Personal Carbon Trading (Wolff)

Away from my computer last week, I thought I had come up with a new idea to save the world. Suppose everyone is given the right to buy only a certain number of gallons of petrol/gasoline a month; somewhat less than average current usage. You can use your allowance, or if you would prefer, sell it in whole or part on the free market either to those who want more than the allowance, or to brokers. Of course there might have to be extra allowances for those living in rural areas, and so on, but these are details, details ...

What I particularly like about this idea - and how it differs simply from a scheme of high tax - is that it is not obvious how on this scheme you win yuppie bragging points: should you keep your big fast car and be a net purchaser or, go by bike and be a net seller? Which sounds 'smarter'? Which is the way to 'beat the system' and win the admiration of your friends? But in any case, it provides people with an incentive to cut personal comsumption, which would be the sensible thing to do, given that the further twist in the scheme is that the allowance would decline over time, so as to make it increasingly costly to maintain the same consumption level.

It appears, though, that the idea has already been 'anticipated', and while I was away David Miliband, UK Minister for the Environment has experimentally floated a very similar idea. I saw this reported in a publication The Week, which styles itself as follows:

All the best writing from the British and foreign press

THE WEEK IS A UNIQUE DIGEST which distils the best of the British and foreign press into just 44 succinct pages — ideal for today’s busy lifestyle. What’s more, The Week is a joy to read, keeping you entertained as well as informed.

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This blurb is, actually, a pretty good description. Just what you need when you haven't looked at any news this week.

Miliband's version generalises to all energy sources and so is called a 'carbon allowance'. The trading is, in Miliband's scheme, handled by a central agency rather than the free market. Miliband suggested this in a speech, and then mentioned it on his own blog where it has attracted a number of comments, many rather dull and worrying about government's ability to handle the 'buy-back' scheme. A more extended argument along the same lines is here. But if a free market version came into being, what would happen? Would it be a way of giving the poor greater command over resources, or would it just provide a new way of ripping them off? And could we be weaned on to lower energy use this way? Comments welcome.

Comments

[Peter]

Like so many other policy ideas of the lawyer-led Blairistas, this idea forgets that not everyone is middle-class. The notion of personal accounts for something takes for granted that people have a familiarity with banking, that they have a formal involvement in the economy, and that they have active control over their own lives, assumptions which are simply untrue for a significant minority of people in Britain. If anyone finds the previous sentence hard to believe, I suggest reading the article in this weekend's "Financial Times Magazine" about the lives of teenagers on an Islington housing estate.

What next, insisting that people take out futures contracts to hedge against a general fall in house prices?

[Hanno Kaiser]

[From: Law & Society Blog] In the US, a roughly similar scheme of marketable permits has had remarkable success in reducing, for example, sulfur dioxide emissions under the 1990 Clean Air Act. Marketable permits, which are scheduled to decrease over time, are among the most effective ways of providing polluters with incentives to pollute less. It also rewards net sellers of permits much more tangibly than a pollution/gasoline tax, as the cash from selling a permit goes to the seller whereas the tax goes to the government. (Of course, the pollution-reducer saves taxes, but saving taxes feels somehow less rewarding than selling one's gas allowance on eBay after a month of taking the bus to work). If we agree that CO2 emissions are destroying the biosphere in the long run (which appears to be an unsettled question only in the US public discourse, not in the scientific literature or anywhere else in the world), and if we agree that personal consumption is a significant enough contributor to the overall problem so as to warrant regulation, then your proposal seems entirely reasonable to me. In practical terms, the actual permits could be issued in electronic form (e.g., with public key validation), which would make trading them virtually costless. Whoever doesn't have access to the Internet would receive their permits in the mail. It wouldn't take long for local gas stations to emerge as brokers for paper permits.

[John Marshall Robinson]

I don't have enough time to buy gas allowances.

[Steve Peterson]

You can also purchase a Terrapass right now:

http://www.terrapass.com/

to offset the carbon production of your car. No waiting required.

[Thom Brooks]

The idea is provocative, but I remain sceptical.

On individuals. Problem 1. Let us suppose there is an average level of consumption per person. We then follow Jo's advice and advance a system where each person is allocated "credits" worth (in total) a bit less than this average level (which we can buy and sell). Will this help the UK...or anywhere else? Well, for one thing, those in the far north of the country may well use more energy for heating than those in Cornwall...or (for fun) Jersey. Thus, we will have a system that is more likely to benefit/harm people due to where they live, as where you live may determine how much energy you need. To overcome this problem, we might then have to arrange---per county---what average usage is in order to be fair. However, hitting targets in different counties may have no effect on the country hitting the target. A massive, wasted effort.

