Zerofootprint: The Ins and Outs of Carbon Trading
by Ron Dembo, Zerofootprint 
on 10.12.06
The UK is looking at a personal carbon trading scheme that will give everyone a free equal allowance of carbon units, which can be exchanged for carbon use, say for petrol or electricity, or traded in a market that aims to drive carbon use down.
With carbon trading by governments and corporations proving successful, there could one day be schemes for individuals too. The idea is that citizens are allocated a number of carbon units for the purchase of energy and fuel, but which can also be traded on an open market. All citizens receive an equal allocation at the outset, and those that use less can sell their excess to those that want more. All this takes place in a framework where the total number of units is capped, with the aim of driving overall consumption downwards.
The idea of tradable personal carbon allowances, or domestic tradable quotas as they are also called, is not new. The concept was first proposed in the mid 1990s, when it was largely ignored as Utopian and unworkable. But it is now being taken seriously by the British Government among others. In a recent speech, the UK's environment secretary David Miliband said such a scheme would tackle the “vast majority of individual [carbon] emissions ... which in turn make up 44% of the [UK] economy's total emissions”.
A tradable personal carbon allowance scheme could work like this. The government calculates a target for the total emissions it will allow from personal electricity, gas and transport use – the factors which are responsible for most domestic carbon production. (The target could be derived from the Kyoto international emissions agreement, or some other sustainability measure.) This total is converted into 'carbon points', and every citizen receives an equal share.
The points are like a currency, to be used alongside the regular currency, although they only apply to carbon. When someone buys fuel, or an airline ticket, or pays an electricity bill, they use their carbon points as well as their money. In fact, the two currencies could be integrated so that both worked with the same debit or credit card.
Now someone who was frugal in their energy use – say, who had installed solar heating and a wind turbine for electricity generation and who cycled to work – could end up with surplus points. Meanwhile, someone else might drive a SUV, have a houseful of electronic gadgets and fly to distant holiday destinations, thereby exceeding their allocation. Under the personal tradable carbon allowance scheme, these two individuals could trade points, the carbon cutter selling to the carbon guzzler. The deal would take place on an open market, and the price of the points would be set by that market.
Such a scheme has a number of potential advantages over other mechanisms that have the same aim of reducing carbon consumption, says Miliband. First, it would be more equitable than putting a carbon tax on electricity, fuel, etc., because tax increases hit all consumers of products, whereas the carbon allowance scheme only creates financial penalties for those who go above their entitlement. “People on higher incomes tend to have higher carbon emissions due to higher car ownership and usage, air travel and tourism, and larger homes, [while] people on low incomes are likely to benefit as they will be able to sell their excess allowances,” said Miliband.
The scheme could be more empowering than many forms of regulation, because instead of banning particular products, services or activities, or taxing them heavily, a personal carbon allowance would enable individuals to make their own trade-offs. The points system also provides a guide for those who want to do their bit for the environment, but at the moment have no way of measuring the effectiveness's of their actions.
And the scheme could be more effective than taxes or attempts to ban products because personal carbon allowances regulate the end result, not the means of achieving it. “Carbon trading fixes the outcome to be achieved, and leaves the price of carbon to adjust to the necessary level to change behavior,” said Miliband. The scheme will provide financial incentives to conserve carbon, and put a price on excess use. Citizens wanting to conserve their points will choose low carbon products, thereby encouraging the market for such products – green electricity, hybrid cars, etc. Consumers changing their preferences will have a domino effect throughout the supply chain. This approach will also simplify the implementation of such as scheme.
“By focusing on just the energy a citizen buys – their electricity, gas, petrol and air travel – not the energy used already to make food, cars or domestic appliances – the complexity is reduced,” said Miliband. Meanwhile, the vast majority of individual emissions are captured, which in turn make up almost half of the UK economy’s total emissions.
The Tyndall Centre for Climate Change Research, a leading UK research organization based in Manchester, England, last year published a feasibility study on personal carbon allowances and concluded that it would be technically possible to introduce such a scheme based around existing credit and debit cards, and that it could prove cheaper than other proposals, such as road user charging. Furthermore, such a scheme would have “distributive justice” since every citizen would be given a free and equal share of the carbon entitlement.
But no one is pretending that such a scheme is likely to be introduced soon, or that it will solve climate change in one fell swoop. It is bound to be controversial, and will require big up-front investment. It is also likely to work best in conjunction with other methods, such as offsetting, which need further development too. But it offers some answers to questions that will have to be faced at some point in the future – such as just what is our individual carbon/environmental entitlement, how do we reward environmental responsibility, and how can we use market mechanisms to engage individuals in the battle against climate change?
[Ron Dembo and Clive Davidson, Zerofootprint]
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I strongly doubt it will come to pass, let alone work if it did.
For a start, it would need the National ID card system to be up and running (I wrote to my MP about this proposal, and some of the material that came back included this bit of information), which is something that will probably never happen, given the British governments incompetence in large scale IT projects and that the conservatives (and I think the lib dems as well) have vowed to stop it when they come to power.
Of course it will be controversial as it will crucify the middle class - the rich will just buy thier way out of it (like they do with the congestion charge and some of the highest taxes on petrol in Europe). I'm not even that certain the poor will be that better off, sure they can sell some unused carbon, but I would bet that they actually use a fair amount as well.
I don't believe for a second that this is in any way the simplest approach - the IT infrastucture to implement this would be immense. If you really must be masochistic in your approach to the saving the environment, then how is taxing at source harder? Surely tracking the energy use habits of the entire population (which I'm sorry, but it feels like a gross violation of privacy - I wonder what you can learn about a person from thier energy use patterns) is not as simple as taxing businesses. But I think that's the point - this proposal actually has little (if anything) to do with saving the world's environment and is just about increasing the government's power over it's citizens. Some nice green sugar for a very bitter pill.
There are other variants of tradable rationing.
Feasta, the Foundation for the Economics of Sustainability, proposes a system in which all emissions rights are distributed to individuals but have to be surrendered by importer or primary producers of fossil fuels. (Banks and other intermediaries will trade them from the individuals to the fossil fuel producers.) This is much simpler to operate and respects the individual entitlement to an equal use of the global commons.
More details at:
http://www.feasta.org/documents/energy/emissions20062.htm
Um, ok... so those living in newer and super efficient houses with the money to spend on solar/wind power, the latest insulation and hybrid cars gets to sell their unused 'carbon-points' to the less well off who live in older, draftier houses, that can't afford double glazing or a new more efficient car or any of the greener technologies? Sounds helpful !?
Just because someone has more or less money does not mean they live any more or less efficiently.
Scot - sure there will be problems in implementing a scheme like this, but I can't see that there is any practical alternative that will actually work. This scheme would enable the government to put a real cap on the total amount of carbon emissions produced by people, and to progressively reduce it as time goes on. How else can this be achieved?
Any other system will only work very slowly to actually reduce our emissions. Here in the UK we do have government subsidies available for many environmentally friendly installations such as Home insulation, Solar Hot Water and Solar PV, but the numbers taking advantage of these opportunities are still very small. In time the numbers will build, but WE DON'T HAVE THAT MUCH TIME!
As far as civil liberties are concerned, in this particular area we are going to have to accept constraint if we are going to achieve anything in time. This is not a game, it's serious. The best analogy in terms of the country (or even the world) pulling together is a war against a common enemy, and when a country is at war the citizens have to accept some constraints on their freedom in the name of fighting that war.
If you don't think this is as serious as that, then you haven't been taking the contents of other posts on TH in...!