TRADABLE PERSONAL CARBON ALLOWANCES

The basic idea in Personal Carbon Allowances is that each person is allowed to emit CO₂ derived from fossil fuels up to a limit which is their personal allowance. Unused rations, permits or allowances can be bought and sold. Each person's allowance is gradually reduced from year to year, with plenty of advanced warning of each reduction so that there is plenty of time to plan and adapt. Other names for this or related ideas include 'Domestic Tradable Quotas', 'Tradable Energy Quotas', 'Tradable Carbon Permits' and 'Domestic Tradable Carbon Rations'.

PCAs are not a form of self-flagellation and denial. They are the simplest and most effective way of providing incentives to everyone to reduce their carbon footprint and to business and commerce to decarbonise the goods and services they provide.

Notice that PCAs mean direct control over emissions of fossil carbon and this is very different from the thoroughly unsatisfactory idea of trying to control emissions indirectly by means of carbon offsets. Unfortunately, the term 'carbon trading' is applied to both ideas and this is a source of confusion.

The concept of tradable personal carbon allowances was originally proposed by Aubrey Meyer (founder and director of the Global Commons Institute), by Mayer Hillman (of the Policy Studies Institute), and by David Fleming (of the Lean Economy Institute). It has been the subject of detailed research by Kevin Anderson and Richard Starkey of the Tyndall Centre for Climate Change Research and by Tina Fawcett and Catherine Bottrill at the Environmental Change Institute, University of Oxford.

In a system of PCAs, the number of allowances that would be issued each year would be determined directly from the overall cap on emissions for year, which should itself be set in the light of the best available scientific advice. The system would be administered by an independent body, in much the same way that interest rates are determined by the Bank of England. Members of the 'carbon authority' would be appointed on the strength of their technical competence, not their affiliation to this or that stakeholder group.

PCAs have several advantages compared with the alternatives:

• From a political standpoint, PCAs have the attraction that they are likely to create many winners. People who do not need all of their carbon allowances will be able to sell the surplus allowances for cash. By contrast, carbon taxes, often promoted as the way to discourage the burning of fossil fuels, mean that we are all losers (apart from the Government who collects the taxes). It is true that carbon taxes in one area can be offset by a reduction in taxes in some other area but this is difficult to communicate and there is the inevitable suspicion that green taxes are simply a means of increasing the overall tax take. In general, PCAs are likely to be much less of a political hot potato than carbon taxes that are high enough to make a difference. To ease the transition to PCAs, there may be a case for some supplementary measures, as outlined briefly below.
• A related point is that an independent body that makes decisions based on objective measures frees politicians from the temptation to do what is politically expedient instead of doing what is right. Without this kind of independence and objectivity, politicians are far too vulnerable to political pressures. Ever since the Bank of England was given the task of keeping inflation under control (by setting interest rates), the UK economy has been largely free of the boom-bust switchback that we suffered when politicians had control over interest rates.
• A further related point is that PCAs make it feasible to give that independent body the same level of control as is enjoyed by the Bank of England in setting interest rates. The independent body can be given the power to control the number of carbon allowances that are issued each year, thus shielding politicians from blame for stresses and strains that may arise as the number of carbon allowances is reduced and freeing politicians from the temptation to issue too many allowances. Without a single controllable metric such as the number of carbon allowances that are issued each year, the Climate Change Committee or other independent body can only make recommendations to politicians about green taxes and other measures and then of course they are always at risk of doing what is expedient instead of doing what is right.
• PCAs are much fairer than carbon taxes. With the possible exception of taxes on air travel, carbon taxes are likely to hit poor people disproportionately hard. For example, a 20% increase in the cost of fuels for heating is likely to be a much bigger thump in the pocket for a poor person than it would be for a rich person. Imagine how unfair it would have been if, during World War II, the government had decided to ration food and other necessities by slapping taxes on them and making them more expensive.
• Green taxes don't work. We have had high taxes on road fuels for years, but traffic continues to grow.
• PCAs produce a whole raft of incentives to reduce CO₂ emissions, right through the economy. They provide a comprehensive set of price signals that will encourage the suppliers of goods and services to decarbonise their products.
• PCAs are relatively simple. The main alternative is a range of special schemes for each area of the economy, each with its own combination of exhortation, carbon taxes, grants, tax breaks, renewable obligation certificates, subsidies, and quangos. Such a system would be much more complex than PCAs and is likely to create many anomalies and contradictions.
• By contrast with the objectivity of PCAs, levels of taxes, tax breaks, subsidies, or grants depend on relatively subjective judgements about what should be discouraged or encouraged and what the levels of taxes or grants should be.
• Carbon rationing gives the Government much more direct control over levels of CO₂ emissions than any other system. This kind of direct control will be needed when the Climate Change Bill becomes law, with mandatory annual cuts in UK emissions of CO₂.
• The cost to the Government and taxpayers is only the cost of administering the scheme: no expensive grants or tax breaks are required.
• Without PCAs, attempts to control emissions of CO₂ are likely to be defeated by a phenomenon variously known as the "Jevons paradox", the "boomerang effect" or the "Khazzoom-Brookes postulate": that, as technological improvements increase the efficiency with which a resource is used, total consumption of that resource may increase, rather than decrease. If aeroplanes are made more fuel-efficient, this may help to make flying cheaper and this may lead people to fly more. As a result, there may be more CO₂ emissions than there were before.
• PCAs provide a means of controlling 'external' UK emissions of CO₂. The CO₂ associated with goods or services from abroad should really count as part of the UK's emissions, otherwise there will be a great incentive to move all manufacturing or services to countries with very lax controls over CO₂. There are at least two answers to this problem:
  • One is to create some kind of "World Carbon Organisation" that would regulate carbon emissions in every country, in much the same way that the World Trade Organisation regulates trade in countries that subscribe to the organisation. This idea has been promoted recently by the UK Conservative Party.
  • Until there is such a body, and it may be a long time coming, PCAs provide a partial solution. All goods imported from abroad would be assessed, and PCAs would be attached to each product line in proportion to the amount of CO₂ that is released in its production. This would raise the price of 'dirty' products and provide a clear incentive to the producer countries to clean up their act. It would also help to create more of a level playing field for UK-based manufacturers. Carbon taxes could be used in a similar way but, as described above, these provide a much less direct means of controlling CO₂ emissions than PCAs.
• If Contraction and Convergence is accepted as the model for global reductions in CO₂ emissions—and many now believe that this is the only satisfactory way of bringing down emissions in an equitable way—then PCAs are the obvious corollary.
• The EU Emissions Trading Scheme has not, so far, created a realistic price for carbon and, since it only applies to large businesses, it is only a partial scheme. It should be replaced by an international system of PCAs. That would provide comprehensive controls over carbon emissions.

