TOWARDS A PRACTICAL PERSONAL CARBON
TRADING SCHEME
7. We believe that trying to solve all the problems
involved in introducing an economy wide system would unacceptably
delay the introduction of a personal carbon trading scheme. The
most realistic option is to introduce a scheme with restricted
participation. Companies and other aspects of the economy could
be covered by different trading schemes, with the consolidation
of schemes considered at a later date once the principle of personal
carbon trading had been satisfactorily established. (Paragraph
35)
17.-We believe that personal carbon trading could
be made workable if it was acknowledged that it may not be possible
to cover all eventualities from the very beginning. A basic programme
covering certain emissions could be a useful stepping stone to
a more comprehensive scheme. We recommend that the Government
investigate the possibility of a phased initial implementation,
including all individuals, but concentrating on certain basic
areas of carbon use, such as household energy. The scheme could
then be developed, expanded, and integrated with other schemes
over time, as appropriate. (Paragraph 61)
Joint response to recommendations 7 & 17.
Downstream trading already exists for energy intensive
installations through the EU Emissions Trading Scheme, and will
be extended to large non-energy intensive organisations with the
Carbon Reduction Commitment. An economy-wide trading scheme could
conceivably be created by consolidating different schemes, and
creating a new trading scheme to include individuals' energy use
could be seen as a step towards achieving an economy-wide scheme.
The unique feature of personal carbon trading is
that it advocates the inclusion of individuals' energy use in
a downstream trading scheme. However, a desire to create an economy-wide
trading scheme does not require individuals emissions to be treated
at a downstream level; a consolidated scheme could be a hybrid,
with the stepping stone towards it being the creation of a new
trading scheme that treats individuals' emissions at an upstream
level.
For personal carbon trading to be attractive a case
needs to be made that the best way to create a trading scheme
to cover individuals' emissions is downstream rather than upstream.
The economic analysis carried out in the Government's study showed
that the costs of covering individuals at the downstream level
were very large—at least £600 million more than the
cost of implementing an upstream trading scheme, and around £1-2
billion more per year running costs.[13]
Downstream trading would provide the additional benefit of raising
the visibility of personal carbon emissions, which could be expected
to increase individuals' carbon consciousness and could drive
emissions saving behaviour change. However, even with an optimistic
assessment of the likely benefits (i.e. emissions savings) this
additional visibility could deliver, the additional costs of downstream
trading were found to be many times the additional benefits. In
the central case, the additional costs were found to be 15 times
the additional benefits.
There is some (non-government) research[14]
to suggest that implementing a personal carbon allowance for a
specific behaviour, that is directly within the control of an
individual (e.g. their non-work related driving) could have some
value as an introduction to the concept. However, while the introduction
of a very simple personal carbon trading scheme involving just
individuals and home energy use would almost certainly be easier
to implement, this could limit the effectiveness of the scheme
because emissions trading achieves least cost abatement when it
is flexible. The wider the geographical coverage of an emissions
trading scheme and the more sectors covered, the more flexible
(and effective) the scheme will be. Further research would be
needed to understand the 'entry level' behaviours and the best
steps for extending a scheme to other behavioural areas.
8. We do not believe that double counting is a
serious handicap. However, we recognise that concerns over double
counting of carbon emissions do exist and need to be addressed.
In the meantime they must not be a barrier to investigating and
developing the concept of personal carbon trading. (Paragraph
37)
Using different currencies for overlapping emissions
trading schemes could overcome the difficulties of multiple allowances
of the same currency being surrendered for the same unit of carbon
emissions. However, significant issues remain which would reduce
the effectiveness of a newly introduced emissions trading scheme
where it overlaps with other trading schemes.
The EU Emissions Trading Scheme establishes a carbon
price in the sectors it covers. One of the avenues for personal
carbon trading to add value would be through its ability to establish
a carbon price, but the extent to which one already exists reduces
the ability of personal carbon trading to add value. The larger
the overlap with the EU ETS and the stronger the carbon price
from personal carbon trading, the more significant the issue of
overlap is. In a sector that is covered by both schemes, the carbon
price paid by the end user will reflect the sum of the allowance
price in the EU ETS and the allowance price in personal carbon
trading.
The loss of flexibility resulting from the overlap
of the EU ETS and personal carbon trading could result in the
overall cost of achieving reductions being higher. The overall
level of emissions within the EU ETS would be unchanged by the
introduction of personal carbon trading, but the cost of achieving
the EU wide environmental outcome would be affected. If personal
carbon trading incentivised more abatement in the UK within the
traded sectors, for instance through reducing electricity consumption,
this would result in a greater availability of allowances in the
remainder of the EU ETS. Where the cost of emissions reductions
in the UK are incentivised by the combined allowances prices,
the overall cost of achieving an identical environmental outcome
will have been increased.
