Sunday, November 05, 2006

They screwed up, then they covered up

Today's Sunday Telegraph has a story about an issue we have been working on for a while now.

The story so far

Back in the Summer David Miliband and Geoff Hoon argued that "The EU's emission-trading scheme (ETS) is the most innovative and efficient method yet invented for reducing carbon emissions to manageable levels."

In fact they went as far as to say that the environment was going to provide a new purpose and rationale for the European Union. The wrote that the EU, "could be as important to the environment in the first half of the 21st century as it was to peace in the second half of the 20th". In fact, they suggested, Labour could use it as an issue to beat the tories with. "David Cameron's hostility to Europe makes a mockery of his claimed green credentials," they wrote.

But even our initial research revealed that in reality the ETS was a disaster area. Overall, the EU members had printed more permits to pollute than there is pollution. Member states handed out free permits for 1,829 million tonnes of CO2 in 2005, while emissions were only 1,785 million tonnes. Emissions would have to be 44 million tonnes higher for the system to actually “bite”.

However, that doesn't mean it hasn't cost some member states. In particular, the UK has set a tough target on emissions, while other member states have set very loose targets. All this means is that UK firms have to buy permits from rival firms in other member states, resulting in a cost of just under one and a half billion pounds over the first three years, while firms in Germany will make just under a billion pounds selling off their surplus permits. In other words UK companies transfer money to other member states, without getting any reduction in emissions.

Worse still, instead of auctioning off permits to the highest bidder to create a proper market, the permits were simply allocated to individual firms by national governments under 1960s style National Allocation Plans.

Under the NAP the public sector is being forced to take a hit. Under the UK National Allocation Plan, NHS trusts were not given enough permits, and we estimated that they would have to spend between 1 - 2 million a year buying up extra permits and running the scheme.

The plot thickens

Michael Gove MP, (who sits on the European Scrutiny Committee), asked the Government to confirm how much the public sector was paying. He asked various different government departments. The MOD responded with military efficiency, immediately providing a detailed breakdown of how much each RAF base had paid and for what.

But the Department of Health were less forthcoming. Junior Health Minister Andy Burnman replied only that such figures were “not held centrally”.

That struck us as rather odd.

We made a freedom of information request for internal correspondence within the NHS about the question.

The emails we have been given as part of the FOI request show that DoH had been given the answer to the parliamentary question in a spreadsheet by the NHS Purchasing and Supply Agency (PASA). However, the DoH chose not to answer the question. Indeed, the DoH Press Office (neutral civil servants, you remember) had spent quite a while trying to "scotch" our research.

The FOI request came back with about a hundred pages and all the relevant stuff buried in loads of irrelevant emails. (Hint: You can normally tell the key pages because they are particularly badly photocopied.)

The docs are here, here and here. Key points:

* Patricia Nicholas at the DoH press office sent round an email asking for figures to "robustly scotch" the £1.3 million figure. She wrote: "we need tackle the £1.3 million bit, and emphasise that in no way will frontline services be affected".

* After receiving the figures from PASA, Shumon Rahman (also at the DoH press office) complains to PASA that "the last thing we want to do is come with a speculative 'what if...' all trusts spent money on carbon credits only to find that 10% have already spent a ridiculous amount and the journalist has managed to uncover them." In another email he notes, "If we cannot rebut the £1.3 million figure we will be getting negative publicity."

* In fact PASA told the DoH that our £1.3 million figure "would have been right at some point in time".

* PASA warned DoH that there was "no way of knowing" how many trusts have bought permits at an overpriced rate "short of ringing them up" and complained that: "PASA advice has been for them to wait, but as they do what they want anyway I've no way of knowing"

Seperately, we had also asked each affected trust how much it had cost them (a) to buy permits and (b) to administer the scheme. For the 85 hospitals which replied to our FOI request, the net cost for the first phase of the ETS (05-07) was 5.8 million (even taking into account the couple of trusts that made money).

That’s the equivalent of employing 309 extra nurses (starting pay for nurses is now £18,698, using 2005/06 rates).

For Glasgow the net cost for the four hospitals in that trust is just under half a million.

The one from Epsom gives a sense of just how much admin is involved. At the end it notes that “Our non-pay total compliance costs for 2005 are circa £28K. Had we spent that money on upgrading lighting installations (say) we could have put an additional recurring £10K p.a. of public money towards patient care and reduced national CO2 emissions by circa 8t p.a.” It also notes that “An email search on ‘EU ETS’ finds 1190 messages on my PC. Many of these are to and from NHS colleagues.”

Earlier, the DoH had confidently predicted that there would be a surplus of permits in the NHS. A DoH document said “Based on the trusts that have responded to PASA, there appears to be an overall surplus of allowances in the NHS. The majority of trusts have small deficits but a minority have significant surpluses.”

As a point of comparison - if they sell at the prices NHS trusts have been buying at, Shell will make £49.9 million out of the scheme during the first phase selling off surplus permits, BP will make £43.1 m and Esso £24.7 m… clearly the private sector are a bit better at lobbying...

Does this matter? What's 6 million quid out of the NHS budget? The EU has probably cost the NHS rather a lot more via the working time scheme for example. The Observer reported recently that 60 NHS hospital wards are threatened with closure in large part due to the expansion of working time rules to the NHS.

What all this does demonstrate is a lack of grip and a lack of thought about the policy. There is no good reason for the NHS trusts to be part of the scheme. Most of them only qualify because a quirk in the rules means that their masses of backup generators get included in the calculation of their potential output, taking them over the 20 MW threshold.

Nor is it the cheapest way to reduce emissions in the public sector. The NHS trusts have been on "green" programmes for years. For example, one reply notes that their hospital had just shelled out £28,000 on the scheme, and that "Had we spent that money on upgrading lighting installations, say, we could have put an additional recurring £10,000 per annum of public money towards patient care and reduced national CO2 emissions by circa 8 tons per annum."

That could stand for the scheme as a whole. Gordon Brown is still calling for the ETS to be expanded when what it actually needs is a total overhaul. At the moment the UK could save billions and reduce its emissions by more, by going back to a UK-only trading scheme. Unless someone can knock heads together in Brussels and sort it out, UK participation is going to carry on being a waste of time and (NHS) money.

1 comment:

hmj said...

I had wondered why hospitals were included in the scheme at all, given that it is largely targetted at heavy industry and public electricity supply. Thank you for clarifying.

I think in general the economics of applying such schemes to large public organizations whose energy use is not linked to their 'output' should be rexamined. The economic case for emissions trading is based on an understanding of how companies might choose to maximise their profits when emissions are priced. Clearly this is not applicable to public bodies, who do not have the same flexibility in how they operate.