PERSONAL CARBON TRADING VS GREEN
TAXATION
25. We have been unconvinced of the Government's
real commitment to implementing meaningful green taxation. In
our Report into the 2006 Pre-Budget Report we concluded:
The picture is of an ongoing retreat from the Treasury's
announcement in 1997 of a policy to shift the burden of taxation
towards taxing environmentally damaging activities. As the latest
figures show, the proportion of all taxation made up by green
taxes is markedly less than in 1997, and is indeed at a lower
proportion than as far back as 1994. This Pre-Budget does contain
some limited announcements of rises in green taxes, but these
are still very modest when set in the context of several Budgets
and Pre-Budgets in recent years in which many environmental taxes
have not even been raised in line with inflation.[17]
26. We made a similar point in our Report into the
2007 Pre-Budget Report. However, the shortcomings of existing
environmental taxes should not be taken to mean that green taxation
is inadequate as an instrument in itself. It is clear that the
actual implementation of green taxation is preventing its full
potential for reducing carbon emissions from being realised.
27. Green taxation and personal carbon trading both
affect individuals. While carbon taxation is a cost even to those
who produce very few emissions, carbon trading rewards
those with low emissions, and only penalises those who exceed
their allocation. Both methods use a stick, but personal carbon
trading offers a carrot, too. The UK Energy Research Centre (UKERC)
concludes that 'the key arguments in favour of PCA include its
effectiveness, equity, distributional impacts and certainty of
delivering savings'.[18]
Richard Starkey told us that the benefits provided by personal
carbon trading, though different from those of taxation, were
no less valid:
You are saying to people that if they are a below
average emitter they will have their surplus emissions rights
that will have a value and they will be better off than they were
prior to the implementation of this scheme.[19]
28. With personal carbon trading, allowances are
given to you, which, if you are prudent, could be converted into
money. It is this direct qualitya personal allowance,
greater visibility, the opportunity to benefit personallythat
convinces us that personal carbon trading would also lead to far
higher levels of engagement. The Tyndall Centre argues:
The hypothesis regarding PCT and C&S [Cap and
Share] is that actually holding emissions rights will increase
individuals' "carbon consciousness", i.e. they will
become more aware of their emissions and more engaged with and
focused upon the task of emissions reduction than under other
instruments. And if individuals spend more time and effort considering
ways to manage and reduce their emissions, then emissions reduction
may be more efficient than under other instruments.[20]
29. Simon Roberts agreed that, in general, individuals
are used to dealing with and absorbing price fluctuations from
taxes, and need the provocation of a personal carbon allowance
to make real decisions about their lifestyle.[21]
Steve Sorrell pointed out that:
[
] price elasticity of energy consumption is
very low in this [household] sector, which means that carbon prices
would need to be very high to have a significant impact on behaviour
and emissions. The associated distributional impacts are unlikely
to be acceptable.[22]
These analyses suggest that 'green' taxes would need
to be set at high levels in order to match the emissions-reducing
potential of personal carbon allowances, seriously testing the
public's level of acceptance and leading to significant disadvantage
among certain groups. We
believe that personal carbon trading has the potential to drive
greater emissions reductions than green taxation. A carbon allowance
could be more effective at incentivising behavioural change and
engaging individuals in reducing their emissions than the price
signals resulting from green taxation. It
is also important to bear in mind the difficulty of introducing
significant green taxation at a time of general concern over the
burden of taxation and in a period of economic slowdown. Even
so, it must be acknowledged that a period of significant recession
would dampen enthusiasm for most environmental measures, and that
personal carbon trading would not be exempt from this trend.
30. Cap and Share offers personal carbon trading's
sense of empowerment and entitlement, yet imposes no direct form
of ration or limit. Cap and Share also claims to guarantee emissions
reductions through the setting of a slowly reducing cap. It relies
on price signals transmitted down through the economy to deter
customers from buying carbon intensive goods or serviceswith
the same downstream effect as a carbon tax. We remain to be convinced
that price signals alone, especially when offset by the income
from selling the certificate, would encourage significant behavioural
change comparable with that resulting from a carbon allowance.
