Saturday, June 16, 2007


Taxpaying consumer done to a crisp

How much are we taxpaying consumers shelling out on the EU's Emissions Trading Scheme?

As you will know, ETS is the world's largest carbon trading system, born out of Kyoto and launched amid much fanfare in 2005. The idea was that the Commissars would set targets for reducing emissions, and then require major polluters to obtain permits for every cloud of noxious gas they wished to produce. The total number of permits was to be strictly limited by the Commissars, but permits would be traded between polluters so that the market would allocate the pain of adjustment to those most prepared to bear it.

Sounds good in the texbooks, but in the hands of the commissars it's been a fiasco.

First, they allocated far too many permits to have any significant effect on emissions. Surplus permits meant their market price fell so low even the heaviest polluter could pick up all he needed for a few packs of fags.

Well, OK, if you're an eco sceptic you might see that as a plus- unlike most of the Commissars' half-baked schemes, at least it didn't inflict any damage on the real economy.

Unfortunately, it's not quite as simple as that. Because while that may be true in overall terms, ETS has most definitely created winners and losers. And my taxpaying consumer friends, the losers are us.

To start with, the big energy companies have taken the opportunity to ramp up prices charged to consumers. According to the DTI, they are currently getting about £800m pa from this, and it's made them £2bn since the scheme started.

Now, if they'd had to buy the permits and were simply recouping the cost, that might be forgivable. But they didn't have to buy them- they were all allocated free and gratis by the Commissars.

So we're paying extra for our energy, but only to boost the profits of energy companies.

And for us, the pain doesn't stop there. Because our clownish government was so enthused about the ETS that they volunteered to include a whole raft of public sector institutions, including hospitals and prisons, in the programme. But unlike the energy companies, they got no free allocations of permits. The result is that whenever they want to run their heating boilers, they have to buy permits on the market.

In the first year or so of ETS we know that cost NHS hospitals £6m. Of our money. Plus whatever all the prisons etc had to pay.

Overall, we estimate it's currently costing us around £1bn pa, and according to one of those fabled "industry insiders", it's set to grow. The view is that the energy companies alone will be getting a "windfall" of £1.5bn pa in the second phase of the ETS which will run from 2008 t0 2012.

And remember- the wretched thing isn't even delivering the reduction in greenhouse gases the Commissars wanted. Quite apart from the ineffectual way the permits were dished out, there's the whole issue of so-called carbon offsets. Under that part of the deal, polluters in the EU are allowed to offset their emissions by buying credits from elsewhere in the world for projects which are supposedly cutting someone else's emissions. The classic is a Chinese or Indian steel mill or power station which cleans itself up a little bit and sells the credit for doing so.

But as is highlighted in this post at The Difference, most of these offset schemes are a total scam. Indeed, they can increase global pollution, as the funds from selling offset credits are reportedly used by many third world polluters to invest back into yet more polluting steel mills etc.

The economics of the madhouse.

(For more on the crazy world of carbon offsets see this Grauniad article)


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