Personal Carbon Credit Trading - Is It Part of a Solution?

Peter T Jones
Peter Jones

Thought piece by Peter T Jones

Today’s global economic lockdown due to a pandemic may possibly precede startling changes in the way societies perceive themselves. This has happened regularly from the start of recorded history of (so called) civilisations up to the Black Death and since. We have trodden a road of species invincibility, which is clearly both dangerous and self-extinguishing. Homo sapiens cannot alter global chemistry or delicately balanced diversity without compunction. Science will no doubt come to our rescue in terms of the technical solutions but humans are driven by economics as well.

The current realisation by central Banks that “wealth” is a chimera which can be easily replicated in a model whereby we all print credit to pay ourselves is fascinating. How much better to pay the entire population in “resource credits” on a straight per capita basis regardless of age, class or ethnicity based on current baseline data for carbon consumption? The economically wealthy high consumers would be obliged to pay for the surpluses of the poor triggering shifts in behaviour across society. Throttling back the national allowance (currently running at 135 million tonnes for 68 million people) will drive the motivation to consume more carbon efficiently at both ends of the spectrum.

This requires Government leadership in setting standards but the science of carbon content across supply chains is well advanced and a UK Bank of Carbon could issue us all with our Oyster card equivalents and an app for use at point of sale. 

Personal Carbon Credits (PCCs)

PCCs are a form of Traded Pollution Permit (TPP). Traded permits operate on the basis that regulatory frameworks define or limit the scale of a specified activity (generally in terms of volume or tonnage per period of time) at a level below those allowed in the period prior to regulation. The State controls the issue of the permits quantitatively and the balance of supply and demand in a free (transparent) trading market determines the price at which permits are offered. The volume of permits issued “free” to those requiring them is based on “grandfather rights” of historic performance but then reduces over time, forcing up the price if demand for the right to emit pollutants (for example) fails to fall faster than the declining issuance. Fines and penalties (higher than the market  price) are imposed in the case of identified free riders. As the price  rises those needing to acquire more permits than they are allocated free, reach price points where they decide it is cheaper to change their behaviour (by reduced consumption load, technology or closure) than continuing to pay for credits.

This system has operated for decades in the case of carbon emissions from defined commercial sectors (energy, steel, chemicals etc) but it has never been applied at the level of the individual to influence personal behaviour. This reluctance is primarily due to the lack of political will, given the backlash which could result. Studies have shown there are three significant elements to this risk:

  1. Public awareness of the need and urgency of combating climate risks
  2. Awareness of the impact that individual action can have
  3. The need to explain how PCCs could be socially equitable.

Academic studies have covered this topic for several decades but it is only now that the circumstances for alignment against these three risk factors could be moving into alignment.

How Might a Scheme Operate?

Three variants on the model were originally postulated:

  1. Tradeable Energy Quotas (TEQs)- David Fleming
  2. Domestic Tradeable Quotas (DTQs) – Tyndall/Fleming
  3. Personal Carbon Allowances (PCAs)- Meyer Hillman OECI

There are three differentiators that define the differences in these approaches which reflect participation coverage, allocational recipients and activities covered. In essence, these move back to options for consumer only or consumers and business combined on one hand and gas, electricity, oil, transport fuels with or without aviation.

The Environmental Audit Committee Report on PCCs (HC 565/HC900) in Sessions 2006/7/8 accepted the administrative complications but recognised that this was an important and credible tool to impact personal behaviour and recommended further work. In the last 15 years, advances in data capture at point of sale have obviated many of the blockages.

In terms of the product scope it would be straightforward to apply accepted metrics (carbon or CO2 equivalent weight per KwH, litre, therm or air mile ) via established billing networks. Scope can be defined as all adults and children based on National Insurance, tax or electoral roll data. Credit card I.T (possibly managed via Royal Mail, banks or similar national network bodies) can be utilised to “load” free kilograms of credits based on an across the board allocation regardless of race, colour, social class or creed and irrespective of any other social credits paid via DHSS. At the point of consumption (utility bills, travel agent or garage forecourt) the consumer would present their carbon card to have points/weight deducted. If all allowances are used up then the consumer has the option to buy more in the traded marketplace (at Banks or Post Offices) or pay a variable premium on the retail price (much like VAT) at market price plus a percentage (to encourage use of the traded market forum).

Outcomes

The greatest block to PCCs lie with politicians fears of a public backlash if this is seen as a hidden tax initiative. Timing is easier at the start of a five or seven year term provided it is seen as redistributive socially. Those who consume most carbon have to pay those who consume least (generally the financially poor and groups of pensioners and students).

The significant financial challenge is that current prices for commercial emissions under extant schemes are less than £50 per tonne of carbon. The average per capita personal emissions for our 68 million population is (2016)  6.8 tonnes (CO2) or two tonnes (as carbon equivalent) based on total UK emissions of 468 million tonnes as CO2.

At £100 per capita, there is simply insufficient incentive. PCCs might need to be valued at ten or more times that level to impact behaviour. Conversely the value of PCCs might be enhanced by offering additional credits for carbon reduction purchases (PV, insulation, heat pumps, bus and train travel etc). Administratively it should be straightforward to differentiate between PCCs and the commercial schemes.

Properly communicated such initiatives could prove politically and socially astute with strong appeal to the younger voter and families.

The value of the “market” at £1000 per tonne could exceed £140 billion (70 million population @ £1000 X 2 tonnes allowances).

Key to the scheme is the annual set percentage reduction in allowances to drive personal carbon reduction aims.

The Treasury will traditionally oppose the introduction of such schemes of course because they have little or no control over them and they are fiscally neutral, eventually becoming self-extinguishing if they result in a substantial behavioural shift.