Or so the theory goes.

Some critics of the ETS claim that a problem based in a capitalist market (too much pollution from unwise use of resources) cannot be solved by a dose from the same economic system. Principles aside, the thinking behind the set-up of this market is still half-baked.

The National Allocation Plans are collectively meant to limit the amount of carbon dioxide that gets emitted. Theoretically this leads to scarcity in the commodity, giving it a value that has to be factored into business costs, and encouraging companies to look at energy efficiency or ways to cut emissions overall. However, a proposal to include the Kyoto Protocol’s ‘flexible mechanisms’ in the scheme would leave the ETS covering an unspecified amount of emissions, bringing scarcity in the market commodity into question. Also, the industries involved in the ETS are not traditional innovators of new technologies (a role more likely to be found in small and medium-sized businesses). They are less likely to see the scheme as an opportunity for investment in more environmentally sensitive technologies and more likely to moan about a perceived inability to compete.

Small and medium businesses will likely not rush to get involved in the scheme as they are likely to lose out in the allocation of emissions allowances. Governments are likely to allocate the greatest number of allowances to larger industries, the industries that currently pollute the most.

In October the UK asked for a revision of its National Allocation Plan. According to the pressure group the Climate Action Network, the increase asked for was equivalent to an amount saved when seven other EU countries cut their own draft plans. Beckett is rapidly losing credibility as her department caves into the Department of Trade and Industry: Friends of the Earth has suggested the UK is now on track for a 14-15 per cent cut in emissions by 2010, rather than the 20 per cent that the Department of Environment Food and Rural Affairs says it wants achieved. And whatever Beckett’s hopes on aviation emissions, the earliest that these could be included in the ETS is 2008. In the meantime, a continuing rise in transport emissions makes a mockery of the UK’s concern over climate change.

There are economic tools (taxation being one) that could play a role in tackling climate change. The EU’s Emissions Trading Scheme, however, is not one of them.

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