The UK's EU climate policy car crash

  • 25 Jan 2013, 14:45
  • Mat Hope

It's been a gloomy week for UK climate change policy in Europe. In the last seven days the carbon price twice crashed to record lows, the UK prime minister called for a revision of key environmental regulations, and the European Commission landed the UK with a large fine over mishandled energy policy.

Carbon price hits record lows

The European Union's Emissions Trading Scheme (EU ETS) is reeling after a large permit auction failed earlier in the week, and the European Parliament then rejected a measure to bolster the scheme. The scheme has been struggling after months of low prices.

Companies buy and sell permits to emit carbon dioxide under the EU ETS. If companies emit less than their permits allow, they can sell the excess for a profit. The scheme is meant to reward those that cut their emissions, and it relies on a shortage of permits.

But on Monday prices crashed to below €5 per tonne of carbon dioxide for the first time following a failed auction in Germany. Almost four million permits went unsold as bidders failed to meet the reserve price.

On Thursday the price briefly tumbled to €2.81 per tonne after a European Parliament Advisory Committee opposed a measure to boost the price. The committee representative for Poland said that he voted against the measure as Poland was "opposed to climate policy tightening in times of crisis".

Some market analysts saw the price drop as an overreaction to the news - the price later recovered to just under €5 per tonne. But the future of the EU ETS is pretty uncertain. It seems likely that it will limp on as it is very complicated to dismantle. The EU's climate commissioner Connie Hedegaard says that the price crash should serve as a "final wake up call" to governments and the European Parliament over the need to reform the struggling scheme.

Suspending EU laws

The carbon price crash comes in the same week that David Cameron announced he wanted to re-visit some other European environmental regulations. The prime minister said in Prime Minister's Questions on Wednesday that environmental legislation was an area where "Europe has gone too far". It's not really clear from this whether he's talking about climate policy or not, though.

The ENDS report suggests that the Conservatives would like to get rid of the EU's renewable energy target but keep an emissions reduction target. The argument is that this would allow the UK to cut emissions with other energy sources such as shale gas, which the prime minister is known to support.

In the same week, the UK Independence Party (UKIP) took time out from the referendum debate to launch a campaign to suspend the EU's climate change package. The party claims that "we in the UK have a target of 30% of electricity generation from wind by 2020" which is "massively massively expensive".

Actually, the UK has a target to meet 15 per cent of the UK's energy demand from renewables by 2020, as required by EU law. This could mean that around 30 per cent of the UK's electricity would need to come from renewable sources - but not exclusively from wind.

EU biting back?

It seems the EU is also unimpressed with the UK. It emerged today that the European Commission (EC) is sending the UK to the European Court of Justice for failing to implement new EU energy regulations. This could mean that the UK faces fines of almost €150,000 a day until it complies.

The EC is complaining that the UK has failed to properly incorporate itself into an integrated European energy market. The problem is that while the market in England has been liberalised, the regulations are yet to be applied in Northern Ireland.

So is the EU punishing the UK because of the prime minister's promise of a referendum on Britain's membership, as the Daily Express implies? It seems unlikely - the infringement proceedings began more than a year ago and the UK isn't the only country to be punished. Belgium and Estonia are facing fines for the same thing. The UK can still get out of being fined though, if the government gets a move on.

Must try harder

So overall, a bad week for climate change policy and the UK in Europe?

The wider sense of confusion over the UK's position in the world appears to be coinciding with bad news on the carbon price. But the situation might not be as gloomy as it first seems.

The carbon price has been falling for a long time and the UK still has time to escape the EU fine. As for the prime minister's statements on European environmental regulations? Detail is still thin on the ground. And hey - at least it's the end of the week.

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