In addition to these difficulties, partially overlapping
trading schemes could create inconsistent carbon prices across
different fuel types and activities. This could create stronger
signals to reduce emissions from some fuel types than others.
Overall this could result in inefficient abatement choices being
made, and the cost to the UK overall of achieving its abatement
targets would be higher.
9. We agree with the Government that the introduction
of a personal carbon trading scheme should be a matter for primary
legislation, rather than using the delegated powers contained
in the Climate Change Bill. (Paragraph 38)
We welcome the Environmental Audit Committee's support
for the Government position. The Climate Change Bill contains
enabling powers which would allow the Government to set up trading
schemes which either limit activities producing greenhouse gas
emissions, or encourage activities leading to the reduction or
removal of greenhouse gas emissions from the atmosphere. As we
have explained during the Bill's passage through Parliament, we
do not envisage using the powers in the Bill to support the introduction
of personal carbon trading. Personal carbon trading could not,
and should not, be introduced without a comprehensive period of
public engagement and debate.
While we are quite clear that individual behaviour
change will be absolutely key if we are to meet the targets and
budgets in the Bill, we consider that personal carbon trading
is a unique concept which would have such wide reach and potential
impact on all levels of society that there would need to be a
period of comprehensive public engagement and debate before any
concrete proposals could be made.
10. We believe that the setting and managing of
caps for personal carbon trading would be wholly consistent with
the provisions for emissions budgets and targets as set out under
the draft Climate Change Bill. (Paragraph 39)
It is clear that the concept of personal carbon trading
would be consistent with the aims of the Climate Change Bill,
as personal carbon trading aims to drive emissions reductions
by influencing behaviours at the individual level. However, as
discussed in response to recommendation 8, the issue of double
counting would need to be considered fully when determining whether
and how the outcome of any personal carbon trading scheme could
be said to count towards the targets and budgets in the Climate
Change Bill.
11. We are confident that the technical and operational
challenges of implementing personal carbon trading can be overcome.
Suitable technology and systems already exist. Although a personal
carbon scheme would operate on a larger scale than most existing
schemes, the concept has been successfully demonstrated. (Paragraph
45)
The introduction of a personal carbon trading scheme
would require a comprehensive system to assign ownership of carbon
allowances to around 50 million participants, to track allowance
usage by participants across all relevant retail points (petrol
stations, energy suppliers, travel agents etc.) and reconcile
usage against their account holdings.
Consultants conducted research on the operation of
a personal carbon trading scheme as part of the Government's analysis
of technical feasibility. The functions involved in running the
scheme (such as customer enrolment, ID verification, accounting,
and transactions), and the key components (i.e. the IT systems
required to deliver these functions) were identified and then
quantified.
No insurmountable technical barriers to the introduction
of such a scheme were revealed by this research, but the costs
identified for developing and running it were significant. Estimates
of the likely set-up costs of the type of scheme explored ranged
between £700 million and £2 billion, and the running
costs £1-2 billion per annum. These costs were not found
to be justified by the assessment of the benefits delivered through
personal carbon trading.
When considering the relative benefit of personal
carbon trading compared to an upstream trading system, the carbon
savings resulting from the price signal created by the cap on
emissions must be discounted, as both systems would create this.
Either an upstream or downstream system could drive additional
carbon savings from abatement by tightening the emissions cap,
and so increasing the allowance price. Therefore, the cost benefit
analysis for personal carbon trading considered the additional
carbon savings from behaviour change that would be achieved by
introducing a downstream emissions cap.
The additional benefit personal carbon trading creates
is the increased visibility of personal emissions, and the extent
to which this would drive behaviour change. The assessment of
these visibility benefits revealed costs in the order of fifteen
times the benefits (in the central estimate of the benefits).
Tightening the emissions cap would be unlikely to increase the
benefits relative to an upstream system, as this would not increase
the level of visibility created by the scheme.
The only relative benefit of personal carbon trading
is visibility, and this comes at a high cost, with little evidence
that it will be effective in delivering emissions savings (as
explained in the response to recommendation 2). As
a result it seems unlikely that personal carbon trading would
be able to pass a cost-effectiveness test. Therefore,
it is necessary to explore alternative tools that could increase
the visibility of personal carbon emissions and deliver more cost-effective
emissions savings from individuals' actions and behaviours.
12. The private sector could play a vital role
in operating a personal carbon trading scheme. Further research
and consultation is required in order to determine precisely what
the most appropriate role for business would be. (Paragraph 46)
The Government's technical feasibility analysis assumed
a role for the private sector. A central database was considered
a vital component of personal carbon trading. This database would
need to have the capability to identify an individual's entitlement
to an allocation of carbon allowances and trigger the allocation
of these to an individual's carbon account. The database must
also have the capacity to deal with the c. 50 million adults affected.
A working assumption was agreed that the database would be the
responsibility of a government organisation. The government database
handling enrolment and allocation of credits would run in parallel
with multiple private sector organisations (i.e. banks and building
societies) managing carbon accounts, thus creating a two tier
system.