Laurence Matthews argued that raising awareness 'is only a means
to an end, and not something we should have to rely on in order
to implement a scheme',[23]
but awareness is crucial if behaviours are to change. A meaningful
reduction in emissions will only be achieved, and maintained,
with significant and urgent behavioural change.
31. We acknowledge
that personal carbon trading could be complex administratively
and more challenging to implement than green taxation and other
alternative proposals. However, its potential to change behaviours
and engage individuals means the Government should seriously and
urgently assess how to take personal carbon trading forward.
Obstacles and difficulties
32. The challenges surrounding personal carbon trading
are multi-faceted and will not easily be overcome. Beyond technical
questions, personal carbon trading would have to overcome significant
obstacles of political and public acceptance. The following issues
rank among the most significant obstacles to the introduction
of a personal carbon trading system:
- Coverage: who receives an allocation?
Of what size? How frequently? Which emissions are included?
- System and operation: the need to provide efficient
and reliable systems which can cope with massive amounts of data,
processing transactions in different formats and providing real
time updates of account levels. Such systems will also need to
be resilient to fraud.
- Administration: the need to have a trusted and
capable administrative body; and the sensitive setting of the
allocation curve on the fine line between public acceptability
and driving down emissions.
- Finding space in the policy landscape: many carbon
emissions are already counted as part of existing policy instruments,
such as the EU ETS. For personal carbon trading to work, it would
need to fit with other schemes.
- Public acceptability: personal carbon trading
would be a major initiative, affecting every individual in the
country. Perceptions of the scheme as over-restrictive, unnecessary,
inequitable, or burdensome, whether or not rightly founded, would
prove very difficult to overcome in certain quarters.
- Engagement with the scheme: measures will need
to be taken to ensure that individuals understand the scheme and
know how to use it. The public's involvement with the scheme will
be needed, both for its effectiveness and for its acceptance.
Mechanisms and strategies accounting for those who are unable
or unwilling to participate will be needed.
- Ensuring equity: measures would have to be taken
to prevent unfair distributional impacts, including protecting
high risk groups such as those suffering from fuel poverty and
people with disabilities, or deciding whether or not to provide
children with an allowance. The extent to which issues of inequity
are deemed to have been tackled successfully will significantly
affect the public's acceptance of the scheme.
- Obtaining political commitment: the long-term
commitment and political courage required of any government must
be substantial if it is to introduce such a radical and potentially
unpopular scheme. If it is to work, personal carbon trading will
require support across a wide political spectrum.
Conclusion
33. We
acknowledge the many difficulties that will have to be overcome
in the development and implementation of personal carbon trading,
not least work to bring about the public and political acceptance
of such a concept; considerable further research is required on
many aspects of personal carbon trading. However, we believe that,
by designing and implementing a sensitive and moderate scheme,
these obstacles could be overcome.
9 The Energy Saving Trust, Green Barometer-Measuring
environmental attitude, April 2007 Back
10
Q 102 [Dr Eyre] Back
11
Simon Roberts and Joshua Thumim, Centre for Sustainable Energy,
A Rough Guide to Individual Carbon Trading: The ideas, the
issues and the next steps, November 2006, p 8 Back
12
Simon Roberts and Joshua Thumim, Centre for Sustainable Energy,
A Rough Guide to Individual Carbon Trading: The ideas, the
issues and the next steps, November 2006, p 8 Back
13
Ev 83 Back
14
Ev 56 Back
15
Q 4 Back
16
Ev 24 Back
17
Environmental Audit Committee, Fourth Report of Session 2006-07:
Pre-Budget 2006 and the Stern Review, para 61 Back
18
Ev 67 Back
19
Q 96 Back
20
Ev 24 Back
21
Q 4 Back
22
Ev 97 Back
23
Ev 104 Back