Why have Tory MEPs rejected a free market solution to climate change?

KraftwerkThis article was first published by The New Statesman.

It may surprise some on the centre left but there is nothing innate to Conservatism that makes it less able to take pragmatic decisions in favour of sensible environmental policy. It has had a refreshing ability to acknowledge the intrinsic value of nature and stewardship even if it has become more conflicted about the means to deliver these outcomes. It is a broad church that spans from the one nation Heseltines to the radical free marketeers like John Redwood. But, if there is one thing that unites them, it’s the belief that markets offer most of the answers.

A vote against UK interests
Which is why it is so baffling that Conservative MEPs voted down a measure that might have kept the European Emissions Trading Scheme alive. Trading is not the only way of tackling emissions, but it’s the poster child of free market thinkers because it promises an economically efficient, non-regulatory solution to a giant supranational problem.

The back story is that, on Tuesday, the EU parliament voted against a minor technocratic fix that would have rescued the floundering European carbon market, which is struggling under the weight of too many pollution permits in the system. The fix would have involved ‘back-loading’ the sale of some excess carbon allowances to 2019, so the number of allowances in the system would be reduced, increasing the price which has dropped as low as under €3 per tonne of carbon in recent months. Whilst more profound reform is required, it would have been a first step to putting the mechanism back on track. The vote failed by 19 votes. Twenty Conservative MEPs voted against it. They failed their constituents and UK business in doing so.

Why a strong carbon price is good for the UK
A strong carbon price across Europe is directly in the UK’s interest. Its main benefit is to provide financial incentives for switching from coal to gas, with the costs being born by coal heavy countries like Poland and Germany, and rewards flowing to those that have already made the switch, like the UK. One of Thatcher’s less controversial legacies is a UK energy system which has less and less coal and a relatively high proportion of gas, so UK generators and fuel suppliers stood to gain significantly from the EU carbon market fix. By voting against it Conservative MEPs have rewarded coal at the expense of gas, and Germany at the expense of the UK. This will be the first of many negative consequences arising from the failure of EU emissions trading. At our Chancellor’s insistence, the government has also introduced a carbon price floor, which means we are paying higher carbon prices than our neighbours. It creates an attractive revenue stream for the Treasury, but many British businesses will now feel aggrieved that it could now be at least a decade before there is a single carbon price across Europe.

Conflicting signals
This is part of a pattern of conflicting behaviour from different parts of the Conservative Party that should worry its leaders. There is no evidence that the British public sees climate or environment as a partisan issue. It is a ‘valence’ issue , like national security, in which voters expect any party of government to be competent.

Emissions trading may be too obscure for the public to notice, but experts in business, NGOs and academia do and, for many, this will be another worrying sign that the Conservatives are struggling to govern coherently on one of the big issues of our age. We’ve already seen this confusion with the Energy Bill where the Chancellor agreed to spend £7.6 billion a year on new low carbon energy (mostly renewables) but then opposed a decarbonisation objective for 2030 which would have ensured that much of the equipment required would have been built in new UK turbine factories.

We need to be at the centre of the debate on the EU’s 2030 climate package
The debate now moves on to what 2030 climate package the EU should adopt. The UK should be at the heart of the debate, fighting for an ambitious carbon goal that matches our own. But the prime minister has yet to get his ministers to agree a UK position. Whether or not the UK government takes a lead, the EU will adopt a new climate package at some point in the next 18 months, under pressure from France and Germany.

Tuesday’s action by Conservative MEPs has made it more likely that it will be focused on fiscal and regulatory measures, and less on trading. That may turn out to be a good thing, but Conservative MEPs have just shot themselves in the foot by making market trading solutions less attractive. They have also made it considerably more difficult for David Cameron to demonstrate that his party has championed British interests in energy and climate change effectively.

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