There are many examples of where government schemes
are managed across government and private databases, and in keeping
with this, a personal carbon trading scheme was found to be a
technically feasible option and Government-led operation was found
to be preferred, to some extent, in the public acceptability research[15].
A conclusion of the technical feasibility research was that direct
consultation across affected industries would be necessary if
further consideration were given to personal carbon trading. Extensive
consultation across the public and private sectors would be needed
to complete further investigation into scheme costs and to cover
crucial areas such as commercial viability and implementation
risks.
13. We agree with the Centre for Sustainable Energy
that it is crucial to shift the debate away from ever-deeper and
more detailed consideration of how any personal carbon trading
scheme could operate towards the prior questions of how it could
be made publicly and politically acceptable. It is these questions
that will ultimately decide the viability of personal carbon trading,
and until they have been fully analysed and properly answered,
further work on the operational details of schemes adds little
value to the main debate. (Paragraph 47)
The Government's analysis of personal carbon trading
made a number of assumptions about scheme design in order to focus
on the more significant, and fundamental, questions we felt needed
answering: the potential effectiveness and strategic fit of personal
carbon trading; the equity and distributional impacts; public
acceptability; technical feasibility and potential cost. Therefore,
we agree with the recommendation that the debate should be shifted
away from detailed consideration of the operation of a personal
carbon trading scheme to the more fundamental questions. We also
agree that public acceptability is one of these more fundamental
questions.
The Government's research into the public acceptability
of personal carbon trading aimed to gain insight into public understanding
of energy using behaviours and the need for behaviour change,
attitudes towards responsibility for personal emissions, reactions
to personal carbon trading and views on what might make it acceptable
to the public, as well as attitudes to key related matters, such
as trust, acceptability, fairness, equity and privacy.
As outlined in the response to recommendation 2,
key conclusions from this work were that some of the issues raised
in response to the idea of personal carbon trading could be a
challenge for the implementation of any policy aiming to reduce
individuals' emissions. There were ways of addressing some of
the negative views of participants, and attitudes could be different
if key concerns were addressed. A considerable amount of information
would be needed to help people understand personal carbon trading,
and so implementation would present a major communications challenge.
A key starting point to influencing behaviour would be raising
awareness and providing information of the impact of different
activities.
14. Public opinion may be hostile to any policy
instrument designed radically to reduce emissions from individuals.
The Government must be courageous on this point. Widespread public
acceptance, while desirable, should not be a pre-condition for
a personal carbon trading scheme; the need to reduce emissions
is simply too urgent. However, significant opposition could undermine
any proposal. Further research is required in order to obtain
a more detailed picture of the extent of public resistance to
personal carbon trading and in what ways this opposition could
be tackled. (Paragraph 50)
In the near term it may be unreasonable to expect
widespread public support for any carbon reduction policy, in
particular one which could be perceived to limit individual choices.
However, significant public opposition to a policy option would
risk public disengagement in the policy, and in the case of personal
carbon trading, widespread adoption of the 'pay as you go' option
would destroy the purpose of the scheme by diminishing the visibility
benefits. It is important to recognise the extent of public mistrust
or lack of support for a policy initiative as this could stem
from genuine problems with a policy instrument's design, and could
possibly lead to identification of an alternative, more palatable,
option.
The findings of the Government's research into public
acceptability revealed a general sense that action should be taken
to reduce emissions from individuals, but views on personal carbon
trading revealed concerns over possible vulnerable groups, and
fears over complexity of the scheme, and of trading. Additionally,
and importantly, there was scepticism that it would be fair, that
Government could be trusted to manage it or that it would deliver
emissions reductions. There was little evidence that people would
be likely to trade—a crucial element of the scheme, and
concern around the concept of imposing notional 'limits' on activities
(this was the perception despite explanation that there wouldn't
be limits on individuals or their actions). However, initial reactions
to all the options proposed were unfavourable because there was
a strong reluctance to the use of a price signal to influence
individuals' behaviours.
The Government's research identified areas where
further work would be beneficial and these included assessing
the impact of describing personal carbon trading in different
ways, providing more information on how it would work in practice,
including cost information, and reviewing lessons from similar
concepts.
15. Opposition to personal carbon trading could
be reduced if the public could be convinced of three things. First,
that it is absolutely essential to reduce emissions; second, that
this can only be achieved if individuals take personal responsibility
for reducing their own emissions; and third, that personal carbon
trading is a fairer and more effective way of reducing personal
emissions than alternatives such as higher taxes. The public must
be persuaded of the first two parts of this argument as soon as
possible if the Government is ever to convince them of the third.
