July 31, 2023 - 3:00pm

Rishi Sunak’s government appears to be jettisoning much of its green agenda. Whitehall has just announced that the UK’s carbon trading scheme is to issue more allowances than expected. While this may seem like a boring technocratic detail, it has had profound consequences. Since April, the price of UK carbon emissions has fallen around 40% relative to Europe.

Britain’s emissions are currently ruled over by the UK Emissions Trading Scheme, which was launched in 2021 following Brexit. It is a standard cap-and-trade scheme that puts a price on the emission of carbon, with this price effectively controlled by the Government issuance of allowances. The extra allowances issued recently would allow an extra 53.5 million tonnes of carbon to be issued between 2024 and 2027, or about half a year’s worth of the UK’s total emissions.

At the same time as the Government moved to lower the price significantly on carbon emissions, the Prime Minister has made a trip to Scotland where he’s announced plans for more oil and gas drilling in the North Sea. Sunak said that the Government aims to “max out” energy opportunities in the region.

This U-turn has partly come about thanks to the surprise victory achieved by the Conservatives in the Uxbridge and South Ruislip by-election, widely seen to have come about because of London Mayor Sadiq Khan’s imposition of Ulez charges on motorists. But this is not the only force driving the Tories.

Behind the scenes, the green agenda has been taking a beating for some time. At the end of June the CEO of Blackrock, Larry Fink, announced that the firm would no longer be using the term “ESG”. Blackrock is not just the world’s largest asset management firm, but also a pioneer in the widespread use of the ESG framework. While Fink claimed that the firm was dropping the term because it had become politicised, it is an open secret in finance that ESG investing has turned out to be a farce and has not delivered the returns that advocates promised.

The energy shortages caused by the war in Ukraine and the sanctions on Russia have been a splash of cold water in the face of policymakers. Prior to the war, Europeans could aim to build out large amounts of renewable capacity in their energy grids, safe in the knowledge that Russian piped gas was constantly looming in the background to fill the inevitable gaps this strategy created. Now, with energy prices high and Europe’s industry under threat of deindustrialisation, policymakers are having to face the potential costs of green policies pursued in lieu of cheap Russian gas.

Does this mean we’ve seen the last of green? Hardly. It’s more likely that we see the issue become sharply politicised, with pro-greeners and anti-greeners digging in to defend their policies. Indeed, Labour is already chastising the Tories for backtracking on their green commitments. 

There is every chance that the green debate will plug the gap in the political market left by Brexit, with those who waved EU flags seven years ago doubling down on their commitment to climate policies and those who waved Union Jacks highlighting the costs of high energy prices. This would be a godsend to the Conservative Party, which has found it hard to shore up support as the political momentum generated by Brexit has fallen away. Resorting to fighting pitched political battles in order to determine what the country should do with its energy strategy might be depressing, but that’s the position the Conservatives find themselves in.

Philip Pilkington is a macroeconomist and investment professional, and the author of The Reformation in Economics