Possible advantages of green taxes

The only real counter-arguments that I am aware of to what I have said above are that:

• Green taxes can provide more stable price signals to consumers and business people, thus enabling them to plan more effectively.
• If green taxes go into a fund that is used to reduce other kinds of tax or to provide grants, this should overcome the suspicion that green taxes are simply a way of increasing the overall tax burden.

These are the main arguments put forward in a speech to the Green Alliance by shadow chancellor George Osborne, 2008-07-10.

I believe the balance of advantage is still decisively in favour of PCAs.

Implementation

A possible worry is that problems might arise in implementing the kind of large-scale computer-based system that would be needed to administer PCAs, or that the confidentiality of personal data may not be safeguarded. It is true that those kinds of problems do arise from time to time both in the public and in the private sectors. But there are many successful systems in regular use every day. With some elementary precautions, there is every reason to believe that the systems needed to administer PCAs may be introduced without undue problems:

• Rationing was administered successfully in the second world war using only the lo-tec methods that were available then.
• A system to administer PCAs would be similar in some respects to the systems that are used to administer credit cards or VAT or even the Oyster card used on the London underground system.
• IT companies that have been successful in implementing those kinds of systems should have no difficulty in implementing a system to administer PCAs. A good track record should be a pre-requisit for any company wanting to bid for the PCA system.
• Incremental development, with feed-back and corrections at each stage, is more robust and less prone to failure than "big bang" approaches to system development.
• The system to administer PCAs should be a free-standing system, not linked in any way to any other kind of system (eg identity cards). This, together with well-established data-handling procedures, should ensure that personal data would be protected.
• This kind of system is probably only needed in countries that are industrialised or industrialising and using a lot of carbon. In countries that are not using much carbon, some simpler kind of scheme would probably be appropriate.

Making the transition to PCAs

As with any change in laws or regulations, there may be a need for some additional measures to reduce or remove difficulties in particular cases. There may, for example, be a case for introducing insulation grants for people on low incomes who might otherwise find it difficult to be warm enough at home. There may also be a case for special transport grants to people on low incomes living in rural areas.

