UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 900-i

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

ENVIRONMENTAL AUDIT COMMITTEE

 

 

PERSONAL CARBON ALLOWANCES

 

 

Tuesday 10 July 2007

MR SIMON ROBERTS and MR JOSHUA THUMIM

MR RICHARD STARKEY

Evidence heard in Public Questions 1 - 100

 

 

USE OF THE TRANSCRIPT

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Oral Evidence

Taken before the Environmental Audit Committee

on Tuesday 10 July 2007

Members present

Mr Tim Yeo, in the Chair

Mr Martin Caton

Colin Challen

Mr David Chaytor

Martin Horwood

Mr Nick Hurd

Dr Desmond Turner

Joan Walley

________________

Memorandum submitted by The Centre for Sustainable Energy

 

Examination of Witnesses

 

Witnesses: Mr Simon Roberts, Chief Executive and Mr Joshua Thumim, Head of Research, The Centre for Sustainable Energy, gave evidence.

Q1 Chairman: Good morning and a warm welcome for you both. This is the very first evidence session we have had on this subject although quite a number of us are extremely interested in it and therefore have been thinking about it for some time. But as it is the first one and you are the first witnesses do you want to give an outline of how you think a personal carbon trading system would actually work and what it would mean for the individuals who are taking part?

Mr Roberts: That is quite a big question. What I would say is that you would end up with a situation where the government or an independent committee determined the amount of emissions that the domestic sector was allowed to emit. In most of the models of domestic carbon trading you then divide those equally amongst the domestic population, of individuals within the household sector, and you can give them each an equal share of that amount of carbon, rights to emit on an annual basis. People would then submit those rights or give up those credits as they used up energy through buying fuel, electricity, gas, or buying petrol for cars or by buying air travel - those are usually the combination of things that are included. You would also almost inevitably have some kind of pay as you go systems for those people who did not have access to their credits or run out and they would be able to buy some on an open market, and individuals would end up having to make decisions about the best way in which they could reduce their carbon emissions. They would have to take the carbon content of their purchasing decisions into account and they would have a choice across that either to reduce their own emissions or to pay someone else through the trading system in effect to reduce it, which will effectively increase the cost of their lifestyle if it is a carbon intensive lifestyle, or it would reduce the cost of their lifestyle if it was a less carbon intensive lifestyle.

Q2 Chairman: The tax system reflects through varying allowances, extra allowances and so on, the different position of certain individuals or indeed families and given that, for example, people with certain physical conditions might of necessity have to keep their houses at a warmer temperature than other people, do you envisage that to make such a system equitable and indeed acceptable it would be necessary to complicate it by having a series of allowances or differences in the allocations which reflected the different circumstances of the individual people?

Mr Roberts: I think you can either complicate the system, which is probably an approach you would not want to follow through, or you look at ways in which you support households that would find it harder, for example, to respond to a limited allowance because of their need; that you would look at ways of doing that outside the system, as we do at the moment, for example, with schemes for giving grants for insulation to low income households, so this deliberate intervention above and beyond whatever system one has. You also need to remember that this is not coming into a system which is fair and equitable at the moment, as you are indicating that some people have more opportunities to reduce emissions than others, but what the cap and trade system would actually mean is that those people who have most opportunities to reduce and the lowest cost opportunity to reduce would take those steps first.

Q3 Chairman: Do you think it is a concept that would lend itself to having a pilot model, say in a local authority area so that people could get used to how it would work and it could be done without financial penalties for a trial period?

Mr Thumim: I think there are some problems with that approach, partly because one of the fundamental definitions of a National Personal Carbon Trading Scheme would be its compulsory nature and the fact that everybody was included, which, by definition, would not be true of a local area pilot. Two, you would have boundary problems with people going outside and obtaining energy services with carbon content that they would then use within the area, so it might be difficult to establish and run. Also a lot of the public reactions to the system will be based around the way it works and the way they interface with it and with a pilot you would probably be in a situation where it was a very sub optimal version of what you would end up rolling out, so people's first encounter with this concept would be a slightly rough and ready version of the system which you might end up with, and that might contaminate public opinion unnecessarily. A couple of examples of systems, whether you like them or not, where that was avoided so that any objections are not on the way the system operates, would be, for example, the London congestion charge where there was not a pilot and it works, and the introduction of the Euro, which, whether you like it or not, was fairly operationally smoothly handled and is a very geographically wide area system.

Mr Roberts: I think the key question is what questions are you trying to answer with a pilot and what you will not be able to answer is do the systems work because you will have a sub optimal question that you have kind of knocked together to try and create a transaction based system for a local area. People have talked about annexing the Isle of Wight for this benefit but I suspect the Member representing that constituency might decide that that was not the best place to do it, but the way you try and constrain it. But the transaction system, which is actually the interface most people will have with it and the ability to keep track of where they are with their allowance and get feedback on it and think about products and services so that they are labelled and all the other accoutrements of the scheme, you hope would be put in place in order to make people find it as easy as possible to act within a scheme, but those will not be there within any pilot because it will be too limited geographically, and I think there is a danger, as Josh is saying, of contaminating the concept and people's response to it with actually their response to a poorly working operational system. People liken it to putting in ATMs but actually they do not really work quite and sometimes you get the right cash out of it and sometimes you do not and sometimes when you go on the system has crashed, and all those kinds of things. What people will get is not a response to getting cash out of a bank by putting in a card but actually a response to a system which was sub optimal and not working properly, and I think you would contaminate an easy assessment of the public's response to such a system.

Q4 Chairman: Do you think it is a desirable idea?

Mr Roberts: I think it is best to say that we are probably agnostic on the issue at the moment because there are a lot of issues that need to be sorted out as we identified in the report, the work we did for Defra. Having said agnostic, as with all agnostics there is something about it that is quite appealing and that is basically that it is very difficult to see how you get individuals around the UK engaged with the carbon impacts of their lifestyle and starting to have to do something about it on a long-term sustained basis, which is fair, and where the burden is not carried by those people who have it and where the cost is not borne by them and other people who cannot be bothered to do something about their lifestyle carry on without any implication for them. On that basis in terms of actually constraining carbon in the economy it is one of the few policy tools that makes you have to face up to that fact and think about it, so it is quite useful from the political science point of view, but on a medium to long-term basis how else do you get 60 million people to think about the carbon implications of what they are doing, and it does it in ways in terms of consciousness, I think, in ways that things like taxes do not do because we are rather used to money and we are rather used to dealing with fluctuations in the prices of things which actually go up and down all the time. What we are not used to dealing with is trading in our minds a decision between whether I fly to New York or insulate my house, and that becomes very interesting. It also takes away from the issue any moral decision about whether flying to New York is better or worse than any other kinds of carbon emissions - it just treats them all as equal and you make your decisions. If you want to fly but live in a carbon zero home then that is a choice you would actually be forced to make in the end or you would have to be paying someone else to do it and paying for the pollution that you are currently causing for free.

Q5 Mr Challen: I can confirm, Chair, that I have already been upbraided by the Member for the Isle of Wight for volunteering his constituency for a pilot scheme, so that is pretty clear! If we did introduce personal carbon allowances what kind of contribution do you think they could make to help the government to achieve its overall carbon reductions target, which is currently set at at least 60 per cent?

Mr Roberts: It depends on how tight politicians were prepared to set the cap, basically, and over what timescale, but obviously if you have 42 per cent of the emissions being caused directly by individuals buying energy for their use in the home or travelling by petrol or aviation in any system - and I do not think the government has yet been entirely clear about how it shares out the burden of achieving those reductions across the economy - if you have a situation of 42 per cent emissions which need constraining then you need some mechanism for doing that. If you set the cap in effect on the trajectory you want to achieve you do not actually need to have another instrument to do it somewhere else. You might know what instruments stimulate markets for any of these services and so forth, but you could set it so that it was actually on a trajectory from now until the target you want to achieve on a drop down, steep curve, or a gentle start curve or a straight line, whatever you wanted. There is a separate question though, are politicians prepared to sustain that because it will get harder as you go further down and the costs will go up, but it has the potential to do precisely that, which is one of the reasons why it has that enticing element to it.

Mr Thumim: It is really important to add that you must not confuse the instrument with the target that is in place to deliver. So any target can be delivered this way, you can deliver an increase in emissions with it by setting the cap at 20 per cent higher than what the current emissions are. So the issue is that it does create the thinking which faces up to the target as a reality because that is what is exciting and perhaps kind of scary about this policy idea, when you think it through you actually think, "Hang on a minute, that is going to constrain carbon emissions in the economy in all these different ways, there can be a lot of effects from that, what are they going to be like, do we like them?" That is completely separate from have we got a carbon emissions target, do we want to cut emissions, and it links them effectively. So the answer to your question is any target, but the tighter the target the more profound the effects.

Q6 Mr Challen: The target we have is up to 2050 but you have already referred to one of the problems that we might have with such a system in that if you have a shallow curve you might be able to introduce it more smoothly and iron out any problems before people started complaining, but on the other hand Stern reminds us that early benefits can be gained by disproportionate effort at the very beginning. Do you have any evidence that would show which kind of approach is the most optimal?

Mr Roberts: No, is the simple answer to that. I think it comes back to the political reality, which is that the cap is set politically and not scientifically although under the Climate Change Bill there would be a committee, in theory, which would be contributing to that process, but ultimately the ministers decide that. I think it is a question, how are we going to constrain carbon issues in the economy and achieve those reductions, and you need some policy tools to achieve that. What you get with a cap and trade is some certainty over the fact that you are going to achieve that; what you do not know is what the price of doing that is going to be. It may well be, because we do not have a lot of data about it, that the cost of reducing carbon emissions for most households is relatively slim because they can simply choose to take a holiday that does not involve flying or they can actually take advantage of one of the many energy supply schemes to insulate their home or just improve their habits and reduce the carbon intensive lifestyle through behaving differently. All those things are relatively low cost, if not zero cost, and therefore the cost of getting down that curve to start off with may be very, very low, in which case the cost of carbon in that particular system would be low as well. What we do not know at the moment is where you start the hits and the marginal abatement cost curve? Where does it suddenly get steep and how does that distribute across different types of households, different types of people? Some people have very immediate, very high costs to reduce emissions and other people have an awful lot of spare capacity to cut emissions through choices they are making which are actually just about habit and behaviour, and I think you need much more of that kind of information to start to map out who would be suffering and where the squeeze would be depending on what curve you introduced. My suspicion would be that taking history as a lesson it will be introduced gently, but then I think we are seeing that in terms of the way in which the efforts being made to constrain carbon in the economy at the moment are that we are introducing it very, very gently at the moment, certainly in the sense we are not actually managing to do it! So on that basis it at least has the potential for doing rather more than that.

