Fuel-induced poverty

And the EU Emissions Trading Scheme (EU-ETS)

James Bruges

One thing is certain. The price of fossil fuels is going to rise – and continue to rise. The effect on transport is obvious but it will also push up the price of most other goods and services. Industrial farming is totally dependent on fossil fuels for fertiliser, machinery and distribution, so the cost of most forms of food will escalate. Our just-in-time distribution to supermarkets will be vulnerable. Food prices will also be affected by global shortages: the reserve of grain - wheat, rice, corn – is at the lowest point since the early 1970s, and in 1973 there was a six-fold rise in the price of wheat. The rush for bio-fuels is also challenging present grain production, since feeding cars is more lucrative than feeding people. Poverty and inability to access essentials will become a major political issue – perhaps the overriding political issue.

High fuel prices caused recession in 1973, 1980 and 1990. Following these incidents the economy adjusted and adequate fuel has been available. This time is different since global production is falling below global demand. We are entering a new phase where the significance of money and energy are reversed: it will no longer be the economy that determines the amount of energy required. The amount of energy available will determine the economy. It will be many years before the UK economy adjusts to energy obtained from renewables and, in the meantime, fossil fuels will become increasingly expensive. Most sources of fossil fuels come from countries that have suffered US aggression – and UK aggression by association – so we can expect not only higher prices but also difficulty in obtaining supplies.

High oil prices will again cause recession thus reducing revenue to the chancellor and reducing his ability to relieve those suffering fuel-induced poverty.

This all points to the urgency of developing renewable energy technologies and local exchange methods that are independent of the national currency. However Feasta (Foundation for the Economics of Sustainability) has a suggestion for the EU Emissions Trading Scheme (EU-ETS) – due to be revised in 2008 – that would address the problem while simplifying the ETS scheme and extending it to cover all emissions generated by fossil fuels in Europe. Its approach would provide an economic mechanism to enable people to access essentials without the need for government handouts. There are only two basic elements to Feasta’s scheme:

· Every resident of Europe would receive an equal number of fossil fuel emissions permits, which he or she could sell to brokers at whatever was the going rate on the day.

· Companies that bring fossil fuel into the economy would need to acquire enough of these permits from the brokers to cover the emissions from the fossil fuel they sell, and surrender them to the authority.

The number of permits issued each year would reduce in order to keep within the capacity of the atmosphere to handle carbon emissions; thus the value of each permit would rise, rather than the price of fossil fuel. The permits would therefore become a basic income that rises in value as the cost of essentials rises. Existing financial institutions such as banks and post offices would act as brokers. Feasta has analysed how the trading would take place.

The Feasta scheme is developed from the Tradable Energy Quota (TEQ & DTQ) but has some advantages. It is simpler to administer. An equal number of fossil fuel permits would be distributed monthly or annually to every resident in Europe and this could be done either with low technology, like the mid-century wartime rations, or with existing electronic methods. It would control emissions through controlling the importers or extractors of oil, gas and coal; and there are only about 250 of them. There would be no need to monitor individual companies. The scheme is not dependent on arbitrary decisions so there is little scope for corruption or evasion. It is totally ‘upstream’ and would provide a level playing field for all industries.

The present EU-ETS, by contrast, involves only 40% of Europe’s emissions, it aims to monitor the emissions of 13,000 installations, many of which belong to companies that span boundaries. It is also dependent on an arbitrary distribution of permits decided by each country. After 18 months of operation it ran into crisis and the value of permits crashed. A fuller analysis of problems with the present scheme can be found in Feasta’s ‘The Great Emissions Rights Give-Away’. When poverty bites due to ETS restrictions on the availability of fossil fuel it will take a bold government not to give in to public outrage and abandon the scheme. The possibility that the scheme will be abandoned is already being widely predicted.

By making themselves responsible for arbitrary allocations to large polluting companies that rise in value as the scarcity of fossil fuel increases, politicians have erected a gallows for themselves. Feasta’s upstream approach would remove the noose from their necks.

See also the Feasta website and the ARREST campaign

James Bruges.

July 2006