Environmental audit committee floor would mean the EU Emissions Trading Scheme costing consumers nearly £17 billion a year

February 08, 2010 5:26 PM

The Guardian reports that the Environmental Audit Committee think the carbon price in the EU Emissions Trading Scheme (ETS) is too low.  The price is currently around €13 /t CO2.  They want there to be a flaw under the price; at a massive €100 /t CO2.  Earlier this year, we released the first comprehensive estimates of the cost of the scheme and talked about why it would continue to be an inefficient means of reducing emissions due to inherent flaws in 'cap and trade' policies.


We noted in that research that calls were coming to put a floor under the price.  Calls for a floor show what a failure the scheme has been.  Some traders will have made a killing in the volatile market, energy companies have made big windfall profits and huge amounts have been wasted at businesses and public sector organisations that need to comply with the scheme; and it hasn't even produced a stable carbon price to encourage investments in reducing emissions.  A floor would mean keeping all the expensive apparatus involved in maintaining the ETS but then ignore that market and set the price by political diktat.

Such an incredibly high floor would mean the scheme becoming a lot more expensive.  Of course, we can't know what the cost will be as we can't know what price the scheme is likely to produce without a floor.  But, we can look at how much more expensive the ETS would have been in the past if there had been such a floor in place.  That will give us an idea of just how expensive it would be.  This table shows that the cost to consumers could have been nearly £14 billion higher than it actually was, that's in the region of 1% of GDP:

ETSEAC

The calculations are explained in the research paper linked above.  That massive tax hike would hit poor and elderly households and manufacturing industries hardest.  It would be wildly excessive and should be rejected.  The scheme should be instead be scrapped.

We don't say this often, but Friends of the Earth's response to the low carbon price in the ETS is much more sensible than the select committee's, though we don't agree that more draconian regulation is the answer (our proposed reforms to climate change policy are set out in this report):

"Friends of the Earth said the environmental audit committee report was "another nail in the coffin" of the ETS and argued the government should drop its reliance on the scheme in favour of energy efficiency measures and stronger regulation.

Sarah-Jayne Clifton, a climate campaigner at Friends of the Earth, said: "Not only is trading failing to drive down emissions, banks are growing fat developing ever more complex trading systems and this risks another financial crash."

The Guardian reports that the Environmental Audit Committee think the carbon price in the EU Emissions Trading Scheme (ETS) is too low.  The price is currently around €13 /t CO2.  They want there to be a flaw under the price; at a massive €100 /t CO2.  Earlier this year, we released the first comprehensive estimates of the cost of the scheme and talked about why it would continue to be an inefficient means of reducing emissions due to inherent flaws in 'cap and trade' policies.


We noted in that research that calls were coming to put a floor under the price.  Calls for a floor show what a failure the scheme has been.  Some traders will have made a killing in the volatile market, energy companies have made big windfall profits and huge amounts have been wasted at businesses and public sector organisations that need to comply with the scheme; and it hasn't even produced a stable carbon price to encourage investments in reducing emissions.  A floor would mean keeping all the expensive apparatus involved in maintaining the ETS but then ignore that market and set the price by political diktat.

Such an incredibly high floor would mean the scheme becoming a lot more expensive.  Of course, we can't know what the cost will be as we can't know what price the scheme is likely to produce without a floor.  But, we can look at how much more expensive the ETS would have been in the past if there had been such a floor in place.  That will give us an idea of just how expensive it would be.  This table shows that the cost to consumers could have been nearly £14 billion higher than it actually was, that's in the region of 1% of GDP:

ETSEAC

The calculations are explained in the research paper linked above.  That massive tax hike would hit poor and elderly households and manufacturing industries hardest.  It would be wildly excessive and should be rejected.  The scheme should be instead be scrapped.

We don't say this often, but Friends of the Earth's response to the low carbon price in the ETS is much more sensible than the select committee's, though we don't agree that more draconian regulation is the answer (our proposed reforms to climate change policy are set out in this report):

"Friends of the Earth said the environmental audit committee report was "another nail in the coffin" of the ETS and argued the government should drop its reliance on the scheme in favour of energy efficiency measures and stronger regulation.

Sarah-Jayne Clifton, a climate campaigner at Friends of the Earth, said: "Not only is trading failing to drive down emissions, banks are growing fat developing ever more complex trading systems and this risks another financial crash."

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