Neil O'Brien: Environmentalism is the last refuge of a Europhile

Neil is Director of Open Europe.

A new argument has got Britain’s dwindling band of Europhiles very excited: we need the EU in order to save the planet from climate change.

This line is now being parroted right across the Government.

David Milliband has argued that “You cannot be an environmentalist and a Eurosceptic.”

Geoff Hoon has written that “The Conservative leader's hostility to the EU makes a mockery of his green credentials”.

Will Hutton asks: “Which is it to be? Euroscepticism, or being serious about climate change?”

Even Gordon Brown has joined in. “Euroscepticism and continent-wide environmental action are at odds with each other.”

Let’s leave aside the personal hypocrisy here.  Never mind that Milliband doesn’t recycle his own rubbish, or that all across Whitehall, Government departments leave their lights blazing all night.  The endless repetition of this idiotic soundbite is maddening for two different reasons.

Firstly, it’s yet another example of politicians exploiting public concern about the environment to push through other things that they know voters don’t want (like higher taxes).

In this case, the cynical use of green issues to justify greater powers for the EU is surprisingly overt. As David Milliband explained in an article for the pro-euro Centre for European Reform: "The environment is the issue that can best reconnect Europe with its citizens and re-build trust in European institutions. The needs of the environment are coming together with the needs of the EU: one is a cause looking for a champion, the other a champion in search of a cause."

In other words, “the environment” has become a convenient excuse for giving the EU even more powers. For example, the UK Government is about to allow harmonised EU-wide crimes with harmonised sentences to be passed by a majority vote – something which it had always previously opposed.  But by introducing this new procedure first for so-called “green crimes”, the Government hopes that its cave-in on the issue will be more palatable to voters.

THE EU DOES NOT HAVE A GOOD ENVIRONMENTAL RECORD

Secondly - and more importantly - the reality is the exact opposite of the soundbite: all serious environmentalists should be very sceptical about the EU indeed.

Take the EU’s flagship policy for fighting climate change, the EU “Emissions Trading Scheme” (ETS).  Like so many EU plans before it, the idea sounds great in principle. The idea was to set up a market for pollution by auctioning off a limited number of “permits to pollute”, and then allowing firms to trade them amongst themselves.  In other words, to use the market to find the cheapest ways to cut pollution.

But in practice the ETS is an expensive failure. While some member states set themselves tight emissions targets, others printed permits like crazy, and handed their companies far more “permits to pollute” than they needed.  Overall, EU member states as a whole gave out permits to emit 1,829 million tonnes of CO2 in 2005, while emissions were only 1,785 million tonnes.

So overall, emissions are simply not reduced.  But the policy is still very costly for the UK, because British firms, who have not been given enough permits, have to buy permits from rival firms in other member states (who have been given more than enough). Assuming firms bought at the average carbon price over the period, UK businesses will have transferred just over £1 billion to their rivals.

When the huge over-supply of permits became apparent to the financial markets last year, the price of carbon emissions crashed from 33 euros a tonne to less than one euro a tonne.  This level of instability obviously deters firms from investing in clean technology, because they have no idea what the return on such environmental investments would be.

When the House of Commons Environmental Audit Committee interviewed the Environment Agency, they were unable to name a single case in which a firm had reduced emissions as a result of the ETS. The staff of the Agency put it bluntly: “it’s not clear whether we’re seeing any environmental benefits as yet”.

Worse still, instead of auctioning off permits to the highest bidder to create a real “market” – which is supposed to be the whole point – the permits are simply allocated free of charge to individual firms by national governments. Under these rather Soviet-style “National Allocation Plans”, EU governments simply hand out carbon permits according to how much they think firms need to emit. 

Surprise surprise, big companies who can afford to lobby for more permits have therefore done well out of the system.  Big oil firms like BP, Esso and Shell will be able to make millions selling off the surplus permits they have been given, while overstretched NHS trusts were allocated far too few permits.  Not being financial experts, many small NHS trusts bought permits at the top of the market, only to see their value slashed.

