13 March 2008

Unspinning Darling’s climate claims

Alistair Darling claims that auctioning EU pollution permits will encourage investment in renewable energy. But the Treasury backs the opposite view in Europe, while continuing to push nuclear power.

It’s becoming an iron law of budgets that the initial spin gives way to a far less attractive reality. The first Budget since Brown was supposed to have a green streak running right through it. But several of Alistair Darling’s environmental claims fail to stack up.

Carrier bags grabbed the headlines – and there are, indeed, may good reasons to charge for their use or, better still, ban them altogether. But to mention these in the context of climate change strategies looks suspiciously like ‘greenwash’. As the environmentalist George Marshall points out, ‘An average plastic bag produces 31 grammes of Carbon Dioxide, about the same as comes from driving my car 90 metres. That doesn’t get me very far towards the supermarket. If I was in a jetplane it wouldn’t get me to the end of my garden.’

A more serious, though less headline-grabbing, flaw lies in Alistair Darling's claim that the European Emissions Trading Scheme (ETS) can be used to 'encourage investment in low-carbon technology and in energy renewables', aided by the auctioning of allowances for energy generators. This is misleading for several reasons.

Darling claimed that ‘we have helped build the Emissions Trading Scheme to curb the amount of carbon produced by generators and large industrial users.’ What he failed to add is that it didn’t work. In its first phase, the ETS awarded windfall profits to these large-scale polluters, but there is no evidence that carbon trading actually reduced any emissions. In fact, the corporate lobbying around the scheme was so fierce that, in 90 per cent of cases, the ‘caps’ on emissions failed to cap anything, proving far less effective than conventional regulation.

He also claimed that 100 per cent of the permits awarded to energy generators should be auctioned. This reflects the European Commission’s position, but distorts the bigger picture. In other sectors, the EU has proposed that many of these permits to pollute need not be auctioned until 2020, and it provides a huge get-out clause that would potentially allow all of them to be given away free even then.

The idea that this scheme would generate investment in low-carbon technology and renewables is also highly questionable. Indeed, the European Commission has suggested that only 20 per cent of these auction revenues need be directed towards alternative energy investment. An Ecofin meeting of European finance ministers on 12 February (at which Angela Eagle represented the Treasury) balked at even this modest proposal, rejecting any EU-wide target for 'mandatory earmarking' whatsoever.

Where Darling is more accurate is in his assessment that such measures will encourage investment in nuclear energy. In fact, as the World Information Service on Energy (WISE) has shown, the government’s promise of unilateral action to underpin the price of carbon can best be read in relation to its nuclear policy – providing a means to provide indirect subsidies to this industry in a situation where direct subsidies look politically unacceptable.

The larger point is this. If the incentives to act on climate change are focused mainly on price, what happens is that the richest actors in the market are allowed to buy their way out of responsibility, while perverse incentives are created for the nuclear industry or the dirtiest forms of oil exploration (as BP’s recently stated intention to extract oil from Canadian ‘tar sands’ has shown).

Such proposals are far from green.

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