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The UK is paying the worst polluters to keep polluting. Here’s why

Step forward, the ‘Emissions Trading Scheme’ – which says we can’t possibly tax Air France in case it moves to Armenia

Adam Ramsay
Adam Ramsay
19 July 2023, 12.12pm

Operators of long haul flights don’t need permits for the CO2 they emit. Nor do private jets or private yachts. Nor do firms that run incinerators, which are often more polluting than coal power stations



The first week in July was the hottest week on record. Before that, we had the hottest June in history. May and June both broke sea temperature records. Billions across the planet are facing a summer of heatwaves, droughts and fires.

And yet the British government continues to coddle the people, and industries, driving us to devastation.

An extreme example, as openDemocracy revealed this week, is that the British government waived what would have been a £690,000 pollution ‘tax’ for the controversial Russian cargo airline Volga-Dnepr the day after the invasion of Ukraine. But that’s just part of a broader story.

In March, openDemocracy revealed that the government had gifted the airline industry the equivalent of a £300m tax break under the same programme, somewhat opaquely known as the ‘Emissions Trading Scheme’ (ETS). Airline lobbyists would be very grateful if, when you read that figure, you think about your trip to Spain last summer for a post-lockdown holiday. Whatever you do, don’t let the image of besuited bankers jetting off to Dubai or Geneva five times a month creep into your mind.

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In reality, around 20% of England’s international flights are taken by just 1% of the population – more than half of them by just 10%. Meanwhile, 48% of people didn’t take a single flight abroad in 2018.

A deep injustice is written into the climate crisis. And the same iniquity runs through the rules of the Emissions Trading Scheme – one of the UK government’s main policies to address it.

The UK launching its own ETS is one of the details of the Brexit process that hasn’t had much coverage. Which is a shame. In 2021, the Intergovernmental Panel on Climate Change said humanity could put about 300 billion more tonnes of carbon dioxide into the atmosphere before the odds of catastrophe would start to seriously rack up. In the following year alone, humanity emitted around 12% of that – nearly 37 billion tonnes. Who gets to use up the rest, and what for, as we transition to a zero carbon economy is one of the most important questions of modern geopolitics.

Emissions trading schemes are the way we’ve chosen to answer it.

Too often, when Britain’s scheme (or its EU parent) are discussed, it’s in the impenetrable language you get when market-loving technocrats negotiate with number-crunching scientists. It’s hard not to feel that this, in part, is the point of them: to churn basic debates about justice, society and change into obscure, unchallengeable processes in some mysterious realm where high capitalism and deep officialdom meet. Because that’s how to make sure we ignore things.

The EU scheme, on which the UK’s is based, was established in 2005. The basic idea of both is that major polluters need a permit for each tonne of CO2 they emit, and only a limited number of permits are issued each year – fewer each year. If a company manages to slash its emissions, and ends up with more permits than it needs, it can sell them on. If another company emits more than expected, it needs to buy permits on the open market, meaning there’s a price incentive to cut your emissions. Or at least, that’s the theory. (If you’re confused about how and why such a scheme has ended up rewarding polluters in the ways we’ve shown above, you’re not alone – read on.)

Problem 1: who needs permits?

It all begins to come apart at the very first step: who needs permits, for what?

There are significant loopholes. As my colleagues recently revealed (we’re one of vanishingly few news operations actually reporting on this), firms that run incinerators – often more polluting than coal power stations – are exempt. As are private jets, and private yachts. As are all long haul flights – that is, any to or from airports outside the UK, EU or Switzerland. As are all greenhouse gases apart from CO2.

In fact, shipping isn’t included at all at the moment, despite being responsible for 3% of UK greenhouse gases. While the government is considering including it from 2026, according to Daniele Roe from the Brussels based monitoring group Carbon Market Watch, its current proposals would only include ships of more than 5,000 tonnes, and – astonishingly – only those travelling between UK ports. While the EU is set to charge ships that arrive from outside its domain for 50% of the carbon they emit, Britain proposes international shipping – even from the EU – won’t need any carbon credits.

Problem 2: how are the free permits initially allocated?

The second step isn’t any better: how do you initially distribute the permits?

The answer, for both EU and UK schemes, is that some of them are given out to companies for free, and the rest are auctioned by the government.

The justification for giving any out for free at all is the perceived threat of ‘carbon leakage’ – that companies will move to other countries that are even less tough on emissions.

As the world lurches towards climate breakdown, few things could be more important than the question of who we hand these free permits to. In reality, answering that question is pretty hard. Think tanks I asked didn’t know. The civil servants who administer the scheme weren’t very helpful.