Q7 Mr Challen: Looking at the technology of such a scheme I think it is correct to say that the Tesco Clubcard has about 40 billion transactions a year and it is envisaged that this scheme might have about 15 billion, does that indicate that the technology side of it is going to be a bit of a doddle or are we not really comparing like with like?

Mr Roberts: From the work we have done - and we have not gone into that side in a lot of depth, but from some time in my background working in the banking sector I had a brief foray - we have a very good transaction system and we have a very good accounting system - we have a banking system and a system for transacting - and if you think of your carbon account as being another type of financial account if the banks are happy to do it, which I have no doubt they would for the right price, you could have a euro account a dollar account a pound account and you could create a carbon account and you could link it up with the transaction systems and you do not need to build anything new to do that. That holds far more information than the Tesco Clubcard system does at the moment in terms of the banking system as a whole. Where I think you have an issue is with the allocation system, how do you identify and get the right amount of carbon credits to the right accounts smoothly with a tolerable level of fraud - you are never going to eradicate it altogether - and I think that is the bit where you have more systems. We have at the moment government systems which get money to people, child benefit, tax allowances, all kinds of other things like that - your Public Accounts Committee equivalent has raised some interesting points on that. It is a question of how accurate you want it to be and how resilient to fraud you want it to be. I think the systems bit is probably the most straightforward as long as you are not asking for something completely independent to be set up, which you would not want for this; you would want it to be part of the transaction system, which is effectively what the club card is - it goes through the till, it is not complicated.

Q8 Martin Horwood: Simon, it is good to see you again after all these years - a strange place to meet up. You and I both have some experience of marketing and the systems a bit like club card and I think you are probably right that this is a relatively simple system to set up. But surely the complications of these systems is not actually in setting them up, it is in operating them and that is when the cards get nicked, they get lost, people misunderstand them, people run up huge bills without understanding the consequences, and that is with a voluntary scheme like a club card or a credit card. This is going to compel people who cannot even cope with those kinds of schemes to take part, and is that not going to be where the real practical problems happen?

Mr Roberts: I think there are some issues about that but I think we need to be careful, because people will be given an allowance so there is a kind of gift for them to use up or possibly sell on the first day, but actually as people who were in the first phase of the EUETS who sold up on the first day will know that might be quite a good financial decision to make, depending on what you think the price of carbon is going to do over time. In relation to the issues, in the work we did for Defra we looked at the financial literacy issues and there is about one-fifth of the population who really are not very good at dealing with money and living within their means and all those kinds of things, but quite a lot of which are actually fairly well off as well, so I would be less concerned about them because they will effectively have to pay for their profligacy. I think it would be quite difficult - and you would not want to encourage it anyway - for people to rack up a huge carbon purchase without meaning to, other than through using an awful lot more energy than they want to, or filling up several cars worth of petrol rather than one. There are certain limits to what you could actually do in terms of how far you could push it. So I think there are serious issues about how you make sure how you support people working with the system and managing it, in the way that they did, for example, with introducing decimalisation, with introducing the Euro, people had to get used to a whole different way of thinking about their money and the systems and the transactions they were undertaking. I think you need to think about that. Any system would have a pay as you go element to it which some people would prefer to use from a budgeting point of view, I am quite sure, and obviously there would be a slight spread as there is for most of those things between the sale price and the buy price, but we do not actually know how that would work because we do not know what the price of carbon is going to be; so it may actually be better to sell in the first week and take advantage of the drop of price over time in the first few years.

Q9 Martin Horwood: But there are people, as we know as MPs, who have difficulty coping with budgeting money, let alone carbon as well. Tax credits and things like this throw people into complete consternation and distress, and these are the people you are going to give a carbon allowance.

Mr Roberts: But we have not abolished money in order to deal with that, we try and educate them and support them and work through schools, as we are hearing about today, on initiatives to help people deal with money management and so forth. We are not very good at training people on how to manage money. There is a proportion of the population who would find it more difficult than others. The actual financial implication is that that may be quite limited in the first instance, so we should not overblow it and suddenly they are going to rack up thousands of pounds worth of carbon debt in some way or whatever because they would have to be buying as they went or using it up. So I think there is a danger of overstating it. You would need to find ways of supporting those people who find it difficult to participate in the system to their maximum advantage, i.e. people who are disadvantaged by the fact that they cannot participate or are unable or do not understand how to participate, you would have to look at ways to do that. But I do not think it would be any more complicated than a money based system, and it is far fewer transactions and it is controlled and they get an allowance to start off with, so it is a bit like saying, "Here is £100, you decide how to spend it and once you have spent it you have to buy things which will cost you more than if you just spend within it."

Q10 Mr Challen: Here we are talking about a scheme, which will be national, mandatory, so pretty comprehensive, but it occurs to me that it may duplicate things that we already have. The EUETS, for example, already covers great parts of the energy sector and many other things too. Could this co-exist with other schemes? I could see how it could co-exist with taxation and regulation but other trading schemes offsetting, what kinds of impact would it have on those areas where it might begin to duplicate?

Mr Thumim: There are potential complications, if you imagine a carbon trading system running in parallel with the EUETS, and that arises where you have units of carbon that are effectively operated in both markets, so the overlap between what we are talking about now, which would be the domestic system with the EUETS, will be where you have domestic electricity use, and the domestic users have a permit and the power station operators have a permit on another system, which is in the same geographic area, i.e. Europe. So you have some pretty, at first glance, which is the analysis we have done so far, odd effects from that system because if you make a reduction in the domestic system, two LSTs can take it up, one domestically and one somewhere else in Europe, so you get the reverse of what you would have thought. So, yes, that means looking at them very carefully; you could not just say, "Right, we are just going to do this in parallel with what we have already." So I think anything where the system you are talking about is also a carbon trading system you have to look at it very carefully and think about the best way of bringing it in, and it may not be something you do overnight, and you could imagine that it might be something that emerged on a European level anyway later in which we played a part. If you are comparing it to measures that are not carbon trading then there is not a problem and most of those, for example the renewables obligation or other regulatory instruments, are there to facilitate the opportunities to live within the carbon budget and you can look at it in that way. In terms of offsets, unless an offset is actually a carbon credit I am not sure what is worth anyway, so I would not be worried about that. I think this would end the need for offsets effectively; I am not sure what function they would have in a situation where you already have a carbon budget and it was effectively constraining in a real way the emissions that individuals could cause.

Mr Roberts: Offsets, as we know from the recent work Defra did, only create reductions in carbon if they are actually part of another capped system, so you are effectively trading between two deficits and in other words you are just leaving it - "I have reduced but have they done something else? I do not really know." So what you have here is an opportunity for me to pay you to offset my carbon by you actually doing something in terms of it rather than leaving it to some slightly onerous and difficult to understand process by which someone on the other side of the world might have done something to possibly not increase their emissions by quite as much as they would have done otherwise.

Q11 Mr Challen: Are you aware of any other European countries at least that are looking at personal carbon allowances?

Mr Roberts: I am not aware of it, no. Just to expand on this issue with the EUETS I think there is a point in time where we may need to move from focusing on the point of emitting to the point of demand in terms of where you regulate and I think there is a discussion and issue to be addressed there, particularly in the electricity system where while it might get people switching between coal and gas as a choice and other low carbon technologies at the moment you are specifically not allowed to count demand site measures as part of your process for meeting your EUETS targets.

Q12 Mr Challen: It does raise the very interesting question of, if I put coal in my hearth - I do not actually have a coal fire, but if I did - and I use that coal and it was actually exported from China who would be responsible for that under a personal carbon allowance scheme?

Mr Roberts: You would have to give up some of your allowances when you bought the coal.

Q13 Mr Challen: Would that then relieve China of its need to set stiff targets?

Mr Roberts: It would only be an issue if you are regulating the amount of carbon emissions by telling China or anyone else how much coal they can mine out of the ground.

Mr Thumim: You would not apply that to oil necessarily.

Mr Roberts: So at the moment, like petrol some of it comes from the North Sea but a lot of it comes from elsewhere, if the regulation was on how much carbon you could buy in effect then coal of itself is not a bad thing, it is only when we burn it we start causing problems. So it is the point of combustion that is where you would want to apply the cap and the regulation. Obviously what it would do is reduce your demand for coal imports from China if you decided that rather to burn it that you decided to avoid it.

Q14 Mr Challen: It begs the question about embedded carbon in all products.

Mr Roberts: Yes, and that is a broader issue and it is why it is important that you cannot just look at domestic carbon emission rates of itself. Most of the evidence would suggest that the public would expect the rest of society, the economy in effect to be constrained in some way as well, and some of the proposals for domestic carbon emission trading include some mechanism for auctioning off the rights of the rest of the economy and businesses and organisations and recycling the revenue in various ways, which I think may be an over complication of how one would go about it at this stage and the knowledge about how it would work.

Q15 Joan Walley: In your report you warned that the whole debate could very easily descend into some kind of confrontational debate and then you had that kind of response in fact to your own report. Could you give the Committee some kind of idea of some of the responses that you got which took you aback slightly?

Mr Roberts: I think, as has been identified in our evidence, there is quite a lot, particularly from what one might call left of centre analysis, that this is somehow going to constrain the poor and they will be trading their deprivation for cash and this is just a means for the rich to carry on polluting and pay for it. To which the answer is at the moment the poor get no cash for their deprivation and the rich do not pay anyone to pollute. So, yes, it is a point but what this system actually does if you are constraining carbon emissions is to make sure that those people who are currently constraining get some benefit from those people who are not. So there is a think it through answer to that one. Also, more recently there was a situation where a representative of an energy supplier in response to a presentation on the issue from someone from Defra said, "Would I have to cut off my customer if they do not have enough carbon credits?" to which the knee-jerk response is, "Yes, like you do if they do not have enough money," but a more considered response is there would be a pay as you go scheme so they would need to find a way, if they have not any carbon credits of effectively buying some credits, which no doubt the supplier would have a system to sell them to the customer anyway because that is how they are all set up and that is how it would work, so it would end up having a similar kind of effect - it would be just a price they would be paying rather than some credits they would be giving up. It felt like people very quickly get into a position in relation to that and other people saying, "Absolutely no point, we have a tax system, just use that," and some people say in relation to the regressive nature of it that tax is far more regressive than a personal carbon allowance because you do not give anyone anything before you even start taxing their carbon content, whereas with a carbon allowance you give them the right to emit equally, and effectively you are redistributing rights principally from the rich to the poor on average - not entirely though.

Mr Thumim: It is interesting that a lot of the objections, certainly from the left of centre, would be not to the rationing aspect of it - because effectively this is a combination of a rationing system where the trading happens not on the black market but above board - and you find that people do not object to the concept of rationing, the right to emit, but they sometimes object to the concept that you should be able to buy and sell that right, the trouble being that the efficiency that is expected of the carbon trading system is a product of that trading, so there is an issue there.

Q16 Joan Walley: So do you feel that that response is really representative of the general public at large?

