Most Britons will never have heard of the EU Emissions Trading Scheme. But it is costing them a fortune. Our new study estimates that the bill in 2008 was £3 billion, equivalent to around £117 per family. Across the EU the cost was around €93 billion between January 2005, when the scheme was introduced, and the end of 2008. When the ETS is added to other climate change policies such as the Renewables Obligation, they amount to 14 per cent of the average household electricity bill.
That burden has fallen disproportionately on the poor and elderly. They spend a far larger proportion of their income on electricity, often twice as much as those who are on a higher income or younger. That means that there are serious social consequences as the poor face greater hardship thanks to government climate change policies.
Another group who suffer are manufacturing industries. Energy is a significant part of the cost base of a range of firms. While attempts are made to help them in various ways, that is a poor substitute for not having their competitiveness undermined in the first place.
The ETS is therefore not just expensive, but also undermining key policy objectives: We're imposing a significant burden on people with low incomes, thereby increasing welfare dependency. And, we're hurting industry which will only make us more dependent on the City and increase regional inequality.
For all that, it is pretty ineffective at cutting emissions. Prominent environmentalists and energy companies have called for a floor on the price, as it keeps collapsing. That would bring into question the whole point of the trading scheme. The volatility of the price both makes it that bit harder for families and businesses to manage their budgets and weakens the incentive to invest in cutting emissions.
The scheme should be abolished. Making sure developed and developing countries are rich, free and democratic enough to deal with whatever nature throws at them and investing in technology, so we have better options than the uneconomic alternatives to fossil fuels available now, is a better way forward.