European climate politics are in a mire, deepened by last week’s rejection of the European Commission’s back-loading proposal. To address this it is time to replace the current Commissioner for DG Climate Action with someone with more political ability and clout. And European politicians need to raise their game.
Last week the European Parliament voted to reject the European Commission’s “back-loading” proposal and the carbon price in the European Union Emission Trading Scheme (“EU ETS”) slumped by over 40% to all-time lows of less than 3 euro. With its proposal to postpone the auction of 900 million EU Allowances, the Commission wanted a temporary fix for the problem of a massive surplus of allowances which was causing very low carbon prices and was undermining popular confidence in the scheme. Now that the Commission’s proposal has been rejected, we are back with a low carbon price and the Commission has a bloody nose and bruised credibility.
The back-loading palaver was a strategic error by the Commission and displayed the political naivety of its leadership. The skills of those governing the EU ETS are once again in the spot light, following a shambolic series of failures of governance: billions of euros of VAT fraud allowed to run for far too long, theft and breaches of security, badly designed infrastructure, abysmal communication to the market, poorly drafted legislation, insouciant failure to meet statutory deadlines and an embarrassing U-turn on aviation emissions. Questions of competence aside, in the case of back-loading the Commission picked a battle about a technical question, when really we need a thorough political debate.
This created ambiguity. Some people were indeed using the back-loading debate as a pretext for a debate on the future of the EU ETS, a political question. Others considered it a question about a technical fix. This ambiguity allowed people to argue – some genuinely, some falsely – that they oppose back-loading because they want a proper solution to the problems of the scheme. Thus people who support really strong climate policy would vote the same as people believe that climate change is a hoax! The ambiguity also allowed 60 parliamentarians to abstain. Abstaining on the question of the EU ETS is grossly irresponsible; but abstaining on back-loading makes sense if you think the Commission is barking up the wrong tree.
You cannot expect European Parliamentarians to spend time worrying about technical fixes. Asking an MEP to consider back-loading is like asking a TV chef to do unblock the kitchen sink. A parliament is a political body and should therefore address political questions. Back-loading is not a political question. It has political implications but in itself it is not a political question and therefore MEPs do not make the effort to understand it properly. You could see this in the poor quality of debate the evening before – evidence that MEPs have themselves a great deal of work to do to get up to a level where they can discuss climate change with the depth that the problem merits.
In short the Commission has expended a lot of political capital on a question which was mainly technical and only a pretext for a political discussion. If you try to finesse a political problem as a technicality you will get found out. The Commission got found out.
It would be better, rather than focussing on quick fixes, to address the underlying political questions properly. In this case I think the European Parliament would respect the questions much more. There are at least three very important political questions which we need to deal with.
First and foremost we need to have an intelligent debate about jobs and the environment. The right is scared of rising unemployment and de-industrialisation of Europe and believes that protecting the environment costs jobs. While that belief is simplistic, simple generally prevails in politics. Today jobs are too precious to put any at risk. Others, however, believe that you can have jobs and protect the environment. In fact, they would say that failure to protect the environment means no jobs in the longer term. If one side has not yet persuaded the other of the validity of their economic model, then important political work remains unfinished.
Second, we need to have a political debate on how much to inject environmental ambition into our foreign policy. This is closely connected to the environment-or-jobs debate. One of the reasons for the fall in EUA price is falling emissions caused by deindustrialisation. That is, a relocating of industrial activity and jobs from the EU to other parts of the world such as East Europe or Asia. So in part the EU ETS is not causing an overall reduction in emissions but just a shifting of emissions and associated economic activity out of the EU. This might actually increase emissions if the technologies used elsewhere are less efficient than those deployed in the EU. Thus, efforts to coax China, for example, into greater ambition on emissions could have a bigger impact than shoring up the carbon price in the EU ETS with high prices. The Commission’s shambolic retreat from including ex-EU flights in the EU ETS highlighted the hapless lack of coordination which prevails today between domestic emissions policy and foreign policy.
Third, we need a political debate to determine what policies we want to use for what purposes. The EU ETS itself has ambiguity of purpose: seen as a “market mechanism” its sole purpose is to ration emissions and create a carbon price. However, in the eyes of the Commission it should also stimulate investment in green technologies. Others would counter that a market mechanism is not well suited for stimulating green investment because the volatility of the carbon price creates uncertainty for investors – to which some seasoned energy investors say that they look to the long-term targets for cutting emissions rather than the headline EU Allowance price when considering choices of energy technology, so short-term price volatility is irrelevant.
Impatient with the sclerotic EU ETS, Europe is steaming ahead with other policies to stimulate green investment: 70 GW of renewables investment which happened in the last three years in Europe was driven not by the EU ETS but by feed-in tariffs and green certificate schemes in some cases with an inherent implied cost of carbon of at least 80 euro. That is many times higher than the EUA price. While it might be good risk management to have overlapping policies (in case one of the policies fails) it does not obviously make sense to force up the EUA price in the EU ETS when there are already other policies with much higher inherent carbon prices doing their job well.
So serious political discussion is needed as to what is the purpose of the EU ETS, whether it is suited as a technology stimulator and what other policies might play that role better. This is more than just a technical question because different policy measures have different economic costs and result in different groups within society reaping economic benefit.
These are big topics and the biggest of them all, at the moment, is environment or jobs, because jobs are so primary in politics.
So who should spearhead these political debates?
In the European Union policies are proposed by technocrats (or bureaucrats) and by not politicians. So their thinking is focussed on technical things and not on political things. In November 2012 the European Commission published its review of the EU ETS and proposals for its reform. The eleven page document was of desperately poor quality and the market showed what it thought of the Commission’s two year effort to produce it: the carbon price plummeted the moment the report was published. This episode showed us how politically feeble Commission’s climate directorate is.
We will not make progress on climate policy without tackling these political questions head on. The complex predicament of climate change requires thorough and intelligent political debate. The Commission has proven itself inadequate for leading that debate, while it squanders political capital on the wrong battles. We need fresh blood at the helm of the climate directorate. And we need Europe’s politicians to stop hiding behind the Commission; to come out from the shadows, seize the initiative and hold high quality political debate in the public eye.