Related story

Volga-Dnepr Airlines was given a free pass to emit up to 8,700 tonnes of carbon in Britain’s skies without penalty

Eventually, I found a link on the government website to an EU document the UK appears to have cribbed, which explains, in thick jargon, that it’s all based on three factors: what firms have emitted in the past; what their most efficient competitors emit; and an assessment of the risk that they’ll pack up and go elsewhere unless they’re bribed not to.

When we think about each of these criteria in turn, all of them turn out to be a bit silly.

First, there’s the idea that someone’s past pollution should entitle them to future pollution. The fact that someone has already got rich from using far more than their fair share of a limited resource doesn’t mean we should give them a bigger share of whatever is left of that resource. Just because I got a bigger first helping doesn't mean I should get more seconds. If anything, it should mean the opposite.

The second factor is about how easy it’s deemed to be for those firms to reduce emissions – based on comparisons with the leading companies in their respective fields.

Again, the idea here is that the most polluting sectors – the ones where it’s hardest to reduce emissions – should get the biggest bungs. The logic comes apart when we think about this in practice: steel is a more polluting building material than brick, and cutting emissions from steel is hard, because coal is used in the coking process. A sensible system would encourage building with bricks (or, better still, wood), rather than steel. But the ETS free allocations do the opposite: Ibstock brickworks, the UK’s biggest brick manufacturer, gets 16,155 permits a year, worth £1.3m at 2022 prices. The Port Talbot steelworks gets 5,768,835, worth £460m.

The third factor is the supposed risk of what they call ‘carbon leakage’ – that is, that a company will just move production to somewhere with less stringent targets. Often, this claim seems a little fragile.

Why, for example, are airlines given them at all? It’s easy to imagine how Weetabix (which had been given 3,748 credits this year) could move its factory to Armenia. But why did Air France get 28,040 credits? If a passenger wants to fly from Paris to London, you can’t take them to Yerevan instead.

And what’s missing from the whole scheme is any real sense of strategy. Rather than the government getting to decide that universities, say, are more important than the arms trade, BAE Systems gets free allocations to arm Saudi Arabia and universities get them so they can discover cures for rare diseases.

Rather than giving (say) food production the biggest crash pad, free allocation is going to aviation companies. This includes those that provide jets as taxis for billionaires. It includes companies like Volga-Dnepr Airlines LLC, which got 8,700 credits in 2022 – a subsidy worth around £690,000.

Volga-Dnepr Airlines flies specialist cargo planes and has been described by the British government as “a Russian transport company with significant air operations that is contracted by the Russian government to create air bridges that carry critical goods”. Over the last year, it has faced allegations that it is shipping military equipment to Russia from China (which it denies), and has been sanctioned by the Canadian government. The company received no credits for 2023.

The UK ETS, says Leo Murray – who heads up the campaign group Possible – “copies and pastes all of the problems with the EU scheme, but lacks the economies of scale and economic and industrial diversity which enables the EU ETS to function effectively, insofar as it does”.

”Ultimately,” he added, “any serious effort to address the climate crisis at a societal level which is consistent with the principles of capitalism must entail putting a price on carbon. But because carbon emissions as a commodity are wholly a construct of the state, creating new markets that are supposed to ‘find’ the optimal price in fact just sets up an elaborate shell game that enables high polluting sectors to continue business as usual, while high carbon corporate lobbyists manoeuvre to capture the rules of the game and financial traders devise clever ways to extract windfall profits from the system. Of all the approaches to pricing carbon which the UK government could adopt, the UK ETS may be the worst.”

What's more, Murray says, the existence of the European ETS has actually been used as an excuse not to push through other interventions to decarbonise the aviation sector – meaning the scheme might in some cases be worse than nothing at all.

Problem 3: the rest of the permits

The problem isn’t just free allocations. Because auctioning off the right to the final belches of fossil fumes means allocating them not to those who we consider most socially useful, nor to those who can best use them to help us build a zero carbon economy, but to those who can profit most from them.

Once CO2 is added to the atmosphere, it stays there for anywhere between 300 and 1,000 years. Humanity’s last little blast of carbon for a millennium or so is being auctioned off to the highest bidder for a simple reason: it’s the rich who have the power to shape such decisions, and deciding those precious allocations through the marketplace suits them just fine.

But ultimately, how to use the little atmospheric room we have to manoeuvre is a political decision. It’s a set of choices we have to make for our society, about what kinds of things we value and what we can do without, who deserves a little more and who has had their share, what strategic interventions will help wean us off a drug that is killing us, and what won’t.

If our politicians want to argue that the answer to those questions led them to give free permits to firms that fly oligarchs round on private jets, then they should look us in the eye and say so. We can’t let them hide behind the jargon of nonsense market mechanisms.

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