Using a series of Freedom of Information requests we found that the EU ETS had cost the NHS the equivalent of 300 extra nurses.  Naturally, the Government initially tried to bury this piece of bad news by claiming that they did not hold such information, but they were later forced to apologise when it was revealed that the Department of Health had known all along.

As the failings of the EU ETS have become more widely known, its supporters have started to argue that these are just teething problems which will be solved in later phases of the system.

However, as with many other EU projects, once power is transferred to the EU, getting reform may be very difficult indeed.  Some of the problems with the system are fairly fundamental.  For example, far too many small firms and institutions are included.  All of these small players in the system face huge compliance costs and administrative burdens (for the NHS these were about a third of the total cost) which outweigh the benefit of including them.  50% of all the firms which are included in the system produce just 0.9% of all the emissions between them, but they face all the same costly bureaucracy.

However, changing the system is now going to be difficult, as support from a majority of the 27 members and the Commission is needed.  The UK suggested that at one stage it would seek to get NHS trusts and other small operators exempted, but this idea seems to have been abandoned.  Indeed, according to a recent paper circulated to the Council, the Commission will not even consider proposing fundamental changes to the system before 2013.  But the environment cannot wait for the sluggish EU to get its act together in a couple of decades’ time.

For the second phase of the system, running from 2008 to 2012, the Commission has pressured member states to reduce the oversupply of emissions permits. This was heralded by supporters as the final proof that we need a strong EU and a strong Commission to fight climate change.

But the compromise deal is based on a dirty secret: members agreed to reduce their overall emissions targets only on the condition that they should be allowed to import far more “Kyoto credits” to meet that target.  These “credits” are awarded by a UN body to part-fund industrial projects in developing countries, which are supposed reduce the growth in emissions.

However, the use of these credits are increasingly controversial.  They are often awarded to projects that are being undertaken anyway.  For example the Xiaogushan dam in China was already being built when the Chinese Government applied to get credits for it.  So the Chinese government ends up being paid to do something it was doing anyway, and the money does not “buy” any reduction in emissions.

Half the money that has been spent on the credits has been lost in vast overpayments to projects capturing “exotic” greenhouse gasses. Total projects that should have cost no more than €100m may have wasted up to €4.6bn

On top of all this, very little money has actually ended up in the poorest countries.  Less than 4% has been gained by sub-Saharan Africa, while China and Russia (particularly Gazprom) have benefited hugely.

As the House Of Commons Environmental Audit Committee noted:

“To be clear, then, the Government is allowing for, and expecting, two-thirds of the headline carbon savings it has announced as resulting from Phase II to take place, not just outside the UK, but outside the EU – and probably in the form, not of carbon dioxide, but of carbon-equivalent greenhouse gases. In fact, the effects of such credits on UK installations will – indirectly – be even higher than this, because other Member States have set higher limits on the use of such credits within their National Allocation Plans.”

Our first calculations for phase two of the ETS suggest that almost all of the “reductions” in emissions are supposed to be coming through this dubious route.  The ETS is certainly not going to be, as the Government has claimed, the most effective means of reducing emissions.

However, politicians (of both parties) have shown almost zero interest in looking the cost effectiveness of various green policies that are now being touted around.  Politicians are still stuck in the mindset that says: “something must be done, this is something, therefore we must do it.”

Indeed, the Conservative Party is now touting the ETS as of one of the “benefits” of the EU.  When we published a paper criticising it, a researcher told us that our research was unhelpful because “we want to be in favour of this.”  David Milliband is even proposing to extend the EU ETS to every individual with a “carbon credit card”, which - apart from its incredible cost - would also mean the Government tracking every transaction and every journey made by everyone in the UK.

A greater focus on the cost effectiveness of green policies is not the sign of an “uncaring” or “scrooge-like” mentality, but the essential precondition to effective action.  Put simply, the less it costs, the more we can do. But at the moment politicians still seem more interested in generating “shock” headlines, than in what their proposals might actually achieve. 

A GREEN EU WOULD SCRAP THE CAP, CFP, LANDFILL DIRECTIVE...