Mr Roberts: No, I do not think we know enough about the general public; if you ask the general public they go, "What, why would we want to do that?" but you ask them the very direct question actually about a system that you cannot explain very easily, as I demonstrated at the start of this evidence session. But the public response to it will be conditioned by the fact that they have no frame of reference for what we are talking about, so in that sense how could you expect to get a response which would actually be "genuine"? I think the more interesting thing about the responses of people is what it is actually about is a response about genuinely trying to constrain carbon emissions in the UK economy and really having a strong focus on the lifestyles we lead that are too carbon intensive at the moment. So they come up with the various arguments against it but actually they are arguments about constraining carbon in the economy, generally speaking, rather than against this particular tool for doing it, because as a tool for doing it on most criteria of users it is fairer, generally, and it creates a consciousness about the carbon content of decisions in ways that other mechanisms like tax do not and it sits neatly with all other things around regulation to create the services which people would need in order to respond. So I think a lot of it is, as we said in our evidence, ill considered and not thought through, but people feeling that they desperately need to have a position in relation to it because the Secretary of State made an announcement about it and the latest Secretary of State suggested it should be a manifesto commitment in the next election in the speech at SERA back in March. So there are all kinds of places where it is coming up and people feel the need to have some response and I think in most cases they have not actually thought it through, and that is what we would hope would happen, that there would be a more considered exploration of the issue so that we were actually having it based on fact rather than a knee-jerk nice sound bite type reaction to it.

Q17 Joan Walley: But is not the conundrum how you actually go about having an informed public debate without this sort of detail so that people could actually see how it will work? So what would need to be in place rather than perhaps a pilot project in one part of the country, the Isle of Wight or wherever, to get that informed public debate so that you could have a more seasoned, well judged response to it?

Mr Roberts: Two things. One is that you would need to deal with the operational feasibility issue, you would need to know roughly how much it is going to cost to get the banks to run it and how you would allocate it and deal with that side of it, which I think is fairly straightforward but needs nailing, not to actually get it done but to know what the issues would be you would have to resolve and what time it would take and how much it would cost. The other side is to get a lot more data about the domestic sector, what the cost of our emissions are and how they distribute across the domestic sector, what opportunity to distribute across the sector as well. So you can actually get a picture of who are the winners and losers because at the moment we do not have a very good picture of that, we have a bit of work being done but it is on quite old data, and I think you need a better picture of that so that you can go out to the public to have a discussion that is actually based on real fact. But I would actually say that there is a subset of the public which is more important at this stage, which is actually the political subset of the public, politicians, and I think the key question at this stage is what will the politicians need to know about how the public will react in order to make a decision about it, and there is a lot of this that we need to have an informed debate, well the politicians maybe should have that informed debate first in terms of actually understanding the issues and thinking it through, but I think the public at this stage are not really ready to have a discussion about whether it should be carbon rationing or carbon taxes or whatever, because they are only just getting to the point where there is a recognition we need to constrain carbon in the economy. It is only if you are having it in that context because it is not a question of doing this or nothing but it is a question of doing this or these other things instead - would you rather have a carbon allowance or a heavy tax on petrol and domestic fuel? That is, in a way, the kind of choice you need to be putting in front of people rather than, "What do you think about this?" If you were going out to the public now what I would say is go out and ask them, "On what basis do you think this would be acceptable? What are the criteria you would apply to it?" And from the limited out of work that has been to date people would say, "We do not want to see any free riders, we want it to be fair, we want it to be part of a system which covers the whole economy and we want some element of understanding that it is going to be fairly resistant to fraud and people are not going to be able to spot exactly how much energy I have bought here, there or everywhere," so that there is not going to be some Big Brother element to it, all of which I think you can address.

Q18 Joan Walley: As a part of that things that would be needed would you say there should be some kind of an indication of what a year's carbon allowance might consist of and where would you set that?

Mr Roberts: I think you would set it at the current level minus two or three per cent. That is the other thing, people suddenly think ---

Q19 Joan Walley: When you say "current level" whose current level?

Mr Roberts: The current level of carbon emissions from the domestic sector. We know it is 42 per cent of the total UK emissions.

Q20 Joan Walley: That is not equally shared, is it?

Mr Roberts: No. All of the systems that have been proposed to date, take that amount and divvy it up equally, an equal ration, if you like, or allowance per head of population. The one area where there is discussion - and it probably depends on which side you come down and whether you have kids or not - is whether children get a full allowance, half an allowance or no allowance at all. Otherwise, if you have 30 million people they get one-30-millionth of that allowance, which works out at about five tonnes a head or something, depending on whether you are talking about carbon or CO₂.

Q21 Joan Walley: In terms of how you are describing that, would you say that there were similarities with the arguments and discussions that are going on about how to ration the use of water?

Mr Roberts: Yes, you actually have far more systems to enable the rationing of the use of energy in that respect because we meter energy whereas we do not meter water, so it is rather harder to work out whether people are doing their bit or not, whereas in this case we would have a very good feedback system.

Q22 Joan Walley: But you would do that for water metering, would you not?

Mr Roberts: Yes.

Q23 Dr Turner: Your report refers to some untested assumptions regarding personal carbon trading. One of these is the assumption that individuals will not simply use and manage their allocations but will start trading them straightaway on the carbon market. Do you think that a significant proportion of the public would do that, or do you think it is wishful thinking? Do you think it is desirable?

Mr Roberts: I think you get an interesting mix. I think you get a proportion of the population that would pay as you go; I think you would get a proportion of the population that got quite into the idea of trading and being clever about it; I think you would get a proportion - and we found them in the bit of work we were doing very recently for Defra, which will be published quite soon, on looking at voluntary schemes that are around at the moment for exploring people living within their allowance on carbon, the type of Carbon Reduction Group type scheme. What we have found now is a group of people who are trying to reduce their emissions; they do not want to sell those extra rights to somebody else so that they can carry on polluting. So I think you will get a group of people who would probably bury their allowances in their background - which I would probably count myself in - rather than sell them to someone else so that they can carry on to saturise while they are driving around in their 4x4.

Mr Thumim: We were arguing about that on the train and I said I thought it depended on the price!

Q24 Dr Turner: That is an essential question, is it not, because there is otherwise a risk that the dedicated petrol head will just carry on and pay the costs willy-nilly?

Mr Roberts: And they would pay the costs and the costs would be determined and they would only be able to allowances if somebody else had actually reduced because the cap would set the total amount. So if they were carrying on and they were having to spend a lot that was because other people were fairly resistant at reducing demand, and it could go, "Actually, I could earn this much by doing that, why on earth have I not done it already?" As long as you have those kind of feedback systems. What may happen in those situations is likely to be a petrol and a rather more fuel efficient car or they decide actually to insulate their home very well and to stop taking jet holidays in order to have an allowance left to buy as much petrol as they can consume at whatever speed they want to drive.

Mr Thumim: There is an issue there, which is that if people did not participate that could reduce the efficiency of the system overall and if that was a huge proportion of the population it could undermine the effectiveness of it. So the way it was designed would have to take that into account such that it was not like trying to get your tax credits and so on and so forth, which is quite an onerous process. You could even have systems which made the default that you did trade and you had to opt out proactively.

Mr Roberts: I think it is a very important point in terms of whether people would trade, you could try it not with a pilot but with voluntary gains, if you like, or systems between groups perhaps within organisations - maybe Defra's own staff could participate in a scheme or something - where you actually set something up and see whether people do trade and, if so, on what basis and how regularly. A bit like the switching fuel suppliers, some people do it a lot and some people have never done it. If you look at the success of places like eBay people are getting quite used to the idea of buying and selling things that they own electronically. Obviously coming back to Martin's point earlier, there are issues about the capacity of everyone to do that and how you support those people who are not able, willing or set up to do it, and I think that is a key issue to be looked at. What are the issues? How would trading take place? What kind of systems would be needed in order to make it as simple as possible?

Q25 Dr Turner: How would you stop abuse of the system? How would you stop, if you like, a black market in quotas or in energy emerging?

Mr Thumim: Some of that is the same as the money system. You cannot completely eliminate it but the way we set up the infrastructure of the system can make it very difficult, so counterfeit bank notes are not that common - it does happen but it is not undermining the money system. Then other things would be around the rules of the game. You could in theory allow credit and lending and you could imagine a futures and derivatives market, betting on future values of carbon, and that is happening to some extent in the EUETS. Or you could not allow that.

Q26 Dr Turner: The Chairman has already referred to the question of whether you should take individual circumstances into account and you say that an equal allocation is morally egalitarian, but not everybody's circumstances are equal. What would you do with children, for instance? Would you give a one-year old the same allowance as a 12-year old and so on? And what account do you take of geographical location, whether people need to travel for their work because whichever way they travel they are going to use some carbon, so if they have a long commute to London they are already placed at a severe disadvantage. How do you propose dealing with this?

Mr Roberts: The first thing I would say is that they are also causing more carbon emissions.

Q27 Dr Turner: Of course they are, yes.

Mr Roberts: On that basis, if you are going to constrain carbon then they are going to be a target, whichever system you choose to do it, and I keep coming back to this point that what this policy tool does is make you have to think about exactly those kinds of issues. If you are trying to reduce carbon and you are trying to spread that burden reasonably fairly across society, what are the best ways to do it? I think there are definitely people who will be worse off under this system - not necessarily than anything else - but obviously people living in rural areas, off the gas grid with solid wall housing, with a need to drive and maybe some elderly relatives living in their home that needs a high temperature, will have higher carbon emissions because of their circumstance than the average. I think the question - and it is more of a policy question - do you try and fidget with the system, that particular tool in order to make it cover all those eventualities, i.e. do you try and use PCAs to make the world fair or do you try and use it to make an efficient system for reducing carbon emissions and capping carbon emissions in the domestic sector and find other ways of creating more support for rural dwellers in solubles off the gas grid with elderly relatives living who need a high temperature, in the sense of how you might support them and help them cut their carbon emissions through programmes like Warm Front being more focused on soluble dwellings, for example. I think there are other ways in which you can address those kinds of needs but when it comes down to it what you are effectively doing is taking a snapshot and saying, okay, people up to now have built the infrastructure and made the choices about what they have in their homes and where they live and where they work on the basis of carbon being completely free, they do not have to pay for it, but what we are talking about is starting to introduce a price for that and the way in which you allocate that has some effect on how quickly you move people from a situation where they are effectively getting what they were and having to reduce it one by one - not that we actually know what people are using at the moment so we cannot really make that allocation - or whether you effectively say right from the start that we will allocate it fairly and let it all settle out, and because the cap will not be terribly tight - we are talking about dropping emissions from the domestic sector by three per cent - that is not very difficult to do because most people can do an awful lot more than that just by behaving a bit better, but whether they choose to or not is a different point. That is not a huge issue. The question is whether the redistribution that goes on within that is too much to bear and whether you therefore try to taper it to a point where you are getting to an egalitarian kind of system. My preference, being an affirmed agnostic in relation to it, but if I had a preference in relation to it would be to introduce it as an equal thing and let some of the other things filter out because I do not think that the price of carbon is going to be quite so high in the first few years that it is not going to increase their cost of living that much because the amount you have to cut is relatively low cost cutting.