Persuading the public depends on perceptions of the Government's
own commitment to reducing emissions, and of the priority given
to climate change in its own decision making. (Paragraph 52)
The UK is on course to achieve nearly double its
commitment under the Kyoto Protocol to cut greenhouse gas emissions
to 12.5% below 1990 levels by 2008-12. Though our domestic goal
of a 20% reduction in CO2 emissions, which was always
designed to be stretching, looks increasingly difficult to achieve,
we are making definite progress towards it and the projected 16%
reduction by 2010 is testimony to that progress.
The Government is clearly committed to tackling climate
change and is leading the way to a low carbon Britain by proposing
clear, binding targets through the Climate Change Bill. This Bill
includes provision for a robust and transparent process for reporting
progress against targets and budgets. Having set each carbon budget,
the Government is required to produce a report setting out the
package of policies and proposals which will be used to ensure
the budget is met. This will provide transparency as to the direction
of travel and enable individuals and business to see how to play
their part in tackling climate change.
In addition, each year the independent Committee
on Climate Change is required to report to Parliament its views
on the progress that has been made towards meeting carbon budgets
and the long-term target, the further progress that is required,
and whether the target and budgets are likely to be met. The Government
must produce a response to the points raised by the Committee's
report. This process will ensure there is a clear and transparent
reporting framework in every year of each carbon budget to hold
Government to account.
The Government is also committed to helping individuals
to take responsibility for their emissions, by introducing real
measures which will enable people to ACT ON CO2 by
reducing the carbon footprint of their homes, the products and
services they buy, and their transport. This includes the role
of the Energy Saving Trust, who are improving their service by
offering advice tailored to individuals' circumstances and locations;
energy suppliers, who are required to help people reduce their
carbon footprint through the Carbon Emissions Reduction Target;
and UK building regulations, which are being tightened progressively
in order to meet a 2016 target for zero carbon new homes.
ACT ON CO2 is a multi-million pound public
awareness campaign including an advice line and an on-line carbon
calculator. Interim research has indicated that individuals who
have completed the Government's ACT ON CO2 carbon calculator
are more likely to make a connection between climate change and
their own carbon footprint. There is also evidence to suggest
that in follow up interviews, these individuals have gone on to
change their behaviour in some way. However, it is a step too
far to move to the assumption that personal carbon trading is
the most effective way of reducing personal emissions. This is
reliant on a clear evidence base supporting the premise that personal
carbon trading is a fairer and more effective way to reduce emissions,
and this is not yet developed. The findings of the Government's
research reveal some challenging gaps to this notion.
16. If a personal carbon trading scheme is ever
to see the light of day then the first stages of the scheme, at
least, will need to focus on gaining public and political acceptance.
Any scheme must limit emissions, but we must accept that initially
caps might be more lenient than is ideal, in order to achieve
public acceptance. Once the scheme is better established, more
demanding caps could be set. This approach will have to be carefully
balanced against the need to ensure the scheme effectively reduces
emissions in line with national targets. (Paragraph 55)
The Government's personal carbon trading research
programme took the view that the most likely approach to implementation
of a personal carbon trading scheme would be to introduce a fairly
lenient cap on emissions, with the focus of the initial stages
of the scheme on developing understanding of how it works. The
expectation was that over time, the overall emissions cap (and
hence individual allocations) could be reduced in line with international
or nationally adopted agreements.
However, as mentioned in the response to recommendation
8, significant issues remain which would reduce the effectiveness
of any newly introduced capping scheme where it overlaps with
other trading schemes. The issue of double counting would need
to be considered fully when determining whether and how any personal
carbon trading scheme could be said to count towards the targets
and budgets in the Climate Change Bill.
17. We believe that personal carbon trading could
be made workable if it was acknowledged that it may not be possible
to cover all eventualities from the very beginning. A basic programme
covering certain emissions could be a useful stepping stone to
a more comprehensive scheme. We recommend that the Government
investigate the possibility of a phased initial implementation,
including all individuals, but concentrating on certain basic
areas of carbon use, such as household energy. The scheme could
then be developed, expanded, and integrated with other schemes
over time, as appropriate. (Paragraph 61)
See response to recommendation 7.
18. Personal carbon trading will pose particular
difficulties in accommodating and engaging the financially excluded.
It is unrealistic to ask those who find it difficult, or even
impossible, to manage their standard finances, to also understand
and manage a carbon account. While the possibility of a 'pay as
you go' option goes some way to relieving these difficulties,
it is imperative that any personal carbon trading scheme includes
a detailed and determined strategy for assisting the financially
excluded. Research is required to assess the likely proportion
of people who would choose this type of option, and whether they
would face any significant disadvantage as a result. It would
be important to make the scheme sufficiently simple and accessible
that remaining involved seemed as easy, or indeed easier, than
opting out. (Paragraph 67)
The Government's research into the distributional
impacts of personal carbon trading considers how such a scheme
might have implications in terms of fairness and equity, and this
is addressed in the response to recommendations 22 & 23.
