Supplementary memorandum submitted by
Mr Bill Butcher (CRED 34a)
PERSONAL CARBON
ALLOWANCES
A brief guide to how the policy would work
The purpose is to provide incentives to individuals
to reduce carbon emissions, through rewarding carbon thrift and
penalising carbon waste. It is a cap and trade system.
Government, or alternatively the independent
Carbon Committee, would set an annual budget for the total amount
of carbon that all individuals will be allowed. Initially this
will be around 40% of all UK carbon emissions, the proportion
that individuals are directly responsible for. This is the cap.
The budget would be reduced each year in line with emissions reduction
targets, currently 60% by 2050 (proposed statutory target in the
Climate Change Bill) but adjusted over time to take account of
science-based revisions of the reductions necessary to avoid runaway
catastrophic climate change.
Each individual adult would be given a free
equal allowance of carbon for the coming year eg 5 tonnes or 5,000
units (a unit being a kilogramme of carbon equivalent). Children
would probably get a half allowance. This allowance would be electronic.
Each time an individual pays for one of five things—electricity,
gas, oil, petrol, plane ticket—he/she surrenders the number
of carbon units equivalent to the carbon emissions generated by
use of that energy. Again this would be an electronic transaction
through the energy supplier, airline booking or petrol station.
A separate carbon debit card might be necessary or it might be
handled through existing banking systems.
Individuals who use less than their allowance
can sell their surplus units through any bank or post office or
to other people. Individuals who feel they need to use more must
buy extra units. Extra units will normally be available for sale
at banks, post offices and petrol stations. Visitors to the country
will need to buy these units direct in order to buy petrol etc.
Any individuals who don't want to trade can simply instruct their
bank to sell their allowance immediately, and then rely on buying
units at the point of purchase.
The trading price of carbon units will vary
according the degree of scarcity in the market. If on average
people find it easy to keep within their allowance then units
will be oversupplied and the price will be low. If on average
people find it difficult and want to exceed their allowance then
units will become scarce and the price will rise. In these circumstances
the incentives to change behaviour to low carbon products and
services will increase and drive the behaviour change.
Businesses, organisations and the public sector
will also join a cap-and-trade system. This could be an extension
of the European Union Emissions Trading Scheme. Here government
would hold a weekly auction of carbon allowances, similar to the
sale of government debt. Again the annual budget would be reduced
in line with emissions targets. Brokers would sell units on to
individual businesses and organisations through the banks. The
revenue generated by government in the auction process should
be invested in improved low carbon public services eg public transport
and addressing fuel poverty.
The interactions between personal carbon allowances,
business cap-and-trade and the EU ETS need to researched and planned
carefully to provide a seamless system.
In a report to Defra in December 2006 the Centre
for Sustainable Energy described the areas of personal carbon
allowances that need investigation. The report sets out a five
year road map to a potential introduction of the policy.
The key advantages of the policy may be summarised:
1. Certainty of outcome. Provided the budget
is set properly the system ensures that emissions reduction targets
are met.
2. Preservation of choice to the individual.
Within the constraints of the cap, individuals can choose to continue
whichever carbon intensive behaviour they wish.
3. The policy raises awareness of the need
to reduce carbon emissions in daily decision making across the
whole population.
4. The policy is progressive. Overall, the
affluent are higher carbon emitters than the poor. If unequal
use of carbon across the population continues the policy transfers
resources from the affluent to the poor. Fuel poverty, however,
must be solved.
5. The policy is fair. Everyone gets an equal
allowance.
6. The policy provides for gradual change
in society to a low carbon economy, with long term certainty that
allows individuals and businesses to plan ahead.
Bill Butcher
February 2007
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