David Merlin-Jones is a Research Fellow in economics and energy at Civitas.
The EU’s flagship environmental policy is a disaster on a titanic scale. Not only is it adding to energy bills, aggravating fuel poverty and leading to international trade wars, it has also had no real environmental benefit and is unlikely to provide any until 2016, over ten years since its inception. Indeed, the only beneficiaries of the EU’s Emissions Trading System (EU ETS), the jewel in the crown of European climate change legislation, are big banks and businesses making windfall profits.
The EU ETS is a cap-and-trade scheme, meaning there is an upper limit to the emissions allowed in EU countries. This quantity is represented by transferable credits dished out to the ten thousand or so installations covered by the ETS across Europe, a mix of factories and power stations emitting the most CO2. Installations are given a set level for free and must buy extra credits if they emit more CO2 than their allowance permits, or they can sell their spare credits. The theory goes that, as the cap falls, the price of credits rises and companies are forced to invest in reducing their emissions. The scheme was set up in 2005 and is promised to run until at least 2020, with the cap getting increasingly tough from 2013.