The Government's public acceptability research revealed
similar concerns from the general public regarding the ability
of vulnerable groups to meet their obligations under the scheme.
Two possible options were suggested as means of avoiding such
difficulties: one is the option to 'pay as you go' for the carbon
associated with goods or services. This avoids the need to manage
your personal carbon budget or become involved in trading emissions
allowances, but the end result for those who choose this option
is effectively an expensively implemented tax (i.e. a higher price
is paid for those goods covered by the scheme).
The second option is for externally managed properties,
such as social housing and other housing association developments,
to pool their carbon allowances and hand over responsibility for
managing carbon budgets for those properties to the management
companies. Again, in this case individuals would be disengaged
from the system, and in both cases, personal carbon trading would
be unlikely to deliver any visibility of personal carbon emissions,
energy usage or drive any pro-environmental behaviours. For these
vulnerable groups, personal carbon trading would not seem the
optimum tool. Equally, for those less capable of managing their
personal finances, and therefore more likely to choose the 'pay
as you go' option, personal carbon trading would not seem the
optimum tool.
The obvious disadvantage of a 'pay as you go' option
is that people adopting this strategy would be exposed to inflexible
costs, unlike those engaged in personal carbon trading who would
have the ability to buy and sell allowances at the optimum time
(i.e. buying when the price of allowances is low or selling when
the price is high). Under the 'pay as you go' model, consumers
would have to pay the market price of allowances at the moment
of purchase, and retailers could choose to add a fee to each transaction.
While those engaged in the scheme would have the opportunity to
take advantage of the moving market price, those disengaged would
just have to pay the going rate and budgeting could become more
difficult as the market fluctuates. In contrast an alternative
measure could provide a more stable price signal, though this
might not engage individuals as much and might reduce the likelihood
of emissions reductions.
From the individual perspective, both options would
essentially be an expensively administered tax with which people
are not directly engaged and so are unlikely to have any impact
on their behaviour. However, these are the only identified solutions
for vulnerable groups under a personal carbon trading system,
and the 'pay as you go' option would be necessary for other purposes
anyway (e.g. foreign visitors to the UK). This puts into question
a crucial element of personal carbon trading: that individuals
must engage with their personal emissions and energy using behaviours,
and as a result, they will begin to take personal responsibility
for them.
19. Personal carbon trading provides only the
incentive to reduce emissions, not the means. It is clear that
a personal carbon trading scheme would need to be accompanied
(and, indeed, preceded) by a raft of other policies. The Government
would need to make sure that the opportunities and resources to
help people reduce emissions were readily available and well publicised.
(Paragraph 71)
The Government is committed to tackling climate change
in the most effective way, and to delivering an optimum package
of measures for achieving this. As recognised by the Stern Review,
this requires three elements of policy for an effective global
response. The first is the pricing of carbon (through tax, trading
or regulation), the second is policy to support innovation and
the deployment of low-carbon technologies, and the third is action
to remove barriers to energy efficiency, and to inform, educate
and persuade individuals about what they can do to respond to
climate change.
The Government's strategy to tackling climate change
therefore aims to set clear, binding targets through the Climate
Change Bill, and put in place a package of measures which enables
individuals and business to play a part in tackling climate change.
The Government is also committed to helping individuals to take
responsibility for their emissions, and policies aimed at helping
reduce individuals emissions include projects that encourage pro-environmental
behaviours such as the ACT ON CO2 calculator, publicizing
new engagement tools and investigating community initiatives,
including the use of real-time information displays, as well as
those set out in the response to recommendation 15. These tools
are designed to complement but not duplicate the communication
activity under the cross-Government ACT ON CO2 campaign.
The role of ACT ON CO2 in communications
is:
- leading a long-term campaign
to change people's attitudes towards climate change in order to
move them from passive concern to active engagement;
- communicating key policy interventions,
incentives, and services as well as providing people with clear,
actionable advice;
- ensuring a joined-up approach
and proactive coordination across Government and other public
sector organisations;
- ensuring the ACT ON CO2
brand has ownership
by all so that we have consistency and reliability across the
campaign.
20. We commend Defra's Act on CO2
calculator. It is accessible, engaging, and simple to use. Under
a personal carbon trading scheme it could be adapted to provide
further information related to personal carbon allowances, and
link to personalised advice on how to save carbon units. (Paragraph
72)
We welcome the Environmental Audit Committee's support
for the ACT ON CO2 calculator, which has now attracted
over 1.2 million unique visitors to the website since it was launched
in June 2007. Of these, almost 500,000 users have worked out their
carbon footprint. This web-based advice tool also provides a personalised
and tailored action plan to allow individuals and households to
best reduce their carbon emissions.
Early research has reinforced the Committee's commendation
and has indicated that the calculator has helped to improve the
carbon awareness and literacy of users. There is also evidence
that users are more inclined to make changes to their behaviours
as a result of using the ACT ON CO2 calculator. Recent
research found that 62% of people claim to have taken action or
are planning to take action as a result of the campaign, an increase
of 12% compared to summer 2007.
