Brexit is an opportunity to improve on the EU’s failed Emissions Trading System – but the Tories aren’t taking it

Brexit or not, the UK needs a far more ambitious approach to climate change.

When the dust settles on Brexit it is likely that the British government will need a new approach to climate change.

That’s an opportunity to improve upon the EU Emissions Trading System (EU ETS), the centrepiece of European climate policy.

Emissions trading is the main policy targeting greenhouse gas emissions at around 1,000 sites across the UK, including power stations and all major industries, as well as CO2 from planes flying elsewhere in Europe.

But the EU ETS has consistently failed. The EU is reducing its greenhouse gas emissions far too slowly, and cuts have come despite the ETS rather than because of it.

The ETS has even rewarded polluting corporations with billions in unearned subsidies at the expense of ordinary citizens. Big business has profited by passing on the cost of “pollution permits” to consumers, even though many of those permits are received for free.

Windfall profits have also been made from sales of surplus permits, with Tata Steel alone estimated to have made over £700 million this way over a seven year period.

The ETS has established itself as a paradise for corporate lobbyists, who work to introduce loopholes and technical tweaks to save companies money and allow them to avoid making substantial changes to clean up their core business. Exiting the ETS is no bad thing.

Yet the rhetoric of “taking back control” does not appear to extend to climate policy.

Theresa May’s zombie Brexit plan would see the UK continue in the ETS until 2020, after which the Tories have announced that they then intend to develop a UK carbon market that would be directly linked to the EU’s scheme.

The Tory plan closely echoes proposals from the International Emissions Trading Association, the main corporate lobby group promoting carbon trading.

A UK carbon market that would ultimately be linked to the EU ETS is potentially the worst of both worlds.

Linking carbon markets together risks introducing new loopholes for polluters to profit or avoid emissions reductions.

At the same time, linking carbon markets substantially reduces the chances for the UK to take a fresh approach to climate policy.

Leaving the ETS is not the difficult part. In the event of a no deal Brexit, the UK would initially impose an additional £16 per tonne carbon tax on big polluters like power stations, on top of an existing £18 per tonne tax (called the “carbon price support”). That’s an improvement on the Tory plan for a new UK carbon market so, if Brexit happens in any form, Labour should support permanently replacing the ETS with a carbon tax.

Carbon taxes have various advantages over carbon trading but they are no panacea, as the fuel tax backlash that triggered France’s gillets jaunes protests dramatically illustrated.

If the UK were to continue with a carbon tax the additional revenue should be targeted towards climate measures while ensuring that they also reduce inequalities.

Carbon tax proposals in the US, such as a Washington State initiative narrowly defeated in a 2018 ballot, show how this could be done by distributing revenues to green infrastructure as well as targeting funding towards low-income communities and support for fossil fuel workers needing to transition to new jobs.

A climate policy adequate to the scale of climate change needs to go far beyond pricing carbon, however.

Labour under Corbyn is making many of the right noises, talking up a green transformation to replace “a dogmatic faith in market mechanisms [that] has failed to reverse or even slow the pace of environmental loss.”

John McDonnell has spoken of the need for a “green industrial revolution”, which would require massive public investment in clean energy and transport infrastructure, decarbonising the economy while creating jobs in the process.

Labour activists have recently launched a Green New Deal group, while Labour’s Clive Lewis and Green MP Caroline Lucas have raised these debates in Parliament.  

The Brexit wrecking ball looks set to take a few more passes through Westminster,

but we shouldn’t let that distract from the process of laying the foundations for a new economy geared to stopping the climate crisis rather than subsidising corporations.

Oscar Reyes is a writer and researcher on climate finance working with Corporate Europe Observatory.

Like this article? Left Foot Forward relies on support from readers to sustain our progressive journalism. Can you become a supporter for £5 a month?

One Response to “Brexit is an opportunity to improve on the EU’s failed Emissions Trading System – but the Tories aren’t taking it”

  1. Patrick Newman

    The problem encountered in France with their version of a carbon tax was that there was no compensating reduction in other taxes. Fuel prices are like a regressive tax – little relation to ability to pay and little choice of alternatives! A carbon tax – the government won’t even use the fuel escalator and the creation of an energy ‘market’ was all-around bad news for reducing carbon emissions – energy supplied on a basis of minimising its price! What the article points to is a comprehensive strategic approach to renewable energy and energy efficiency/conservation.

Leave a Reply