On individuals. Problem 2. The scheme requires we know how many people live in the country. No one knows this for certain. We have rough guesstimates of numbers, but we will need accurate, precise information on who is who to allocate energy credits. This seems near impossible even with energy credits.

On individuals. Problem 3. Suppose I have my credits and use them, either selling them to repay debts or using them without being too careful. Winter/summer comes around and I am without credits. I am 80 years old. Would this scheme let me freeze to death or suffer from heat stroke? This would be cruel and, of course, contrary to UK law: ability to pay is not a reason to switch power off.

On corporations. Problem 4. One thing this libertarian-esque proposal does not seem to accurate address well is what to do with corporations. How many credits do they get? Different corporations will need more to function (suppose an auto maker) than others (a small company in the entertainment sector). Asking them each to use the same amount of energy is nuts, especially when they vary dramatically in size. How do we work out individual consumption then? Do we not work at the auto maker because we'll use more of our personal credits? Will we use any at all?

I am a member of the US Green Party. I am not against doing all we can to limit energy consumption. (Although nor am I against manufacturers doing ok.) The only foolproof method for the moment is perhaps using this credit system globally and playing with the price of energy locally. Making energy less available (one way or another) is more likely to succeed than this alternative, I regret to say.

[Alex Gregory]

Couldn't you achieve the same effect by imposing the carbon trading credits system onto the suppliers instead? (at some point in the chain, whether that's the extraction companies, the people who own the pipes, the petrol stations or whatever)

I would've that that would have all of the same benefits, but wouldn't place the extra responsibility onto individuals that might be both unfair and more difficult to implement.

[Lloyd Reisman]

Similar article in this past weekend's NY Times Magazine re: the establishment of a commodities market for greenhouse gases. Can be found here: (need to login) http://www.nytimes.com/2006/07/30/magazine/30carbon.html?_r=1&oref=login

[TheJew]

I had this exact idea a while ago.

http://thejewishblog.blogspot.com/2004/12/solution-to-oil-supply-shocks.html

If you issue some sort of oil consumption permit to individuals they would sell them in the market (presuming you have not issued too many that they are worthless). It would be no different from having a governmental agency sell them then uniformly distribute the proceeds to every American.

Having a straight tax on gasoline would reduce consumption in a similar way to issuing permits less then our current consumption (the proceeds of which may also be redistributed if that is also a goal). If the immediate effect of less then current consumption permits would be to attach a $0.50 permit per gallon, a $0.50 tax would achieve the same result.

However, if oil prices were to jump such that gasoline became $0.30 more expensive per gallon, under a straight tax gasoline prices would jump $0.30 as well. However, under a tradable permit system, the permits would become cheaper as the underlying gasoline became more expensive (falling to zero value if there are more permits available then gasoline demanded). The permit price would fall thirty cents as the gasoline price rose thirty cents, canceling each other. The advantage is a buffer between the domestic market and international market price fluctuations. This allows consumers to better plan their fuel consumption (by deciding what type of car to buy) due to more steady prices.

[Matt Prescott]

In response to some of Thom Brooks' problems raised:

Problem 1
View it as a simple internalising of pollution costs. If you live in Scotland, it may cost you more to heat your home than in Jersey. It costs you more now, it would cost you more with personal carbon trading. Unless, that is, you made efforts in home energy conservation. Think how sensible it would be for people in colder areas to make more effort with energy conservation. We know full well that the impacts and costs of climate change will not be distributed evenly. Let's not get hung up on this.

Problem 2
It doesn't matter at all if a few visitors/others slipped through the data net, because they would simply be charged the current rate of carbon on top of fuel and electricity purchases. Such a scheme would be well known, and anyone missing out would soon see the benefit of joining to get their free credit.

Problem 3
Who said the allocation wouldn't be weekly? Even if it was annual, it wouldn't operate in a policy vacuum which ignored fuel poverty.

Problem 4
Evidently the name 'personal carbon trading' has misled people. Miliband referenced the work at the Tyndall Centre. Their proposal is that 40% of the allocation is given to individuals for free (reflecting the 40% emissions from personal transport and domestic energy use) and the other 60% is auctioned to business and industry. There is no clash. As an individual, personal carbon trading only impacts on your fuel and electricity purchases. No need to worry about the embodied energy in your hub cap - your motor manufacturer will be dealing with that.