21. We firmly support the introduction of smart
metering in households. This would be an essential supporting
measure of a personal carbon trading scheme. At any rate, smart
metering should be introduced as soon as possible in order to
raise carbon consciousness and thereby lay the ground for carbon
restricting measures. (Paragraph 72)
The Government is positive about the potential benefits
of smart metering, but more work is needed before a decision can
be taken on whether to proceed with a roll-out to domestic customers.
BERR's consultation impact assessment, published in April 2008,
indicated that there is not a positive business case for smart
meters in the domestic sector. However, in a project of this scale
the figures carry a high degree of uncertainty and many of the
benefits are difficult to quantify in monetary terms. BERR is
therefore undertaking further work with stakeholders to ensure
it has the best possible understanding of costs and benefits,
with a view to Ministers taking a decision towards the end of
2008.
22. Personal carbon trading will inevitably highlight
existing inequalities of income and opportunity. Any instrument
designed to restrict and reduce domestic carbon emissions would
raise the same concerns and it would be wrong to reject the proposal
of personal carbon trading because of these difficulties. As with
any other policy, these inequalities will need to be identified,
assessed and, where appropriate, compensated for. (Paragraph 79)
23. In order to be effective, a personal carbon
trading scheme will have to impose a degree of inconvenience and
additional cost. The urgency with which we need to address climate
change means the Government should not be afraid of this. When
accounting for distributional impacts it will be essential to
strike a balance between addressing genuine difficulty and allowing
the inconvenience that will encourage change to persist. The groups
in genuine need of support must be identified. (Paragraph 82)
Response to recommendations 22 & 23.
In order to assess the effectiveness of personal
carbon trading, or indeed any policy, it is important to consider
its cost-effectiveness, and this was the approach taken for the
Government's assessment of personal carbon trading. This revealed
costs many times the likely benefits. In comparison, the Carbon
Emissions Reduction Target, which requires energy suppliers to
promote household carbon saving measures, will deliver annual
net savings of 4.2MtCO2 by 2011, and will stimulate
about £2.8 billion of investment by energy suppliers in carbon
reduction measures. We estimate that each £1 spent by suppliers
will save consumers around £6 over the lifetime of the measures.
The proposed increase to this target announced by the Prime Minister
on 11 September 2008 will achieve further investment and savings.
The Government's research on the distributional impact
of personal carbon trading tested the view that it would be a
fiscally progressive instrument. The findings revealed further
evidence to this effect. While some low income households were
found to be likely to lose-out under a personal carbon trading
scheme, the more typical trend was for low income households to
be better off and for higher income households to lose out. This
pattern reflects a trend of higher income households being, generally
speaking, higher energy users and vice versa—low income
households are, generally speaking, lower energy users. Assuming
effective trading takes place, this would result in allowances
being transferred from higher income groups to those with lower
incomes.
Some inequalities were recognised, for instance over
2 million households appear to fall into the low income 'loser'
category, but this seems to result from a high proportion of these
households living in rural areas, many living in larger-than-average
homes, and the allowance deficit being driven by heating rather
than transport emissions. The inequalities recognised in some
groups were thought to be able to be addressed either through
scheme design, or through other supporting measures such as the
benefits system. However, it is possible that further inequalities
could result from the scheme if effective trading did not take
place, and further investigation of this was recommended.
In addition, if the 'pay as you go' option were taken
up by a lot of participants wishing to avoid the hassle factor
of the scheme, or by vulnerable groups who are less able to engage
in the scheme, this could potentially lead to further inequalities.
24. Public acceptance of personal carbon trading
will depend on the success of the scheme in engaging and protecting
disadvantaged groups. These groups will require reassurance and
assistance, both to help them meet the cost of their carbon allowances,
and also to make the capital investments or lifestyle changes
that will remove them from this category. Assistance should focus
on helping households to reduce emissions, rather than rely on
providing exemptions. Support programmes should be carefully targeted
to provide appropriate assistance to those who genuinely need
it, including the financially excluded. (Paragraph 86)
If personal carbon trading were implemented, it would
be likely that supporting measures would be needed for some households.
However, these would not necessarily be in addition to existing
support programmes, or could involve adaptation of existing measures.
In addition to the ACT ON CO2 campaign,
a great deal of support is provided to individuals to help them
reduce their personal emissions through the Energy Saving Trust.
Existing and planned programmes delivering such services include
the Green Homes service, the ACT ON CO2 Advice Line,
regional advice centres, in-home energy audits, home energy reports,
the Green Neighbourhoods project, and the Community Action for
Energy Network.
Part of the Energy Saving Trust's work is to direct
those who are most vulnerable to schemes such as Warm Front, the
Carbon Emissions Reduction Target scheme and Local Authority programmes.