Mr Thumim: But if it did that would be precisely what the system was there to engineer, which is change the patterns of organisation in the economy towards lower carbon versions, and the question is how quickly do you allow that to happen, so is it a transition or a shock? You can imagine if you did it in too rapid and dramatic a way that could have undesirable social consequences, but in the long run you are looking, say, 25 years out, maybe commuting 150 miles a day by car does not actually have a place in the economy 25 years hence, and this tool has to get us there, so that is precisely the kind of effect we want it to have, which is, "This is actually hurting and I am going to have to relocate my work closer to home," et cetera, et cetera.

Q28 Dr Turner: If you follow that to its logical conclusion you will abolish Parliament because some MPs have no choice but to travel hundreds of miles from their constituencies.

Mr Roberts: I suspect there are ways around that but I would not expect your personal carbon allowance to be used up in your official business. But it may be an interesting exercise looking 20 years hence as to how many times you do need to meet here as opposed to doing it virtually and all the rest of it, but that is a slightly different discussion. I think all of these things come back to if we are serious about constraining carbon emissions in the UK economy all of those things will come to a head. What this tool does is bring them to a head, crystallise them out rather more quickly and obviously than thinking that we can just regulate that a bit and maybe if we put a bit more money into public transport in rural areas and a bit of this and a bit of that, this one says that this is about designing a UK economy in which people can low carbon lifestyles and that tends to mean that they will be living nearer to where they work, they will be living in lower carbon housing and they will be making choices about the equipment they put in the house, the holidays they have and the travel choices they make, which are lower carbon.

Q29 Dr Turner: How powerful an incentive do you think it would be to make people actively look for low carbon personal transport? Could it actually bring forward transport developments?

Mr Roberts: What it should do over time is create markets for low carbon services and technologies, and I think it could have an effect that the economists would not predict because they do not understand human psychology very well, where actually people think ahead of themselves in relation to this, so they start to think about those issues quite clearly. If you see the success of hybrid vehicles now it is quietly disproportionate to the benefit that they create and their high cost but they are still going forward, growing in the market quite significantly. So I think this would generate more demand for low carbon services and bring forward technologies. It creates markets for them in ways which are actually genuine markets rather than telling people to go out and try and sell that to a public that is not yet particularly interested, this at least starts to tackle the other side of that particular equation, which I think is an important element.

Q30 Martin Horwood: Accepting for a minute that if it stopped MPs flying so much it would be a result is there not a risk of a perverse effect at the other end of the scale where people are below average, where at the moment someone who is scared of flying, does not drive much, lives in a flat is trying as hard as everyone else to reduce their carbon emissions in other areas, but actually if you introduce the scheme and tell them that their tonnage per head is only three tonnes and everybody else's is five that they relax and increase their carbon emissions.

Mr Thumim: That is fine as long as they stay within the cap.

Q31 Martin Horwood: No, but it is not because you have taken someone who is trying to reduce their carbon emissions and allowed them to increase.

Mr Thumim: If their carbon emissions are within the permit morality is not an issue because we have set the community wide cap.

Mr Roberts: I do not think he meant to say "That is fine", I think what he meant is that that is not a problem from the point of view of reducing carbon and obviously you do not want to create that disincentive to people. I do not actually believe it would, I think most people who have made those kinds of decisions about carbon, trying to achieve low carbon lifestyles will continue to take steps towards it.

Q32 Martin Horwood: But they may not have very consciously been pursuing it as a low carbon lifestyle, it may just happen to be the lifestyle they lead.

Mr Roberts: In which case they will simply have some emissions to make because it is not that easy. If you have a house with equipment in it and a way of life in terms of how far you travel it is not that easy to suddenly increase your carbon emissions an awful lot. So if you are a three tonne household you are going to be a three tonne household unless you work quite hard at using up the rest of your allowance.

Q33 Mr Chaytor: Could the personal carbon card be integrated with the identity card?

Mr Roberts: Theoretically yes, but I think it might introduce a whole range of other public acceptability issues which you do not need to introduce to make personal carbon allowances work.

Q34 Mr Chaytor: In your written submission to the Committee you have not touched on civil liberties or data protection issues. Do you think there are serious questions there?

Mr Roberts: I actually think that if you look at the banking system, my bank has details about every financial transaction I have made and yet no one else has access to it unless they somehow manage to hack into the system. So I do not have any concerns about the transaction system and the accounts system being able to be managed in a confidential manner.

Q35 Mr Chaytor: The technology can guarantee data protection?

Mr Roberts: Yes.

Mr Thumim: To the extent that we are used to living with already.

Mr Roberts: In that respect in terms of the ID card the issue there is not so much about whether you have it as a swipe card in some ways so that you can tell who it was exactly, but actually in terms of how you manage the allocation process and making sure that you are allocating the right amount to someone who is living and justifiably getting an allowance rather than someone who has managed to fill in ten national insurance number forms, or whatever it might be. So there is an issue in relation to that but, again, I do not think you need an ID system. It depends how much fraud you are prepared to tolerate, I suspect.

Q36 Mr Chaytor: Would it not be more efficient to do it through the national identity card given that there is huge pressure to ensure the integrity of the ID card to make it politically acceptable?

Mr Roberts: It is effectively a transaction system and you have a transaction system already; the ID card is not a transaction system, it is an identity system.

Q37 Mr Chaytor: It could be used as a transaction system.

Mr Roberts: It could be but my sense would be - and I do not want to go into a discussion around the issues in relation to the benefits or dis-benefits of an ID card - that the issue is if you associate personal carbon allowances and make it somehow dependent on one another then I think you are going to kill of personal carbon allowances because there will be a strong body of opinion, as you know already - you have an opinion about ID cards which in no way needs to be related to whether personal carbon allowance is an effective tool, where personal information can be protected, confidentiality can be protected and fraud prevention can be managed without the need for an ID card. So in theory you could link them together, of course you could, but they are actually performing completely different functions and the need for a personal carbon allowance is as much more about the transaction system than it is about the ability to prove who you are at any given point. I do not have to prove who I am in order to draw money out of my bank account, I have a card which by knowing the right pin number means that I must be that person somehow, but obviously there are other ways they can do it. I also do not think you should overstate the potential value of nicking somebody else's personal carbon allowance, I do not think there is going to be a huge amount of money involved in it for quite a long time because I do not think the price of carbon is going to be very high.

Q38 Mr Chaytor: To deal with data protection issues, is there a value in exploring an anonymous personal carbon trading system? Could that be possible?

Mr Roberts: If you have a banking based transaction system then that is effectively anonymous. I pay money across to my energy supplier, if someone else pays money for me the energy supplier is not actually that bothered; as long as the money goes in their credit system in the right place that is all they are really bothered about, and they do not have any access to the rest of my account details.

Q39 Mr Chaytor: So the logic of that then is could it be integrated with a travel card like the Oyster card, if that were to be extended to other conurbations in the UK? Could you see an integration there? One of the objections must be the multiplication of different cards that people carry - people are carrying bags' full of different kinds of ID cards and loyalty cards and points cards and so on. So I am looking to find a way in which it could be acceptable but also simpler. Could you link it in with the London Oyster card?

Mr Roberts: As I say, I keep coming back to the fact that that actually where you want it to be is with your accounting and transaction system, which is likely to be with the banks because it is principally a financial type of transaction and needs the same kinds of systems and safeguards in relation to it, and where it is going alongside a financial transaction every time you use it. On that basis I would stick it alongside a swipe card of some kind that is financial; or a separate one. I think that is one of those things you could find out from the public - would you rather have a card that was separate or rather integrated with another, and I suspect there would be a range of options available to people because it would depend, as we have at the moment, on what your bank, who is managing your carbon account for you, decided to do.

Q40 Martin Horwood: Your report states fairly categorically that a full pilot project of a personal carbon allowance system would be impractical and may even restrict progress. You have touched on this a little but could you elaborate a bit more on why you think that is the case?

Mr Thumim: I think the most important thing is the fact that the mandatory nature of the idea and could you really have a mandatory pilot and could you actually police a mandatory pilot felt like what the actual full-blown proposal would feel like, and I think it would be difficult to do that and that would undermine the value of piloting it anyway. In addition to that, the investment in infrastructure in the system to run a personal carbon allowance scheme would not be likely to be made for the sake of creating a pilot when you might decide as a result of the pilot not to go ahead anyway. So, in summary, it would be very difficult to create a pilot that was actually a pilot of a full blown system in the sense that it created the conditions and but were similar enough for you to learn lessons about the full-blown system from the pilot.

Q41 Martin Horwood: Do you think any of the existing experiments into any kind of carbon trading system would provide useful data of an individual?

Mr Roberts: Can you give an example of one of the experiments?

Q42 Martin Horwood: I thought your evidence referred to things like the CarbonDAQ system proposed as part of RSA's CarbonLimited scheme.

Mr Roberts: We have just done a bit of work for Defra and when it is in the public domain we will make sure it is forwarded on to the Committee as well, looking at the range of things which are apparently doing, the voluntary trading things and none of them really are; most of them are doing stuff which is effectively looking at helping people do their carbon footprint and then encourage them to think about how they might live within an allowance. But most of them are not particularly clear about how they might determine the allowance or whether they can pool it as a household, what the cap should be, what trajectory they should go on. So at the moment I would say that there are systems out there that are actually testing it and one of the points we have raised with Defra in relation to that bit of work is that a lot of them are thinking about going ahead and doing trialling and from w can tell at the moment most of them are relatively ill-considered in terms of the way in which they might go about that in the absence of the transaction system.

Q43 Martin Horwood: But do you not see that if you have some kind of pilot that gathers some kind of data that might at least lessen the risk of what seems to be your big bang approach, simply introducing a national mandatory scheme overnight hoping that it works.

Mr Roberts: We have been trying some things out. When people say "pilot" to me you have the system and you are taking it to Manchester and making the whole of Manchester work within the system and you have this operational transaction system and it is going to feel very like it would at the end - a bit like introducing the congestion charge just in Kensington, for example. The decision about it being sub optimal in terms of the way the system would operate I think is really important. I do not think you can do that in a way which would be particularly useful because the system testing you can do in a big warehouse somewhere in the East End of London with a lot of people being clever about the way you test systems. In terms of the individual response to it there are so many factors that are conditioned by the fact that it is mandatory and everyone is involved, which makes it difficult for testing in the absence of doing that, what you can do is try out things, games, voluntary trading schemes, Web-based tools and all the rest of it where you are looking at organisations, groups of individuals, community organisations, government department staff, business organisations and a number of them are quite interested in trying to introduce this, to see how people respond to it and to see how easy people find it to live with and whether people do decide to trade and what decisions they make. If you have a group of people that has lower than average emissions at the moment and you give them a choice to where they set the cap, do they set it at where they are at the moment or do they revert to an average for the UK and, as you were suggesting earlier, burn up the rest in the back garden by buying some coal from China or something? You can actually find out some interesting things from that. The real question with the pilot, what is it you are actually trying to find out and is doing a pilot with all its constraints and limitations going to tell you that as effectively as it can?

