EU carbon permit scheme gets a sticking-plaster fix

Permits to be backloaded, constraining supply.

The EU has finally got around to slapping a sticking-plaster on the woefully unfit-for-purpose carbon trading market. The European parliament has voted in favour of a plan to allow "backloading" of carbon permits — delaying the scheduled releases of permits by a couple of years — in order to deal with the record low prices those permits have reached (around €5 per tonne of CO2).

Alphaville's Kate Mackenzie writes:

The price collapse is down to a few things: slower economic growth, changes to the energy mix — and arguably, some imperfect policymaking to begin with.

The carbon permit scheme had always been disliked by many left-wing environmentalists for allocating initial permits based on emissions — and then increasing those allocations for the first few years of the scheme, albeit at a decreasing rate. The idea was to put a cap on the amount of emissions growth major companies could get away with, but as the economic slow-down and changing technology started to hit, those major companies found that they had far more permits than they needed.

The permit scheme eventually turned into a mild handout to the biggest companies, with the size of that handout vaguely dependent on how much they had cut their emissions.

If the backloading amendment works, it should constrict the supply of permits, and actually encourage those companies to cut their emissions again. If the scheme works well, the scarcity of permits should mean that there is a real financial cost to emitting excess CO2.

But the backloading will only help in the short run. The state of affairs is such that the EU still has to release those permits at some point. The Wall Street Journal yesterday looked at possibilities to move beyond the temporary fix, including:

Canceling CO2 permits, including other industries in the market to increase demand, or even a mechanism to directly manage the prices, which experts say could resemble the way central banks manage currencies.

The problem is that any plan which actually leads to a constraint on carbon usage is unlikely to be particularly popular with the businesses affected by it. The EU is basically in the same position it was when it tried to start the carbon permit scheme, except that now, industry can plead that it is already part of a carbon trading scheme.

Current legislation will expire in 2020, and from there, the EU can set about building an emissions reduction scheme which is fit-for-purpose. Until then, there'll be many more sticking plasters to come.

Photograph: Getty Images

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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Is anyone prepared to solve the NHS funding crisis?

As long as the political taboo on raising taxes endures, the service will be in financial peril. 

It has long been clear that the NHS is in financial ill-health. But today's figures, conveniently delayed until after the Conservative conference, are still stunningly bad. The service ran a deficit of £930m between April and June (greater than the £820m recorded for the whole of the 2014/15 financial year) and is on course for a shortfall of at least £2bn this year - its worst position for a generation. 

Though often described as having been shielded from austerity, owing to its ring-fenced budget, the NHS is enduring the toughest spending settlement in its history. Since 1950, health spending has grown at an average annual rate of 4 per cent, but over the last parliament it rose by just 0.5 per cent. An ageing population, rising treatment costs and the social care crisis all mean that the NHS has to run merely to stand still. The Tories have pledged to provide £10bn more for the service but this still leaves £20bn of efficiency savings required. 

Speculation is now turning to whether George Osborne will provide an emergency injection of funds in the Autumn Statement on 25 November. But the long-term question is whether anyone is prepared to offer a sustainable solution to the crisis. Health experts argue that only a rise in general taxation (income tax, VAT, national insurance), patient charges or a hypothecated "health tax" will secure the future of a universal, high-quality service. But the political taboo against increasing taxes on all but the richest means no politician has ventured into this territory. Shadow health secretary Heidi Alexander has today called for the government to "find money urgently to get through the coming winter months". But the bigger question is whether, under Jeremy Corbyn, Labour is prepared to go beyond sticking-plaster solutions. 

George Eaton is political editor of the New Statesman.