FirstFT: UK makes polluting cheaper by watering down carbon reforms

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The UK government has made it cheaper for industry to pollute in Britain compared with the EU by watering down reforms to the carbon market, in the latest sign that the Conservative party is backsliding on its climate agenda.

Whitehall recently quietly announced changes to the UK’s carbon trading scheme, including offering more allowances than expected to polluting industries. The move has pushed carbon prices to trade at a steep discount compared with those in Europe, sparking warnings from industry that it will undermine green investments and increase fossil fuel use.

“The changes to the carbon market have largely passed under the radar in the UK but will have the biggest impact of any policy on the UK’s emissions path,” said James Huckstepp, an analyst at BNP Paribas.

The UK Emissions Trading Scheme was launched in 2021 after Brexit. Like its equivalent in the EU, it puts a price on emitting a tonne of CO₂. Large industrial emitters and electricity generators receive allowances to cover some of their emissions.

This month the UK government surprised the industry by announcing that it would make more allowances available than anticipated as part of an overall reduction in the emissions cap. It also said it would give 53.5mn tonnes of extra allowances — about half a year’s worth of UK emissions covered by the scheme — to polluters between 2024 and 2027.

• Nuclear energy: The UK’s goal to more than triple nuclear power generation capacity by 2050 lacks a clear plan to achieve it, according to a report by a House of Commons science committee. In a comment piece in the Financial Times, the group’s chair argues that ambition alone is not enough.

• Geothermal energy: The climate-friendly energy source is helping Munich lead the way in cutting Germany’s heavy dependence on fossil fuels for heating.

Here’s what else I’m keeping tabs on today:

• EU economy: The eurozone is expected to return to slight growth in the second quarter and inflation is set to keep falling when preliminary figures are released.

• UK in Africa: Foreign secretary James Cleverly, who begins a four-day trip to the continent, told the FT he would look to co-operate on security with African nations.

• Results: Bank of Ireland, Heineken, Pearson and Spectris report.

Five more top stories

1. Profits have flatlined at the UK’s elite corporate law firms with higher staff costs and a deals slowdown hitting bottom lines at Clifford Chance, Allen & Overy and Linklaters. This comes as Allen & Overy and rival “magic circle” firm Freshfields Bruckhaus Deringer reach pivotal moments in US expansion efforts. Read the full story.

2. Two skyscrapers in Moscow’s premier business district have been damaged by drone strikes that sparked a fireball and left charred holes in the side of the buildings. There was no immediate claim of responsibility from Ukraine. Yesterday’s attack marks at least the fifth time that unmanned aerial vehicles have reached Russia’s capital since May.

• Opinion: The Kremlin’s new mobilisation law shows Vladimir Putin is looking for a bigger war in Ukraine, not an off-ramp, writes Alexander Gabuev, director of the Carnegie Russia Eurasia Center.

3. Denmark and Sweden are seeking to limit burnings of the Koran in front of foreign embassies as Muslim foreign ministers are set to hold an emergency meeting today. The prime ministers of both countries are trying to counter strong freedom of speech laws that have permitted repeated burnings of holy books, fuelling a growing diplomatic crisis.

4. A more “critical mindset” is needed to oversee Europe’s banking sector, a leading candidate for chair of the European Central Bank’s banking watchdog has said. Claudia Buch, who is currently deputy head of Germany’s central bank, said a “cultural change” was needed in eurozone banking supervision. Read her full interview with the FT.

5. West African leaders have threatened to take military action against the new junta in Niger if it does not restore the democratic government toppled in last week’s coup within seven days. The 15-member Economic Community of West African States, led by Nigeria, said it would “take all measures necessary to restore constitutional order” in the country. Here are more details.

The Big Read

The US government has become a far more motivated customer for defence and weapons start-ups, driven by China’s rapid development of advanced weapons systems, the war in Ukraine and startling advances in artificial intelligence. Here’s how Silicon Valley is helping the Pentagon in the new tech arms race.

We’re also reading . . . 

Chart of the day

When the Bank of England’s Monetary Policy Committee last met in June, it said it would be looking closely at the tightness of labour market conditions, the behaviour of wage growth and services price inflation. But the mixed picture since then raises questions about how much the central bank will increase interest rates, which are expected to hit a new 15-year high this week.

Lunch with the FT

Historian Tim Snyder has become a prominent figure in American intellectual life. His lecture for an introductory course to Ukraine at Yale, delivered six months after Russia began its war, has garnered 1.3mn views on YouTube. Over Lunch with the FT, Snyder explains why “our misreading of Russia is deep. Very deep”.

Additional contributions by Benjamin Wilhelm