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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New Digital Editor: Serena Kutchinsky

The New Statesman appoints Serena Kutchinsky as Digital Editor.

Serena Kutchinsky is to join the New Statesman as digital editor in September. She will lead the expansion of the New Statesman across a variety of digital platforms.

Serena has over a decade of experience working in digital media and is currently the digital editor of Newsweek Europe. Since she joined the title, traffic to the website has increased by almost 250 per cent. Previously, Serena was the digital editor of Prospect magazine and also the assistant digital editor of the Sunday Times - part of the team which launched the Sunday Times website and tablet editions.

Jason Cowley, New Statesman editor, said: “Serena joins us at a great time for the New Statesman, and, building on the excellent work of recent years, she has just the skills and experience we need to help lead the next stage of our expansion as a print-digital hybrid.”

Serena Kutchinsky said: “I am delighted to be joining the New Statesman team and to have the opportunity to drive forward its digital strategy. The website is already established as the home of free-thinking journalism online in the UK and I look forward to leading our expansion and growing the global readership of this historic title.

In June, the New Statesman website recorded record traffic figures when more than four million unique users read more than 27 million pages. The circulation of the weekly magazine is growing steadily and now stands at 33,400, the highest it has been since the early 1980s.