Q44 Martin Horwood: You seem to be giving some value to pilots in terms of the personal response at least and people's habits and finding out more about how people respond to different things. Could I summarise your position as saying that you are in favour of the right pilots but not the ones that are being carried out at the moment? Is that right?

Mr Roberts: No. What you have not got in any of them is a transaction system so that when you pay your energy bill you are giving up some energy credits. Because you have not got that in place - and that is the bit which is going to be suboptimal until you have got the full system - you are always going to have a situation where effectively you are relying on someone monitoring their electricity meter and gas meter and feeding those numbers in and coming up with how much carbon they have used. You will also have to have people registering the fact that they have run the car and calculating how much petrol they have used and what the costs of that would be. They will not be going into a petrol station, swiping a card and using up carbon credits. It will be a voluntary system in terms of people keeping track of those things. Until you have got a transaction system you are always going to have those limitations. The questions you can answer about the public's response to that are different from what you could answer if you could actually do the whole lot. Maybe someone will come up with something that is very simple and easy to use where you could go to Bristol and say we are going to run it on the whole of Bristol and the system would be so brilliant it would feel just like the real thing.

Q45 Mr Caton: Your report included a 'road map' showing how Government could carry forward the development and evaluation of personal carbon allowances as a policy idea. What progress has been made on that since publication?

Mr Roberts: I know that Defra has in effect accepted a lot of those recommendations in terms of the areas it feels are necessary to study. One of the areas it did not pick up on were the political acceptability and feasibility questions, which I thought was interesting bearing in mind it is really important to know what politicians would need to know in order to press the button on that because that helps to determine what research you need to do and what questions you need to answer in relation to that. There is a programme being developed within Defra to follow through the first step elements of that. There was a workshop a couple of weeks ago looking at detailing those in more detail. As we say in our evidence, there are some issues about whether it would be affordable to fund it and how it is going to be funded. There is a slight feeling in Defra that it would be really nice if someone else was doing it already but I do not see that happening. I do think it needs to be properly funded. It is not very expensive to do it relative to a lot of other things we are spending on to try and cut carbon, particularly technology-based solutions. I think the interest will be sustained by the new Secretary of State bearing in mind previous public statements they have made and I think it is something where a programme of work has been developed, but I am not sure quite the funding is in place to follow that through. I think a key issue is how Government sets its priorities for funding.

Q46 Mr Caton: But you sense that there is adequate urgency and commitment in Government to take this forward, do you?

Mr Roberts: I think there is a level of interest and there is a programme being developed. Obviously there are a lot of other things the Government is trying to do which it feels it wants to give full headroom to let go first. I do not think this is seen as an instrument for the next three years and on that basis, while we have got a very limited research budget, maybe we ought to spend more of that on looking at understanding those things and making sure they work. This belongs more in the pot of the money that other government departments are spending on carbon capture and storage or fusion research which is being held up as the big white saviour of carbon emissions. This is actually, in terms of carbon emissions reductions, possibly more significant, probably more useful to the UK economy in terms of sustaining a leading carbon emissions trading scheme and the value that gives and yet it is being treated as a policy instrument rather than scrabbling around for a few tens of thousands and being treated as an alternative to technology and the investment that goes into that. In terms of reducing carbon emissions, we need to be thinking not just about slotting it into different technologies and throwing money into each of those - and it is really quite significant sums, millions of pounds is spent on them - but rather here is a tool that may have some answers in relation to cutting carbon emissions and changing the way people live their lives, which is after all what we have got to do. We should be doing that rather than trying to bolt something on to the end of a power station and hoping.

Q47 Mr Caton: Is a personal carbon trading scheme completely compatible with what is in the draft Climate Change Bill?

Mr Roberts: I am not sufficiently familiar with either what legislation you need for a personal carbon trading system or the draft Climate Change Bill to say they are all linked, but my understanding is that Defra has worked quite hard to make sure that they have at least opened the doors and created a mechanism which could then be used. On the basis of the current level of understanding, I would be very pleasantly surprised if they have covered all the bases that would need to be covered in order to create a legislative framework where you could just roll it out without any need for further legislation.

Q48 Mr Caton: Let us come back to the point you made earlier about the need for debate in the political subset of the population. One thing we know is that governments tend to be very nervous about introducing measures that require their electorate to change their behaviour substantially. In those circumstances does something as radical as this look likely ever to get off the ground?

Mr Roberts: That is probably the biggest issue on your side of the table, whether anyone is ever brave enough to decide to do it. If we cannot then we probably are not going to manage to curb carbon emissions more generally. If you want to cut carbon emissions you are going to have to address that precise question. If you are not going to do it through this you have got to find some other way to do it, most of which will stick in your throats and give you butterflies in your stomach as you stand up at the despatch box to announce it in terms of what effect it might have on the public. I have some direct experience of being involved in some deliberative focus groups that were not specifically about carbon emissions trading although it came up. People are much more ready to accept it when they have had it explained to them and they have thought about it a bit and had discussions with the people who understand it, but people are also quite angry that Government is not stopping them buying cars which are inefficient and not making sure that the only thing they can buy in a shop is something which has a low carbon footprint. They want Government to edit their choices, which is the latest version for setting standards and banning things. They do not believe they will ever have enough information and understanding themselves to make those choices, they would rather someone did it for them, like we do with health and safety. You cannot buy a television without a plug on it but you can buy one with a standby consumption that is still 60 watts. There is something very bizarre about a world in which you cannot expect people to wire their own plug but we will allow them to carry on causing a carbon footprint even when they are not getting any value from that particular appliance. I think there is much more public appetite for the Government intervening and stopping things happening that they have no control over because their choices are not having enough effect on the market for them to be braver about that. That is why I said the political subset should spend more time discussing how you overcome that. How do you take bold steps, in the absence of a direct feedback link from the public saying this is fantastic, we're all going to vote for you, to do the things which are taking it a little bit more further forward and trying things, unlike things like road pricing where you say let us try it out and then get a million signatures and suddenly you never hear about it again? It is about being more sophisticated about how you think about it, more ready to test the public with the right questions about what they need, rather than just asking them "Would you like this?" without any alternative being presented about how else you are going to constrain carbon in the economy.

Chairman: On that note, can I just say that when this Committee issued a report last summer recommending quite vigorous action on things like 4x4s the e-mail protest response was said by the Clerk to be greater than that received by any other Select Committee in history. I am not sure every member of the public wants the Government to stop them doing the things they are doing. Thank you very much indeed. It has been a most interesting session. We are most grateful to you for coming in.

Memorandum submitted by Richard Starkey

Examination of Witness

 

Witness: Mr Richard Starkey, Researcher, The Tyndall Centre for Climate Change Research, gave evidence.

Q49 Chairman: Good morning. I know the work you have been doing is particularly on DTQs. I wondered if you might just say why you think that particular model is best, if you think that particular model is the right one and whether there are any characteristics of DTQs which might differentiate it from other forms of personal carbon allowances.

Mr Starkey: Personal carbon trading is an umbrella term that encapsulates various versions of involving individuals in trading. The reason that we started looking at Domestic Tradable Quotas (DTQs) was that at the time, three or four years ago, it was by far the most well worked out system; we were not starting from base zero as it were. We built on the work that David Fleming, the originator of the DTQs idea, had done and our research at Tyndall has really been building on that work.

Q50 Chairman: Are there particular aspects of it which you think make it work well or does it just happen to be the one on which the most examination has currently taken place?

Mr Starkey: One of the aspects of the scheme that I think is quite attractive at least in theory, we can come to the practice later, is it is one scheme that encompasses the entire economy so it is simple and efficient. It is not just a scheme that involves individuals in trading carbon but it also involves organisations, firms, the public sector, the voluntary sector and so forth.

Q51 Chairman: Do you think it is going to be possible for a country like Britain to reach even the 60 per cent target for cutting emissions? I know from earlier discussions with you and your colleagues at the Tyndall Centre that that is probably a much less ambitious target than what we are going to have to adopt fairly soon anyway. Even to achieve 60 per cent, do you think it is going to be possible without a fairly radical system like DTQs being introduced?

Mr Starkey: Yes, I do think it is possible without a system like DTQs. Could you do it with a carbon tax? I think you could do it with a carbon tax. Could you do it with a different sort of trading scheme? Yes, you could do it with a different trading scheme. I am not a member of a group who says that this is the only possible way that you can reduce emissions substantially in the UK. I think the question is, if you can do it with various instruments, what is the preferred instrument to use and does a personal carbon trading scheme have additional benefits over and above those of other instruments? I think that is really what a lot of our research at Tyndall has centred on.

Q52 Chairman: Has it suggested it does have additional benefit?

Mr Starkey: It has suggested that it may do. I think the next stage of research really needs to dig deeper into whether there are additional benefits and those benefits are great enough to justify any additional costs that go with setting up this scheme as opposed to other schemes. You can start off saying the great thing about personal carbon trading is it is fair, it allocates emissions rights on a per capita basis, but the opponent of personal carbon trading can say two things at that point. One was the point raised by Dr Turner, that maybe an equal per capita allocation is not exactly fair because of variations in individuals' circumstances, but even if you put that to one side, the opponent to personal carbon trading will say that you can have an equal per capita allocation much more cheaply by having a carbon tax where you lump sum recycle the revenue; in other words you allocate the revenue from the carbon tax on an equal per capita basis, or you can do it more cheaply. Okay, but a carbon tax does not guarantee a cap. Well, you can have an upstream carbon trading system where you auction the emissions rights and you allocate the revenue on an equal per capita basis. That is equally fair, it guarantees the cap, but it is cheaper to implement perhaps than a personal carbon trading scheme. So the fairness argument does not win the day for personal carbon trading because the opponent will say there are other schemes that are equally fair but may be cheaper, at which point the proponent to personal carbon trading would have to say okay, other schemes may be cheaper, this may be more expensive to implement, but there may be additional benefits and those additional benefits will come from the increased visibility of carbon. Rather than confronting individuals with a price signal through a tax or through an upstream trading scheme you would give them this allowance in their hand so to speak. The currency of the instrument, emissions, is the same currency as that of the problem, too many emissions. Because they have got this visible allowance in their hand or in their electronic account carbon is much more visible and the awareness of carbon is higher and so their engagement with taking actions to reduce their emissions of carbon is higher and you get more efficient reductions within the economy. That is the hypothesised benefit of a personal carbon trading scheme, its visibility and its engagement. Some people describe it as raising carbon consciousness.

