Lea’s emissions shortfall
Ruth Lea covers the Emissions Trading Scheme (ETS) in today’s Telegraph. Like a few of her past articles, she steals covers some research from Open Europe (who she does not always reference). -Well it must be hard to produce a weekly column!
Although I agree with her (that’s a first for me) and Open Europe that the scheme in its present form is failing, it looks like Ruth and Open Europe have got some of the details wrong.
Ruth Lea begins by seemingly welcoming climate change- she implies that because climate change helped humans move from being farmers and herders to the present “civilised” people that the current climate change threat- that will see forests destroyed, animal species wiped out and many places turned into deserts- will present a number of opportunities for humanity. Really! The only opportunities i can think of is opening some new hotels on the soon to be Blackpool Rivieria.
On the ETS Ruth Lea argues that:
“some British firms, especially electricity generating companies, reduced their emissions and hence output because they were short of permits. Inevitably this led to higher electricity prices.”
This is incorrect. As the National Allocation Plan shows, most power plants increased their emissions, but because of the elasticities of demand and supply, they, unlike alot of companies, can pass the whole cost of the scheme onto the consumer, in this case us, and this caused the electrictiy prices to rise. (and I thought Lea was an economist).
She cites Open Europe’s briefing that tells how public institutions (such as the NHS and armed forces) have had to fork out millions to buy extra allocations, whereas oil companies have made millions by selling them - this is slightly misrepresented. This is the potential cost not the actual cost, because we do not know how much the companies bought and sold the allocations at, and therefore do not know how much they paid (the scheme works like the share market, where prices can go up as well as down). Also not everyone had to buy/ sell in the first year, and may decide to settle up at the end of the first phase which runs for 4 years. The Open Europe paper only looks at the first year, and does not take account of changes over the whole period- such as weather, new technology etc. We may find that in 2008, overall oil firms end up paying more and the NHS makes a profit. Although this is unlikely, we should not be mislead.
March 12th, 2007 at 10:33 am
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