Rationing energy?

David Fleming proposes a system of Tradable Energy Quotas and it is clear from talks that he has given that he intends it to be a system for rationing energy, not carbon emissions. But energy is not the problem: there are more than enough sources of clean energy to meet our needs (see www.mng.org.uk/gh/energy.htm, www.mng.org.uk/gh/scenarios.htm and www.trec-uk.org.uk). Although we should avoid wasting energy unnecessarily, the focus should be on controlling carbon emissions, not energy as such.

Controlling carbon at source?

In Kyoto2.org, a set of proposals for a successor to the Kyoto Protocol, there is the interesting suggestion that fossil carbon should be controlled at the point where it is dug or pumped out of the ground. Since there are far fewer coal mines and oil and gas wells in the world than there are people, it does look as if it would be much easier to control fossil carbon at its sources than at the point where people use it.

One difficulty with this idea is that, by itself, it would not be sensitive to the differing needs of different people or groups of people. Any system that controlled the amount of carbon that is taken out of the ground would drive up the price of fossil fuels. With higher prices, it is likely that rich people or rich countries would get what they need but poor countries and poor people would get even less than they do now.

There may be a case for controls of some kind over the extraction of carbon but, in accordance with the principle of Contraction and Convergence, it probably needs to be coupled with a system of rationing that protects the interests of poorer countries and poorer people.

Petition

If you agree that carbon rationing is needed, do sign the Downing Street e-petition that calls for it.

Links

• A brave new target: cut greenhouse emissions by 122% (Guardian, 2008-10-06). An article about "The Greenhouse Development Rights Framework".
• Personal carbon trading (PDF, 1.5 MB, Environmental Audit Committee of the UK government, fifth report of session 2007–08, May 2008)
• Assessment of the potential effectiveness and strategic fit of personal carbon trading (PDF). A report from the Department for Environment, Food and Rural Affairs, 2008-03-10).
• Introduction to personal carbon trading (PDF, 127 KB) by Richard Starkey, Tyndall Centre for Climate Change Research, University of Manchester, September 2007.
• Memorandum to Environmental Audit Committee (PDF, 77 KB) by Richard Starkey, Tyndall Centre for Climate Change Research, University of Manchester, July 2007. Reviews some variations on personal carbon trading and associated arguments.
• Speech by the Rt Hon David Miliband MP, including proposals for tradable personal carbon allowances, 19 July 2006.
• Domestic Tradable Quotas: a policy instrument for reducing greenhouse gas emissions from energy use (PDF, 662 KB), Richard Starkey and Kevin Anderson, Tyndall Centre for Climate Change Research, Technical Report 39, December 2005.
• Germany sets shining example in providing a harvest for the world (Guardian Unlimited). This article describes Germany's success in encouraging the development of renewable forms of energy. The trick appears to be the use of 'feed-in tariffs'.
• An interesting proposal for a successor to the Kyoto protocol is in Kyoto2.org. One of the main ideas is that, to simplify administration, rationing of fossil carbon should be applied at the point that it is taken out of the ground, rather than the stage when it is used. This global mechanism for controlling carbon emissions may operate in tandem with national schemes for Personal Carbon Allowances—a belt-and-braces approach to carbon rationing .
• At the international level is the related and important idea of Contraction & Convergence.
• Why we must ration the future (Mark Lynas, New Statesman, 2006-10-23)
• Personal Carbon Trading (Environmental Change Institute, University of Oxford)
• "How We Can Save the Planet" by Mayer Hillman, with Tina Fawcett, Penguin Books, 2004 (from www.amazon.co.uk and www.amazon.com). An excellent book that cuts through much muddled thinking about climate change. It makes a brilliantly-argued case for tradeable rationing of CO₂ emissions. Here are some extracts but there is no substitute for reading the book itself.
• "Tradeable Energy Quotas" by David Fleming.
• "That'll be £17 and 10 carbon points" by Richard Starkey and Kevin Anderson in the Guardian, April 2004.
• On the 15th of September 2004, Colin Challen MP published his draft for a Domestic Tradeable Quotas (Carbon Emissions) Bill. (www.colinchallen.org.uk/index.jsp).
• "A rough guide to individual carbon trading", report to DEFRA, Simon Roberts and Joshua Thumim, November 2006 (PDF, 630 KB).
• Carbon Rationing Action Groups (CRAGS).
• Carbon Limited: exploring personal carbon trading.