EU cap-and-trade system left to die by EU parliament

The ETS is dead, long live climate change.

The European Union has voted not to limit the supply of carbon permits, in a move that's widely thought to have dealt "a near-mortal blow" to the EU's Emissions Trading Scheme, according to Alphaville's Kate Mackenzie.

The ETS is supposed to limit the amount of greenhouse gases pumped into the atmosphere, by requiring permits to pollute. The idea was that companies who needed to release greenhouse gases would have to buy the right to do so from companies which had managed to cut their emissions, and a market-based solution to climate change would be found.

Unfortunately, the way the permits were allocated was to give them to companies based on their emissions in year zero, and then only increase the quantity by a little bit each year, limiting growth in emissions. Unfortunately, the global financial crisis came along and did that for us: output fell, and with it, so did emissions. But the number of permits available kept increasing, and now the EU faces a situation where they are basically worthless.

The initial sticking-plaster solution was to "backload" the permits, delaying the scheduled releases by a few years, in order to bring supply back down to a level where it would start constraining carbon emissions again. But on Wednesday evening, the EU parliament voted against the backloading, sending prices tumbling:

Iza Kaminska draws parallels with the Bitcoin crash:

All in all this is yet another valuable lesson in what happens when you make asset classes out of nothing. Unlike with Bitcoin, the cyber-spawned crypto-currency based on nothing but black market interests, the lesson here is not the fact that there is no authoritative mandate, mutual interest or even value — but rather that there is no central authority on standby to flexibly adjust and regulate supply.

But looking at the ETS in terms of its efficiency as a market is somewhat missing the point. The aim, after all, isn't to provide a stable investment vehicle or create an asset class for the sake of it – it's to reduce carbon emissions. The problem is that political constraints were never going to allow the EU to make a carbon market which would actually have a chance of doing that.

The IEA reports that a carbon price of €50 a tonne – ten times the price of an ETS permit at its peak yesterday – is needed just to encourage a switch in the short term from coal to gas generation. The price – and stability of price – required to encourage investment in completely carbon-free generation is likely to be higher still (although renewables advocates disagree). In that context, whether the ETS permits are trading at €3 or €5 is almost irrelevant. Neither price will have anywhere near the required effect.

In that context, maybe the damage done to the ETS is a good thing. Now that it's fairly conclusively demonstrated to be doing nothing to cap emissions, the EU could start getting moving on a genuine market based solution to climate change – a carbon tax, or a cap-and-trade program which actually pays attention to the "cap" part. Either way, it's going to be a while yet.

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Getty
Show Hide image

Labour trying to outdo Ukip on border control is the sure path to defeat

Only Diane Abbott has come out fighting for free movement. 

There is no point trying to deny it. Paul Nuttall’s election as Ukip leader is dangerous for Labour. Yes, Nuttall may not be a credible voice for working-class people – he ran as a Tory councillor in 2002 and has said that “the very existence of the NHS stifles competition”. Yes, he may be leader of a party which has (for now) haemorrhaged donors and supporters. But what Nuttall’s election represents is the coming of age for a form of right-wing populism which is pointed directly at Labour’s base. Along with the likes of Ukip's major donor Arron Banks, Nuttall will open up a second front against Labour – focused on blaming migrants for falling wages and crumbling services.

In the face of this danger, and the burning need to create a narrative of its own about the neglect of the communities it represents, Labour’s main response has been confusion. Barely a week has gone by without a major Labour figure repeating the touchstone myths on which Ukip has built its working class roots. Speaking on the Andrew Marr Show, Emily Thornberry openly backed the idea that migration has dragged down wages. “Do I think that at the moment too many people come into this country? Yes I do”, she said.

Another response has been to look for policies that transcend the debate altogether, while giving a nod to the perceived “concerns” that voters harbour about immigration. When Clive Lewis spoke to the Guardian some weeks ago, he also repeated the idea that free movement “hasn’t worked for many of the people in this country, where they’ve been undercut” and coupled this with compulsory trade union membership for those coming to Britain to work – a closed shop for migrant workers.

It is unsurprising that MPs on the right of the party – many of whom had much to say about the benefits of migration during the EU referendum – have retreated into support for immigration controls. This kind of triangulation and retreat – the opposite of the insurgent leftwing populism that Labour needs to win elections – is the hallmark of Labour’s establishment politics. Those who want to stand and fight on the issue should be concerned that, for now, only Diane Abbott has come out fighting for continued free movement.

At the moment, Labour is chasing the narrative on immigration – and that has to stop. The process that is shifting the debate on migration is Brexit, the British franchise of a global nationalist resurgence that is sweeping the far right to power across the western world. Attempt to negotiate a compromise on migration in the face of that wave, or try to claim it as an “opportunity”, and there is simply no limit to how far Labour will be pushed. What is needed is an ideological counter-attack, which tells a different story about why living standards have deteriorated and offers real solutions.

The reason why wages have stagnated and in recent decades is not immigration. Among the very few studies which find that migration has caused a fall in wages, most conclude that the fall is marginal. The Bank of England’s study, cited by Boris Johnson in the heat of the EU referendum campaign, put the average figure at 0.3 per cent for every ten percentage point rise in migrants in a given sector of work. That rises to 1.8 per cent in some areas.

Median earnings fell by 10.4 per cent between 2007 and 2015, and by 2021 are forecast to be lower in real terms than they were in 2008. For many communities, that fall in wages comes on top of the destruction of industry; the defeat of the trade union movement; the fire sale of Britain’s social housing stock; and years of gruelling Tory austerity. Nuttall’s Ukip will argue that economic and social insecurity are the result of uncontrolled immigration. To give an inch to that claim is to abandon reality.

Labour cannot win against Ukip by playing around with new and innovative border controls – it has to put forward a vision for a radically different kind of society. Under Jeremy Corbyn, Labour is closer than it ever has been to the kind of radical social and economic platform that it will need to regain power - £500bn of investment, building a million new homes a year, raising minimum wage and reinstating proper collective bargaining and trade union rights. What it needs now is clarity – a message about who to blame and what to do, which can cut through the dust kicked up by the Brexit vote.