These schemes provide grants, and free or subsidised offers for
energy efficiency measures.
25. Any personal carbon trading scheme must take
account of children; to allocate no further allowance for children
risks severely punishing family households, especially low-income
and single parent families. On the other hand, childless households
could be unfairly disadvantaged if full allocations were given
to children. Significant further research is required to determine
the likely impact of children on their household's carbon footprint.
Until this research has been carried out, it is not possible to
determine the best method of accommodating children in the scheme.
(Paragraph 89)
The Government's research into the distributional
impacts of personal carbon trading addressed the issue of whether,
and how, children should be included in a scheme. The research
revealed that although allocating a full allowance to every child
appears consistent with personal carbon trading as a system based
on the right of every citizen to emit an equal amount of carbon,
the data suggests children have a smaller marginal effect on household
emissions than adults.
Allocating full allowances to children would therefore
disproportionately benefit large families at the expense of childless
households. Further analysis of the data demonstrated that by
allocating children 1/3 of an allowance, the disproportionate
effects could be minimised, and so this seemed to represent a
reasonable compromise between allocating children a full allowance,
and allocating them no allowances at all. Further investigation
of this proposal would probably be worthwhile in any further assessment
of the concept.
THE WAY FORWARD
26. Witnesses told us repeatedly that existing
research data is too sparse to allow meaningful decisions in vital
politically-sensitive areas such as public acceptance, distributional
impacts, and operational costs. Crucially, a lack of comprehensive
profiling data on current energy use and transport patterns is
restricting the accuracy of predictions of the effect on personal
carbon trading on different groups. These research gaps are preventing
not only the development of personal carbon trading as a viable
policy, but also its fair comparison against other policy instruments.
Without more extensive data, the merits of personal carbon trading
cannot be fully assessed. (Paragraph 93)
The Government's pre-feasibility study was developed
to take an initial view on the potential value of personal carbon
trading compared to other approaches to reduce individuals' carbon
dioxide emissions. Four areas were identified for further investigation:
the potential effectiveness and strategic fit of personal carbon
trading; the equity and distributional impacts; public acceptability;
technical feasibility and potential cost.
The findings of the research indicate that, while
personal carbon trading remains a potentially important way to
engage individuals, and there are no insurmountable technical
obstacles to its introduction, it would nonetheless seem that
it is an idea currently ahead of its time in terms of its public
acceptability and the technology to bring down the costs. There
are some significant challenges to its potential as an effective
policy tool, and these would need to be addressed before this
option could be considered as a part of the UK's Climate Change
Programme.
Nonetheless, the research provides a valuable contribution
to the analysis of measures aimed at reducing individuals' CO2
emissions and encouraging pro-environmental behaviours. If further
research were taken forward on personal carbon trading, this work
would provide a sound basis upon which to build. Areas where further
analysis would be beneficial would be assessment of the key cost
drivers and how these costs might be reduced, a better understanding
of the degree of behavioural influence a personal carbon trading
scheme might have, and further analysis of the impact of policies
on individuals' behaviours would have much wider benefits within
Government than just the assessment of personal carbon trading.
27. Shortly before publication of our Report,
Defra released the results of their preliminary study into personal
carbon trading. We welcome the level of work and analysis that
has gone into this study, and we hope that it serves to progress
the case for personal carbon trading. We note that Defra's study
agrees with our findings in a number of crucial areas: firstly,
that personal carbon trading is fiscally progressive, and secondly,
that there are no insurmountable technical barriers to such a
scheme. We recognise the extent of the Government's concern over
public resistance to personal carbon trading and the potentially
high cost of implementing it. These are undeniably difficult areas.
However, we regret that, as a result of this, the Government is
indicating that it will wind down its work on personal carbon
trading. Public acceptance of personal carbon trading may seem
a distant or unlikely prospect to the Government, but without
some leadership and co-ordination it is unlikely to move beyond
the realm of academic study. Although we commend the Government
for its intention to maintain engagement in the academic debate,
we urge it to do more. Work needs to be done now if we are to
ever reach the point when the concept becomes acceptable to the
public and we would like to see the Government leading and shaping
debate and co-ordinating activity and research. Without action
of this kind it is unlikely that personal carbon trading could
become a viable policy in the foreseeable future. (Paragraph 95)
The Government's pre-feasibility study revealed significant
challenges in relation to the cost of implementing and running
a personal carbon trading scheme relative to the benefits, as
well as challenges in terms of its level of public acceptability.
While the Government remains interested in the concept, the evidence
from this study was not sufficiently positive to justify further
research at this stage into the value of personal carbon trading
as a potential policy option.
If some of the significant challenges identified,
such as the large costs, could be further researched and found
to be less significant, this could justify the Government further
considering the potential of personal carbon trading. However,
until this time, the Government must remain committed to identifying
and implementing the most cost-effective policies for tackling
climate change, and must ensure we are on track to meet our obligations.