Q53 Joan Walley: Your report was published in 2005 and since then we have got the draft Climate Change Bill and we have a Committee of both Houses looking at that. How do you feel that that is having a bearing on how you could put into effect personal carbon trading?

Mr Starkey: From my understanding of the Climate Change Bill and my conversations with people in Defra, a personal carbon trading scheme would not be precluded in any way by the provisions of the Climate Change Bill as it now stands. Enabling powers within the Bill would allow a personal carbon trading scheme to be implemented.

Q54 Joan Walley: It is interesting that they say that it would not be precluded. Would you not see it as a positive way of providing a constructive framework within which that could operate?

Mr Starkey: As I understood your question, it was simply whether the terms of the Climate Change Bill precluded a personal carbon trading scheme and they do not.

Q55 Joan Walley: I am asking whether or not it would provide a more constructive framework within which it could operate, and does there need to be more changes to it before it even gets to Second Reading and so on here in the House?

Mr Starkey: I am still not sure that I follow your question. Changes to the Climate Change Bill or changes to the configuration of a personal carbon trading scheme?

Q56 Joan Walley: Since your report was published we have had the draft Climate Change Bill, in fact it is currently under pre-legislative scrutiny. My question was whether or not the emergence of that Bill, with all that it will bring into operation when it is enacted, will make it much more easy for the aims and objectives of personal carbon trading which you are looking to bring about?

Mr Starkey: In the sense they would not preclude it. I think there are lots of other hurdles that need to be overcome and we can talk about those. As long as the Climate Change Bill does not put an insurmountable obstacle in the way of introducing a personal carbon trading scheme then it is one less obstacle to deal with, if that is the way politicians want to go.

Q57 Mr Chaytor: Can you describe the difference between a personal carbon trading scheme and the "cap and share" scheme? What do you think are the advantages and disadvantages of each?

Mr Starkey: Under personal carbon trading schemes emissions rights are not only allocated to individuals but they are surrendered by individuals. So under the Domestic Tradable Quota scheme, for example, individuals would receive their allowance of emissions rights and then whenever they bought fuel from the utilities or whenever they purchased petrol or diesel from the petrol station they would surrender their emissions rights either by card or by direct debit from their account or through the pay-as-you-go system, thereby buying emissions rights at the point of sale. So they are not just being allocated emissions rights, they are actually surrendering emissions rights as well. Under the cap and trade proposal, which is put forward by the Irish NGO Feasta, individuals are allocated emissions rights but they do not surrender them. What happens in a cap and share is that the individual receives an annual certificate through the post and that certificate is their emissions rights for the year, so that is their allocation. They then take it to the post office and sell it, there is a national market in carbon and those emissions rights are purchased upstream by the fuel suppliers. It essentially becomes an upstream cap, but rather than allocating emissions rights directly to the fuel suppliers it goes to the fuel suppliers via individuals.

Q58 Mr Chaytor: What happens if people do not sell their rights to the fuel suppliers, if they just hang on to the certificate that comes through the post? Presumably the price of carbon increases dramatically.

Mr Starkey: The supply goes down so you would expect the price to go up. The same question could be asked of a personal carbon trading scheme, what happens if people do not surrender all the units in their account?

Q59 Mr Chaytor: In terms of the administrative aspects and the technical aspects, is that not simpler than a personal carbon trading scheme or a DTQ scheme? It cuts out the need for plastic cards and bank accounts. All that happens is that each household gets one certificate through the post each year and decides whether or not to sell it.

Mr Starkey: Yes. You could ask is it not simpler still to auction the emissions rights straight to fuel suppliers rather than having a complete database of where everybody lives, having to maintain that every year, posting it out and dealing with postal fraud. There are issues around cap and share that are not administratively simple, but I suppose the proponent of cap and share would say their scheme is more complex than an upstream auction but that the additional complexity is worthwhile because of the additional benefits. So the argument you have to make with personal carbon trading is that there may well be additional complexity in terms of cards, accounts and so forth, but that additional complexity is justified because of the increased benefits in terms of the visibility of carbon, the increased awareness and increased carbon consciousness. These are all hypotheses. I am not saying that would be the case, but that is the hypothesis that needs to be tested.

Q60 Mr Chaytor: What would be the benefits of cap and share as against a straightforward upstream auction?

Mr Starkey: I think the proponents of cap and share would say that it is important for people to be able to hold the certificate in their hand showing their share of the atmosphere, their emissions rights. There is something empowering about that. The atmosphere does not belong to organisations, it belongs to individuals, you have got your share in your hand and that sort of thing, but it happens just once a year. With personal carbon trading there is that reminder of your carbon emissions every time you buy petrol, every time you pay a utility bill and every time you buy gas and electricity. One might argue there is increased visibility and that increased visibility may justify the increased complexity and increased cost. In summary what I am saying is you are weighing up the costs and benefits all the time. It is not right just to look at costs; you need to look at the cost-benefit analysis.

Q61 Martin Horwood: Can I test you on the operational feasibility of this? You are very confident that the existing transactional technologies can cope with this system?

Mr Starkey: Yes.

Q62 Martin Horwood: What would be the equivalent of purchasing carbon credits in existing technologies?

Mr Starkey: What would be the equivalent?

Q63 Martin Horwood: Are you thinking of something where you would run up a carbon bill, do you have a top-up card or do you have to buy them online? How would you imagine that practical part of it working?

Mr Starkey: When you say run up a carbon bill, I do not think you would be allowed to go overdrawn on your allowance so in that sense it would be different from a bank account, if your bank allows you to go overdrawn.

Q64 Martin Horwood: So it would not be like a credit card?

Mr Starkey: No.

Q65 Martin Horwood: It would be more like a top-up scheme?

Mr Starkey: It is not the same as a top-up scheme. With a top-up scheme stuff is coming onto your card. In this system stuff is going out of your account. It is perhaps more like a debit card.

Q66 Martin Horwood: You talk in your report about individuals then purchasing units if they want to carry on emitting carbon. How would they do that in practice? Where is the existing analogy?

Mr Starkey: There are four routes. They could purchase them online with a credit or debit card. Just as you purchase a book from Amazon or eBay, you could purchase them online from your bank. You could go into your post office and buy them that way. You could easily do it over the telephone either by speaking to a real person or through an interactive voice recognition system. In the previous session you asked questions about what happens if people cannot cope with the scheme or are not able to understand it. People are able to set up an arrangement whereby they automatically sell their emissions rights as soon as they hit their account and then they buy them at the point of sale, but they do not know that they are buying them at the point of sale. They are simply paying an increased price. They are just transacting money. That is the fourth way of buying.

Q67 Martin Horwood: That sounds broadly like a top-up scheme, does it not? You have to go out and physically purchase it before you then carry on emitting. There is not a perfect analogy for this in any existing scheme or any existing technology. If everybody tries to do it the price will go up quite sharply. Somebody is suddenly going to find the holiday they were budgeting for is not something they can afford because it includes a long-haul flight.

Mr Starkey: That is the same under any cap and trade system. If you restrict the amount of carbon in the system then not everybody can burn all the carbon that they want to. The question is not how big the cake should be because every system restricts the size of the carbon cake but rather how that cake should be sliced up.

Q68 Martin Horwood: What I am trying to test is whether there really is any analogy in existing technologies or systems for this kind of scheme. There does not seem to me to be anything that would operate quite like this. Compared with the systems that you are hoping will cope, like credit card systems, actually this is going to operate quite differently, is it not?

Mr Starkey: When you buy petrol you simply put your card in the reader and money moves from your account into the account of the petrol station. The card allows the petrol station to export money from your bank account into their bank account. In the same way, if I am buying petrol under this scheme, I put my carbon card in the reader that already exists in the petrol station and that transaction allows the petrol station to take carbon emissions rights from my account into their account. If you get rid of the overdraft bit of it, it is analogous to using a debit card to move money from one account into another.

Q69 Chairman: There are some quite difficult practical questions here. What happens if you are an American, you just come in and you rent a car in London and you want to fill up with petrol?

Mr Starkey: You just use the pay-as-you-go option. You buy your emissions rights at the point of sale.

Q70 Chairman: If you are not a citizen you have not got an allowance, have you?

Mr Starkey: Which is why you buy them at the point of sale.

Q71 Martin Horwood: Then it is like a top-up system. You are allowing people to keep purchasing and push the price up quite sharply.

Mr Starkey: Are you talking about a reward card or a top-up system? In a top-up system, like with a mobile phone, I can buy an infinite amount of credit.

Q72 Martin Horwood: In systems terms there is quite a difference between something like an Oyster card where the allowance is on the card and something like a bank account where your account is with the main server of the organisation that has it. Operationally these are quite different systems.

Mr Starkey: That is how your bank account works. Your money is held in electronic blips on a database somewhere.

Q73 Martin Horwood: No, because on a bank account you can run up endless bills if you are not responsible. You are saying that you would have a system that stopped you at some point.

Mr Starkey: I am saying, if you are looking for a perfect analogy, there is not a perfect analogy because it breaks down at the overdraft point. In terms of moving money from one electronic account to another using a card, then I think a bank account is an analogy that people will understand. With this you are getting stuff put into your account for free whereas you have to go out and earn your money to put into your bank account.

Q74 Martin Horwood: If you really do put a cap on it then that is not like a bank account because you very rarely reach the point where your card just stops working. What about the people who are not really capable of using a credit card at the moment or who struggle with things like tax credits, because you are moving from a voluntary system with credit cards or one that is, in the case of most bank cards, vetted by the institution that issues the card to make sure that people are credit worthy for instance? In this scheme you are issuing the Domestic Tradable Quota to everybody. Is there not a risk for the people at the margins who are not going to be able to participate properly in this scheme?

Mr Starkey: If you do not want to use a card you do not have to use a card. If you do not want to think about emissions rights you do not have to think about emissions rights. Just one thing has to happen. Your emissions rights are automatically placed into your electronic account, let us say, once a month. Either you yourself or, if you are not capable of doing that, someone on your behalf can set up an arrangement whereby those emissions rights are automatically sold to a bank as soon as they hit your account. You make that one arrangement and then for the next 15 or 20 years, however long you are alive, you do not have to think about it again. Then whenever you go to a petrol station to buy petrol or pay your electricity bill you simply just pay in money. The electricity company or the petrol station is adding on the cost of the emissions rights to your bill. You do not even have to think that they are doing that, that is what is happening in practice; you are just being faced with a financial quantity that you pay over. You can just transact completely in money if you want to.

Q75 Martin Horwood: That ends up being just like a carbon tax, does it not?

