Saturday, June 11, 2016


In energy and climate policy, the UK has both led and benefited from membership of the EU.  Europe’s policies have had some defects, but continued membership provides the opportunity both to strengthen Europe’s backbone in dealing with climate questions and to exert more leverage internationally. Ultimately climate issues cannot be separated from other important features of the campaign, including trade and in the longer term migration.

This blog usually avoids the overtly political but the UK referendum carries so many implications for climate policy globally that it seems impossible and irresponsible to avoid entering the fray.  Much of the essential substance for energy policy, from a focused UK perspective, has been carefully analysed by Buchan and Keay of OIES[1].  It is clear that, in this field, the UK has been a leader in the EU, thereby increasing the effectiveness of its own policies, but it has not suffered any serious constraints in terms of its own freedom of manoeuvre.

Probably the most important inference to be drawn from their work is the importance of the international leverage that the UK can exert through EU membership. The UK is, with very broadly based support, heavily committed to strong action on emissions, exemplified in the 2008 Climate Act. Through the EU it can leverage its efforts in mitigating the worst outcomes on climate change.  This is very important both in maintaining the pressure on or support for potential backsliders in Europe, such as coal-dependent Poland and "Green" but poorly performing Germany, and in wider international negotiation.

Previous comments in this blog have focused on some of the manifest weaknesses of the EU as a whole, in relation to its flagship carbon trading schemes and an obsession with market fundamentalism (the latter at least in part a product of UK influences on policy). But these merely emphasise both the opportunity to achieve positive change and the cost of being outside the tent, particularly if the UK then finds itself bound by policies over which it has no say (ie a real loss of sovereignty).

On the two issues that have dominated the referendum campaign, there are some very strong connections to both climate policies and the impact of climate change.

Trade and Climate Policies.  

Brexit economists (notably Minford) have argued that the UK will gain from a purist free trade approach in which it opens its own borders to tariff-free imports, without any reciprocity on the part of others or any formal trade agreement.  As a theoretical free trade argument this is at least a tenable and ideologically pure position, although most trade economists will disagree with it and many regard it as politically absurd. But in any case it falls to the ground in a world in which externalities, like carbon emissions, are not properly priced.

Following the Paris agreement it will increasingly be impossible to sustain trading relationships without agreements that cover, inter alia, the treatment of the energy sector, whether through carbon taxes or emissions quotas and trading schemes. This will be to ensure a level playing field for manufacturing competitiveness and prevent one country free riding on the abatement policies of others. So if the UK is to participate in the global economy of traded goods, it will have no option but to sustain low carbon energy policies. Again it makes far more sense to participate in the rule making with our largest trading partners around what is still the world’s most sophisticated and developed trading scheme, and to improve that scheme, possibly extending it to embrace other countries moving towards low carbon policies, rather than to attempt to start from scratch. [China, incidentally, is piloting seven separate regional carbon trading schemes.]

Climate and Migration. 

Migration has become a very emotional subject into which it is difficult to inject rational analysis and fact. Economic considerations are not the only issue, but it is worth noting that one of the most comprehensive analyses available reached conclusions is not widely reported in the current debate. Dustmann and Frattini [2]found that looking at the fiscal impact of immigration on the UK economy, and with a focus on the period since 1995:

Our findings indicate that, when considering the resident population in each year from 1995 to 2011, immigrants from the European Economic Area (EEA) have made a positive fiscal contribution, even during periods when the UK was running budget deficits, while Non-EEA immigrants, not dissimilar to natives, have made a negative contribution. For immigrants that arrived since 2000, contributions have been positive throughout, and particularly so for immigrants from EEA countries. Notable is the strong positive contribution made by immigrants from countries that joined the EU in 2004.

Of course this analysis represents only a snapshot of just one of the economic questions related to migration, and there are plenty of qualifications to the analysis. Nevertheless it does seem surprising that immigration concerns, in the referendum debate, should have become quite so focused on EU immigration, when the economic questions around non-EU immigration are prima facie much more significant.  Looking ahead to a much bigger picture, one of the consequences of significant climate change will be a very large increase in migration across the globe, as particular populations, mainly non-EU, fail to adapt. It has been claimed that some of the increases in global migration already taking place are at least in part due to climate factors (one being persistent drought in the Middle East[3]) as well as associated conflicts.

Europe as a whole has some important ethical and practical choices to make in how it responds to this future - of a world on the move - and has so far failed to grapple with them adequately, but they are not choices that the UK, or any other country, will be able to escape.

And the future for climate policy?

Energy and climate policy has so far featured little, if at all, in the referendum debate. But what was in theory supposed to be a choice on a fundamental constitutional issue has quickly metamorphosed into a choice between staying with an imperfect status quo and a rather incoherent manifesto, which effectively pledges more spending on the NHS, continued farming subsidies and various loosely specified plans for new trade deals and to control immigration. In this context, Andrea Leadsom, a prominent figure in the Leave campaign, told the Commons in March that the UK would enshrine a net zero emissions target into legislation, in line with the global pact in Paris.

Whether this squares with views of the climate sceptics, who make up the bulk of the political wing of the Leave campaign[4], is another question.

[1] The UK in the EU – Stay or Leave? OIES. Oxford Institute for Energy Studies. 2016
[2] The Fiscal Effects of Immigration to the UK. Published in The Economic Journal, 2014
[3] NASA study. “Worst drought for 900 years.”
[4] Where Brexit and climate-change scepticism converge. The Economist. 22 March 2016

1 comment:

Anonymous said...

Thank you for sending this and for taking a partisan view that is also coherent! I would only add that the China pilots are inspired by the EU ETS, and hopefully will improve on it. My impression is that China will improve on it because the Chinese government is in a position to do what the EU is unable to do: make decisions without requiring 28 governments to agree.