And yet there are plenty of potential win-win reforms out there. For example, if the EU wants to help the environment, it could start by reversing its own policies. 

For example, the huge £60 billion a year spent on the CAP still encourages intensive agriculture, which accounts for an eighth of all greenhouse gas emissions.

The disastrous Common Fisheries Policy leads to the dumping of millions of tonnes of dead fish in the sea – up to 90% of the fish caught.  Even the EU Fisheries Commissioner recently admitted that the policy was “immoral”.  It also means more carbon in the atmosphere.

As Christopher Booker and Richard North have pointed out, the EU’s Landfill Directive, which is based on now-obsolete research, leads to a huge increase in the amount of waste incinerated.  Why not repeal it?  Member states spend 4 billion euros a year subsidising coal production. Why doesn’t the EU agree an end to industrial subsidies, as was supposedly agreed fifty years ago? Why not, abolish the EU’s minimum VAT rate for environmental products?  Then at least we could have “green tax cuts” rather than more “green taxes”.

Needless to say, instead of addressing its own faults, the EU is now moving in the opposite direction – moving to impose a series of micro-managing targets on member states about exactly how they should reduce their emissions.  By 2020 member states will be required to generate 20% of their energy from renewables, and 10% of their fuel from biofuels.

This is completely the wrong approach.  International agreements should set ambitious targets - and create financial incentives to hit them - but should then allow different countries to meet their target in whatever way is most effective.  For example, greater use of biofuels might be an effective way to reduce emissions in Spain and Greece, but not in Finland or even the UK.  One size doesn’t fit all.

Much of what the EU is doing on the environment is similarly incoherent.  The EU wants to “ban” normal lightbulbs to make people use energy efficient ones. But why don’t people buy the energy efficient ones now? Because they’re expensive.  Why are they expensive? Because the EU imposed a 66% tax on imported bulbs in 2002.

The EU also wants to set an emissions limit for cars of 130g of CO2 per km.  Leaving aside the fact that the President of the EU Commission drives a giant VW Touareg 4x4 which belches out nearly three times this amount (355g/km) or that Peter Mandelson asked for his company car to be a Mazerati (440 g/km), this policy is a non-starter.

If this were adopted as a binding limit it would simply shift the UK car industry (mostly now producing a small number of high powered cars) straight out of the EU.  However, the target now appears likely to be expressed as some kind of “average” (though no one can agree what it should be an average of), so it seems likely that the EU will end up with some kind of messy fudge which changes nothing. But as long as they get the headlines they want, EU leaders will be happy.  This is virtual politics.

So what is the alternative?  From the EU, we need a radically more flexible approach.  The EU ETS should become voluntary.  Instead of trying to micro-manage, we need to leave countries to hit their targets in their own way.

THE EU HAS NO SENSE OF URGENCY

Is such a change of heart from the EU plausible? Well, one way or another, for the sake of the environment we need to get either a radically new approach from the EU, or, failing that, a new relationship with the EU. If we wait decades for the EU to get its act together, it may well be too late.  An organisation which has spent nearly half a century tinkering with the CAP may not be the best one to lead an urgent campaign for change.

The solution is not going to be found in an endless stream of the kind of tinkering-round-the-edges, initiatives that Brussels delights in.  The solutions are going to involve doing a few big things which will be controversial.  For example France’s emissions are a staggering 40% lower than the UK’s – almost entirely because of their heavy use of nuclear power.

Ultimately, this issue is simply bigger than the EU. According to the Commission’s own forecast, the EU’s share of world GDP is set to halve by 2050, so Europe is going to account for a shrinking share of emissions, and have less and less clout in the world.

Realistically, if we want new global powers like China and India to take part in reducing emissions then the best way is to invest in developing technologies they will actually want to adopt.  There is no point lecturing people living on a dollar a day to reduce their “carbon footprint” by consuming less.  But if we create cleaner sources of power like fuel cells, or better and more efficient transport, then you can bet that they will be quick to adopt them.  For that reason the only realistic “exit strategy” from increasing emissions is going to be investing in research and development rather than giving more power to the hopeless EU.