Mr Starkey: It does end up being just like a carbon tax if everybody chooses to do that. This is one of the criticisms that have been leveled at personal carbon trading and it is one of the points that I made in my written evidence, that if everybody chooses to sell their emissions rights immediately upon receipt and then just buy at the point of sale you could argue that it is just a very complex and sophisticated and expensive way of implementing a carbon tax. There are a number of reasons why not everybody would do that. This is a very important area of research that needs to be done. One of the reasons given in the last session was that some people might enjoy fiddling around with their accounts and managing them and playing the market. I think another reason would be that it is a very convenient way of being able to work out how much you have emitted because just as you have a bank account and you get a bank statement, so if you have a carbon account you will get a carbon statement maybe once a month or once every three months, but on that carbon statement (or you could access it online) it will say that Martin Horwood over the last three months has bought this amount of petrol and has this amount of emissions relating to his petrol purchases, this amount of emissions relating to his gas purchases and this amount of emissions relating to electricity purchases. So on one piece of paper you can see whether you are above average, below average or at the average, whereas on all the other schemes, as far as I can see, you would just have to keep all your petrol receipts and go back to your electricity and gas bills and work it all out. There is some convenience in having an account and a statement as you can see very conveniently where you stand. If you are going to allocate emissions rights on an equal per capita basis some people may well be keen to know if they are above average, just below average or at the average. This is a very easy and convenient way of telling where you are at.

Q76 Dr Turner: The Tyndall Centre thinks it is very important to prevent fraud within the system. Given that initially carbon allowances would presumably be worth not very much, it is a bit like the first round of the European ETS, so there will not be much profit in committing fraud. Do you think fraud is really going to be a significant problem, and what sort of level of security do you think will be needed to prevent it?

Mr Starkey: The price of an emissions right depends upon the supply and the supply is the cap. The Chairman mentioned earlier about my colleagues who gave evidence to you earlier this year about the Climate Change Bill being consistent with a 4°C rise and if the Government is genuinely committed to 2°C we are talking about very deep cuts in emissions year-on-year, six to nine per cent. If you are constraining the supply of emissions rights that tightly it may well be that the price is considerably higher than it was at the beginning of the EU ETS where the cap, everybody acknowledges, was very loose. Who knows what prices you will see? It depends upon the stringency of the cap, but if the cap is as stringent as it needs to be consistent with a 2°C target you may see very high prices, which presumably increases the incentive to commit fraud. I think there are basically two types of fraud, there is identity fraud and card fraud. Identify fraud is where you fraudulently open multiple accounts. So whereas you would be entitled to one account, you may be able to fiddle it so you got four accounts and you would have a lot more emissions rights to sell. This is why it is important to have some sort of rigorous procedure for enrolling people into the scheme, ie you have to prove to me in some way who you are. There was a question in the earlier session as to whether you could do that through ID cards. If ID cards were in place it would be a convenient way of enrolling people into the system. We have worked quite hard to say this scheme is not dependent on ID cards. If ID cards were not implemented for some reason, there are plenty of other ways by which you can verify people's identity conveniently and to a high degree of assurance. Like them or not, if ID cards were in place that would be a convenient way of verifying someone's identity. That is the first type of fraud, identity fraud. The second type of fraud is card fraud. Well, chip and PIN would be the obvious way of dealing with that.

Q77 Dr Turner: You have got something that requires a secure system and it is mandatory. This inevitably makes people think of comparisons with an ID card system in any event. There is a certain amount of positive confusion there. Civil liberties groups tell us that they are not worried because it is purpose specific and used for a specific purpose and not a "single identifier that is used for multiple purposes". Do you think that public perceptions will be easily won over as far as this is concerned? Do you think you will have a problem with the public?

Mr Starkey: The public is not a homogenous lump. The blog that David Miliband wrote on personal carbon trading got by far the most responses to any of his blog entries. A large number of people said this was a great idea and there are a large number of people who said it is "Big Brother", it is the State interfering, the State is going to be able to track what I am spending on petrol, on electricity and so on and so forth. It will be very important to reassure the public that privacy issues have been taken very seriously. Clearly we have the Data Protection Act and there is the European Convention on Human Rights. It has to be made very clear that this is a privacy-friendly scheme. I have talked to someone at LSE who was instrumental in writing their very large report on ID card schemes who is interested in doing some work to look at this very aspect of privacy. I think it is a very important issue that you raise.

Q78 Dr Turner: Do you think anonymity could be guaranteed? How would you do that?

Mr Starkey: In what sense? When you use a credit card it has your name on it.

Q79 Dr Turner: Yes, but nobody else has access to your credit card account except you.

Mr Starkey: No. In the same way you would have to ensure that no one had access to your carbon account other than you except in very exceptional circumstances.

Q80 Martin Horwood: Surely if you are going to have a tradable price of carbon in the scheme the individual accounts have to be aggregated, do they not? So in fact you cannot have that firewall that you have with a bank account. Your use of money does not have much effect on the rest of the economy except in the way you purchase, but with these Domestic Tradable Quotas you are going to have to take the information from individual accounts and aggregate it into a complete scheme in order to calculate the price of carbon. Information is going to have to pass from individual accounts to a central calculation.

Mr Starkey: Just as a bank is able to tell the total amount of money in the various accounts that it holds so it would be necessary to be able to tot up and follow the transactions.

Q81 Martin Horwood: But this scheme would have one operator, would it not? Surely it would have to have one operator in order to be able to calculate the amount of carbon that was still available in the system.

Mr Starkey: Simon Roberts talked in the previous session about banks hosting individuals' carbon accounts. If you had a system like that then carbon accounts would be dispersed over a wide number of databases and I am not sure how practical that would or would not be for auditing purposes. It may well be preferable to have a central database run by Government or subcontracted to some agency who runs it for Government. I have to say, I am not in any way an IT expert so I do not know the relative pros and cons of those two systems. There is some discussion to be had about what is the best way to do it.

Q82 Chairman: Public enthusiasm for schemes which involve very large government centralised databases I think is limited by experience, but people live in hope that they may get fed up running these sorts of things. Could you say how you think this would all fit in with the sort of carbon trading schemes that already exist, such as the EU ETS?

Mr Starkey: You touched on this in earlier sessions and the issue of double-counting was raised where you have two emission trading schemes essentially chasing the same emissions. I think it is not just EU ETS that you need to look at or EU ETS in its current form, which currently accounts for 50 per cent of UK carbon emissions. We have the carbon reduction commitment coming online, that is another ten per cent, the supplier obligation, maybe a cap in trade scheme and it may cut another 15 per cent of emissions. People are talking about expending the EU ETS. The Commission wants to bring in aviation. The UK Government is talking about bringing in gas suppliers and fuel suppliers. If all that happens, you will have a situation where the majority of UK emissions are already covered by a patchwork of carbon emissions trading schemes. If you were to implement personal carbon trading in parallel with those schemes then you would have a very, very considerable amount of double-counting. Most of the emissions would be covered by the two schemes, personal carbon trading and something else. At first glance that does not seem to be a particularly efficient way of going about things. One would need to look, if one thought that personal carbon trading was an idea worth exploring further, at being able to facilitate an evolution from that patchwork of schemes that will be in existence fairly soon to a personal carbon trading scheme, which goes back to your original question about the advantages of such a scheme. You would have one scheme in some ways much more straightforwardly covering the entire economy.

Q83 Chairman: What about the interaction with things like the Renewables Obligation and the Climate Change Levy? Are some of these other instruments eventually going to be redundant if you have got an effective all-embracing trading scheme?

Mr Starkey: I think some schemes are clearly substitutes to each other and some schemes are complements. You could have an all-encompassing emissions trading scheme and at the same time you could have product efficiency standards for instance for fridges and other white goods. Those two sorts of legislative instruments would not be incompatible because one would be facilitating an efficient use of energy within the cap provided by RoA.

Q84 Chairman: Given that the EU ETS even in Phase II is not without its problems and that is dealing with large fairly sophisticated organisations for the most part, does that not make you a bit daunted by the practicalities of trying to introduce an all-embracing scheme which will involve every citizen, many of whom do not have bank accounts and are not used to using cards in the way that other people are and so on?

Mr Starkey: I do not pretend it would be completely easy, but I am far less daunted by it than I was when I started my research. When we started our research at Tyndall there really had not been much work done on the technological feasibility and the administrative feasibility. It seems to me that technologically you are using a well-established tried and tested credit card system, all the readers are in petrol stations and you are using systems of direct debit which are very well understood. I would echo what Simon Roberts said in the previous session, that perhaps technology is not the biggest challenge, it is more the administrative challenges of enrolling 45 million people into a scheme, giving them a card, dealing with lost and stolen cards, closing people's accounts when they die or they emigrate, or if people are entitled to emissions when they are 18, making sure that when they hit the age of consent their account is open for them. There is vast experience in the private sector of issuing cards, running call centres, dealing with fraud issues and dealing with lost cards. There is a great body of experience that can be drawn on.

Q85 Dr Turner: You are concerned in your memorandum that a lot of groups would be disadvantaged by equal allocations of carbon units. At the same time you are adamant that an equal allocation of units is the only feasible option. If this is the case, how do you think that these inequalities should be addressed?

Mr Starkey: There is the issue of fuel poverty and that really arises because some households on low incomes have such inefficient houses that their use of energy is above average. If everybody is getting the average under a personal carbon trading scheme and some people on low incomes are above average, they would have to go into the market and purchase additional emissions rights and so there they would be disadvantaged by the scheme if it was implemented tomorrow. The sensible way to deal with that is to tackle fuel poverty, which the Government is already doing through its various schemes, such as Warm Front and so on and so forth. If you can bring the emissions of fuel poor households back to below average then they would not be disadvantaged by the implementation of such a scheme. There is the specific issue of fuel poverty which is well recognised but again it is important to recognise that it is an issue under personal carbon trading and it would also be an issue under carbon tax and it would also be an issue under an upstream carbon emissions scheme. So if it is a problem, it is a problem that is not specific to this particular instrument. I think it is important to distinguish between problems specific to this particular instrument, for instance enrolling 45 million people under the scheme and problems that are generic to the whole gamut of instruments.

Q86 Dr Turner: A lot of people who have to commute to work or live in remote locations would be disadvantaged from a transport point of view because they would use up their carbon allowances in getting to work. How would you propose to deal with that?

Mr Starkey: I think the issue of equity is a really important one because if the Government were to stand up and say, "Listen here everybody, we're implementing a perfectly fair scheme," there would be a great outcry because people would say, "What about people who live in cold areas of the country? They need to use more energy. They should get more emissions rights. What about people who live in rural areas? They simply need to travel more in order to live their lives. What about people who have children?". Someone said to me, "What about people who live in London? They have such an incredible public transport system that they would be unfairly advantaged if they were given an equal amount like everybody else. They should be given less. What about people who work nightshifts? If they worked the dayshift they could get the bus to work, but because they are working a nightshift they actually have to drive their car rather than getting the bus." It really is not the case that it is done and dusted by saying it is completely fair for everybody getting the same amount of emissions rights. If you do not go down that route on the other hand you get into the whole knotty problem of how do we adjust everybody's equal share to take account of their particular circumstances and one can imagine getting bogged down in lots of disputes and lots of bureaucracy about that. If you had to put the worst possible spin on it then perhaps what you might say is there could be some opposition to the idea of an equal per capita allowance, but there could also be some disagreement about moving away from the per capita allowance and trying to adjust it to take account of various factors that influence people's lives. I think this is an issue that really needs to be thought about because it will impact on public acceptability. I am not sure I have an easy answer to that.