28. Personal carbon trading does not lend itself
easily to a pilot or comprehensive trial. The conditions required
accurately to simulate behaviour and transactions under a full
personal carbon trading scheme would be difficult to replicate
in a pilot with limited participation. We do not believe that
it is feasible to address all aspects of personal carbon trading
under a single pilot. An alternative approach involving smaller,
separately targeted activities focused on particular aspects of
the proposed scheme may be preferable. (Paragraph 98)
It could be argued that a sensible next step to test
the findings of the Government's initial assessment of personal
carbon trading, and of the technical feasibility and public acceptability
analysis in particular, would be a form of trial or pilot. However,
to get the most out of such an activity further analysis would
be needed to determine the best technical option, that combines
acceptable cost with public acceptability. Even then, there are
risks to testing in public as pilot systems are inevitably unrefined
and likely to have faults, which could lead to failure and subsequent
public distrust and ridicule. Furthermore, a pilot would not be
able to test the mandatory and national nature of a scheme, therefore
making it unrepresentative of the real world[16].
Potentially interesting feedback could be delivered
through exploring likely individual responses to simulation games,
or voluntary trials. However, they could not and should not be
seen as indicative of responses to a formal, national and mandatory
scheme.
29. Personal carbon trading could be essential
in helping to reduce our national carbon footprint. Further work
is needed before personal carbon trading can be a viable policy
option and this must be started urgently, and in earnest. In the
meantime there is no barrier to the Government developing and
deploying the policies that will not only prepare the ground for
personal carbon trading, but which will ensure its effectiveness
and acceptance once implemented. (Paragraph 99)
The Government supports the research that continues
externally to Government in academia and think-tanks, and is committed
to keeping in touch with their progress. The Government always
envisaged our research being made publicly available and contributing
to the personal carbon trading debate which continues within academia,
think tanks, and research institutes. By highlighting some of
the areas worthy of further investigation we hope that some of
these issues might be addressed. The Government is keen to see
the outcomes of the research set to report this year from the
Royal Society for Arts, the Institute for Public Policy Research
and others—particularly if it were able to address some
of the issues our research highlights.
The Government will consider with interest any further
research that provides sufficient evidence to reduce the significance
of some of the major challenges identified by the Government's
study.
October 2008
1 www.hm-treasury.gov.uk/independent_reviews/stern_review_economics_climate_change/sternreview_index.cfm Back
2
www.hm-treasury.gov.uk/media/4/5/Chapter_15_Carbon_Pricing_and_Emissions_Markets_in_Practice.pdf
Back
3
Including transport Back
4
Over the last three years (2005-2007) household gas consumption
has fallen by nearly 12% (Digest of UK Energy Statistics (DUKES)
www.berr.gov.uk/energy/statistics/index.html), whilst household
electricity consumption has also fallen in the last two years.
[Analysis of] the 2005-2006 period shows that at least half of
the fall was the result of our energy efficiency policies. www.official-documents.gov.uk/document/cm74/7428/7428.pdf Back
5
www.defra.gov.uk/environment/climatechange/uk/individual/carbontrading/index.htm
Back
6
E.g. EU regulation requires the phasing out of inefficient light
bulbs by 2010. Back
7
The fact that alternatives were suggested without being prompted
is indicative of individuals' resistance to the proposed measures. Back
8
Recommendation 28 of this report. Back
9
The effectiveness of feedback from billing, metering and direct
displays on energy consumption, Sarah Darby, Environmental
Change Institute, April 2006. www.defra.gov.uk/environment/climatechange/uk/energy/research/pdf/energyconsump-feedback.pdf
Back
10
Personal Carbon Trading: Public Acceptability, Opinion
Leader & Enviros Consulting for Defra, March 2008. www.defra.gov.uk/environment/climatechange/uk/individual/carbontrading/pdf/pct-public-acceptability.pdf
Back
11
Recommendation 14 of this report. Back
12
One of many examples: Habits of a Lifetime, Energy Saving
Trust, 2006. Back
13
Estimates of the likely set-up costs of the type of personal carbon
trading scheme explored ranged between £700 million and £2
billion, and the running costs £1-2 billion per annum. Whereas
early estimates of the set up of an upstream scheme with 5,000
participants were between £50 million-£100 million,
and in the region of £50 million running costs per annum. Back
14
Reducing carbon emissions from personal road transport through
the application of a Tradable Carbon Permit scheme: Empirical
findings and policy implications in the UK, Helen Harwatt,
Institute for Transport Studies. Back
15
"Administration: a Government run scheme was favoured over
a privately run scheme". Back
16
The view of CSE in their scoping study 'A Rough Guide to Individual
Carbon Trading: The ideas, the issues and the next steps',
CSE for Defra, November 2006. www.defra.gov.uk/environment/climatechange/uk/individual/carbontrading/pdf/pca-scopingstudy.pdf
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