Is Carbon Trading Doomed in Europe?
“If carbon trading can’t make it in Europe, it can’t make it anywhere,” was the pronouncement in Time magazine, following news that the EU Parliament had voted to reject the carbon allowance back-loading plan put forward to help stabilise its Emissions Trading Scheme.
You may recall that I wrote last month how plans to inject more confidence into the scheme, by temporarily withholding some of the huge surplus of allowances in circulation to boost the value of those left, had received support. And while I was expecting a close vote, I was genuinely surprised to see the back-loading measure rejected, and especially by many UK MEPS who voted ‘contre’ rather than ‘pour’, as they say in Brussels.
As you might expect, news of the decision sent the European price of carbon crashing by almost half, trading at less than €3 per tonne after the vote. It’s a long fall from the €25 that carbon was being traded at when the scheme launched back in 2005. And many are predicting it will never recover, which could mean the ETS’s days are numbered unless the EU Commission can sort out a long-term reform package that members will vote for. This further underlines the need for the Commission to sort out its Climate and Energy package for 2030 to deliver investors and industry some long-term clarity about where Europe is going.
So where does that leave us now? It certainly makes the UK’s introduction this month of a unilateral Carbon Price Floor look even more unfair. While our European counterparts are currently paying just less than €3 per tonne for carbon, British businesses are forking out an additional £4.95 this year, rising to £9.55 next and then as much as £18 in 2015.
Britain might be open for business, as George Osborne declared in his March Budget. But if you are considering your options when deciding where to base your company, I imagine the additional climate costs could act as a strong disincentive to locating to the UK.
As well as being damaging for the UK economy, the Carbon Price Floor could also prove ineffective in its aim of reducing global greenhouse gas emissions, because of the risk of carbon leakage – ie companies moving energy intensive operations abroad rather than cutting emissions.
As I’ve said before, what we need is a consistent approach to climate change policy across Europe in order to ensure that it is both effective and fair for business. But I’m not holding my breath that this is coming any time soon…