Q87 Dr Turner: It could be the barrier between making the scheme work and not work, could it not?

Mr Starkey: It may be.

Q88 Joan Walley: However it is going to be done, if it is going to be done, it is going to be a daunting task. Clearly public acceptability is going to be key to it ever being done. You have just touched on the equity issue to some extent. You do not seem to mention in a great deal of detail in your report what the cost of a carbon allowance would be in monitoring terms.

Mr Starkey: The value of your allowance?

Q89 Joan Walley: Yes. If people are going to sign up to this, if they are going to willingly take part in it, assuming that all the barriers that you have just talked about could be overcome, you would have some kind of equitable system and people would need to understand what the costs of it would be. Have you any thoughts about what that might be?

Mr Starkey: If people's allowances under a personal carbon trading scheme were based on the UK's current emissions, and if we look at the Domestic Tradable Quota scheme where 40 per cent of emissions rights are allocated to individuals to cover their energy use, the average individual emissions for energy use at the moment in the UK are about five tonnes of carbon dioxide, the value of that allowance simply depends upon the price of a tonne of carbon. If you have a very, very tight cap, if you are ratcheting emissions down six to nine per cent a year in order for your emissions reduction trajectory to be compatible with a 2° increase in temperature, then you could see a reasonably high price in carbon. If it was €100 a tonne then it would be €500 a year would be the value of the emissions rights that are allocated to cover your energy use. The other 60 per cent of emissions rights, under Domestic Tradable Quotas, would be auctioned off and if that revenue was lump sum recycled then it would be one and a half times the value of your emissions rights holding, so that would be €1,250 if the price per tonne was €100. It is a very difficult question to answer because it just depends upon the cap. If you reduce supply drastically you would expect the price to go up quite considerably.

Q90 Joan Walley: I can see that a lot of it is inter-related.

Mr Starkey: The same question would arise, what price of carbon tax would you need to ratchet emissions down? It is not an instrument specific question.

Q91 Martin Horwood: If somebody who was very badly off was allocated a potentially quite valuable quota, what is to stop them from just trying to sell most of it straightaway and then not being able to run their car or heat their house in three months' time?

Mr Starkey: If this person is a substantially below average emitter then they will have to buy back at the point of sale far fewer units than they sold, so in that sense they would not be worse off.

Q92 Joan Walley: That leads me to ask whether or not you would anticipate that people would be passively engaged in all of this or whether they would actively go out and trade. Are people going to be actively engaging with this whole process and buying and selling here, there and everywhere?

Mr Starkey: In the strangest way, even if you are not actively engaging in it, even if you are saying I do not want anything to do with this, you are buying and selling carbon units, you are selling them immediately they hit your account and then you are buying them at the point of sale. The trading is invisible, you are not consciously taking part in trading, but you are trading in the sense that you are buying and selling emissions rights. You could say there is something for everyone in this scheme. For people that really do not want anything to do with it, they sell automatically and buy at the point of sale without even realising they are doing that. For people who do want to manage their account more actively and have a record of their carbon emissions, they can involve themselves in trading. One downside of selling your emissions rights immediately they go into your account and buying at the point of sale is that your various emissions will not appear on your statement and so you will not have that easy reference point.

Q93 Joan Walley: We heard from the previous witnesses about the need for bold steps. In your view of the British general public and where we are in this debate at this stage in 2007, is this going to be something that is just a step too far, that is just much too bold? Are people going to feel that it is restrictive and discriminatory or are they going to seize it with open arms, given the problems we have just been experiencing with flooding?

Mr Starkey: A very valuable point was made in the last session and that is that one has to distinguish between the instrument and the target. The most important question in terms of climate change policy in the UK is what is our emissions reduction target trajectory? Are we serious about 2°C or are we talking about a 3°C or a 4°C temperature rise? That is the fundamental question. What quantity of emissions are we going to shed into the atmosphere? Once you get a definite target you can then have a discussion about what is the right instrument to use or the right instrument mix in order to meet that target. There may be difficulties with personal carbon trading, but there are going to be difficulties with all instruments. The choice for the public is not personal carbon trading or nothing, it is personal carbon trading or something else that is more desirable. Is a higher carbon tax more desirable? Is a price signal more desirable? You have got to shrink the size of the cake whatever happens. Is personal carbon trading the fairest way to cut up that cake?

Q94 Joan Walley: Is that not one of the issues, that people are not yet engaged? Doing nothing is not an option and, therefore, they will see it as do we have personal carbon trading or do we have nothing as opposed to putting it into that wider picture where doing nothing is not an option. What are the options? It is really about how we progress in terms of a general debate onto that level of understanding where doing something is something that we have to do. It is a question of the devil in the detail and how we do it.

Mr Starkey: I agree with you that the debate needs to be moved forward in this country in terms of getting the message across very clearly that even though we are doing quite a bit in this country we need to be doing more.

Q95 Joan Walley: A lot of times people just do not see the need for change and so the whole debate is not couched in understanding that need for change. How do we get to that position?

Mr Starkey: I suppose that raises bigger questions, such as to what extent do you need to wait for every member of the general public to be well-informed about climate change before politicians move forward? Do you wait for that situation or do you say this is too urgent, we are just going to have to move forward and try and carry the public with us? The Congestion charge is the example that everybody quotes about leadership. Not everybody was signed up to it, but there was one particular politician who said, "This is what we're going to do. Let's crack on."

Q96 Martin Horwood: Surely the difference with that kind of Green taxation is that it is going into a central pot that you can then choose to offset people's disadvantages with. You could spend it on public transport so that the people who are priced out of their cars at least have a more affordable public transport option or you could offset Green taxes against income tax or something like that. Those escape routes for both the politicians and the public are not really there with a DTQ system, are they?

Mr Starkey: I think they are. You are saying to people that if they are a below average emitter they will have these surplus emissions rights that will have a value and they will be better off than they were prior to the implementation of this scheme. If their emissions are half the average they are going to have a fairly hefty whack of emissions rights that they can get rid of and make themselves a tidy sum.

Q97 Chairman: That will depend on the price. One of the advantages of a scheme like this is that it does engage people in thinking about their emissions more than they otherwise might. You did suggest that some people might simply choose to bank their allowances right upfront and then buy as they go. Clearly that sort of person will not be engaged in quite the same way. If a lot of people chose that option it would somewhat dilute the advantage of getting everyone thinking about it all.

Mr Starkey: I agree. In terms of personal carbon trading, this is one of the issues that needs to be looked at further. If nobody chose the bank and everybody chose to manage their account carbon consciousness would go through the roof perhaps.

Q98 Chairman: That is an unlikely outcome.

Mr Starkey: Yes, but if everybody chose to sell immediately these emissions rights hit their account then the effect is somewhat lessened. I would reiterate the point I made earlier, that by actually surrendering from your account rather than buying at the point of sale you are able to track your emissions through a carbon statement, which gives you this nice convenient summary of your emissions over a particular period and you will be able to play the game, ie am I above average, below average or at the average. I think that is an important question. One can hypothesise that lots of people will buy at the point of sale or not many people will. I think we need to try and test this out somehow.

Q99 Chairman: That is interesting because in a previous session the witnesses were pretty dismissive of the idea of pilot schemes for various reasons, some of which may be quite valid. The only way to test things out is normally by a pilot scheme. Do you share the concern that pilot schemes are likely to "contaminate", I think that was the word used, the public's view of the whole concept or do you think it might actually be a way of helping people to understand what it is and they would not be quite as fearful of it as they might otherwise be?

Mr Starkey: I think there are problems with pilots and I also think there are lots of things you can do other than pilots. If by a pilot you mean a scheme that is identical to the real thing in every way other than size then I think there are problems, which the previous witnesses highlighted, ie there are boundary issues and there is the fact that maybe you are not going to rig up petrol stations in the way that they will be rigged up under the real scheme. It would be much more difficult to have a functioning market with various banks and the market makers taking part if it was just a couple of thousand people in the pilots as opposed to a market of 45/50 million individuals and several million organisations in the real thing. If you are trying to replicate the real thing on a smaller scale then I think there are big barriers, but I think there are lots of things you can do. I am not thereby ruling out a pilot, I am just saying it is important to be cognisant of the limitations. The previous witnesses talked about setting up websites to inform people. I think it is important to do some in-depth focus group work with members of the public. It has been my experience that people's hostility to a personal carbon trading scheme is inversely proportional to the amount of detail they have about it. When they first hear about the idea and they do not hear very much they think it could never work, the technology will not work or it is unfair on the poor, these various objections come up. When you give people answers to these sorts of questions and give them more detail, they do not necessarily become supporters of the idea but they at least see that the idea is not completely off the wall, it is not completely preposterous and the idea moves from the realm of the preposterous into the realm of the vaguely reasonable. If you explored with members of the public through ongoing focus groups how they felt about this particular option to reduce emissions as opposed to other particular options you could learn quite an amount about public attitudes. The technology can be tested quite robustly without necessarily having to run pilots. There may well be value further down the line in pilots but it is by no means the only thing that you can do.

Q100 Chairman: Given that this is an interesting topic and it is one that is going to go on provoking quite lively debate, what should the Government be doing to take the whole discussion forward?

Mr Starkey: I think it needs to be trying to get a better handle on the specifics of cost and benefit. I think it is important, as the previous witnesses said, to try and put some hard numbers on what it would cost to set up such a scheme and to administrate such a scheme. How much would it cost to post out carbon statements to everybody? How often would they need to be posted out? What percentage of cards would be lost or stolen? I would imagine there is a wealth of data out there in the public and private sector that could be drawn on to try and get a handle on what the costs are. Once you have got a better idea of costs we need to try and understand in more depth what the benefits are. Is there this carbon consciousness raising effect that people think there may be? Some people say a personal carbon trading scheme would generate this sense of common purpose, we are all in this together and we are all being allocated our fair share of emissions rights. Would that happen? What benefit would it have other than a feel good factor? Would it result in more efficient fuel reductions? These issues are quite difficult to eek out, but to the best of our ability we need to try and find some answers to these questions. The fundamental question is if there are additional costs to setting up such a scheme as compared to other instruments, are there additional benefits which justify those additional costs?

Chairman: Thank you very much. It has been another interesting session. Thank you for coming in.