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.

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I believe only Yvette Cooper has the breadth of support to beat Jeremy Corbyn

All the recent polling suggests Andy Burnham is losing more votes than anyone else to Jeremy Corbyn, says Diana Johnson MP.

Tom Blenkinsop MP on the New Statesman website today says he is giving his second preference to Andy Burnham as he thinks that Andy has the best chance of beating Jeremy.

This is on the basis that if Yvette goes out first all her second preferences will swing behind Andy, whereas if Andy goes out first then his second preferences, due to the broad alliance he has created behind his campaign, will all or largely switch to the other male candidate, Jeremy.

Let's take a deep breath and try and think through what will be the effect of preferential voting in the Labour leadership.

First of all, it is very difficult to know how second preferences will switch. From my telephone canvassing there is some rather interesting voting going on, but I don't accept that Tom’s analysis is correct. I have certainly picked up growing support for Yvette in recent weeks.

In fact you can argue the reverse of Tom’s analysis is true – Andy has moved further away from the centre and, as a result, his pitch to those like Tom who are supporting Liz first is now narrower. As a result, Yvette is more likely to pick up those second preferences.

Stats from the Yvette For Labour team show Yvette picking up the majority of second preferences from all candidates – from the Progress wing supporting Liz to the softer left fans of Jeremy – and Andy's supporters too. Their figures show many undecideds opting for Yvette as their first preference, as well as others choosing to switch their first preference to Yvette from one of the other candidates. It's for this reason I still believe only Yvette has the breadth of support to beat Jeremy and then to go on to win in 2020.

It's interesting that Andy has not been willing to make it clear that second preferences should go to Yvette or Liz. Yvette has been very clear that she would encourage second preferences to be for Andy or Liz.

Having watched Andy on Sky's Murnaghan show this morning, he categorically states that Labour will not get beyond first base with the electorate at a general election if we are not economically credible and that fundamentally Jeremy's economic plans do not add up. So, I am unsure why Andy is so unwilling to be clear on second preferences.

All the recent polling suggests Andy is losing more votes than anyone else to Jeremy. He trails fourth in London – where a huge proportion of our electorate is based.

So I would urge Tom to reflect more widely on who is best placed to provide the strongest opposition to the Tories, appeal to the widest group of voters and reach out to the communities we need to win back. I believe that this has to be Yvette.

The Newsnight focus group a few days ago showed that Yvette is best placed to win back those former Labour voters we will need in 2020.

Labour will pay a massive price if we ignore this.

Diana Johnson is the Labour MP for Hull North.