Select Committee on Environmental Audit Fifth Report

4  Towards a practical personal carbon trading scheme

Key considerations


34. The concept of a full economy scheme, such as that proposed under TEQs and DTQs is undoubtedly appealing. In the words of Richard Starkey of the Tyndall Centre, 'it is one scheme that encompasses the entire economy, so it is simple and efficient'.[24] Yet, the concept of such a scheme is so vast that it is difficult to envisage when, and how, it could realistically be implemented. The policy landscape is already increasingly crowded in terms of upstream carbon reduction mechanisms. The introduction of a full economy scheme would therefore necessitate a complex revaluation of participation in mechanisms such as the EU ETS. We do, however, have more or less a clean slate for a trading scheme purely between individuals. This is the territory in the policy landscape that has so far been neglected.

35. 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.

36. Even if different schemes which applied to different sctors were to operate on separate carbon currencies, they would still have an effect on each other. The Tyndall Centre calculated that:

Currently, EU ETS covers around 50% of the UK's CO2 emissions. The proposed Carbon Reduction Commitment will cover slightly less than 10% of additional CO2 emissions and the proposed Supplier Obligation, which might take the form of a cap and trade scheme, could cover around another 15% of CO2 emissions. The Commission has proposed the inclusion of aviation emissions within the EU ETS in Phase 3 and the UK government has proposed that emissions from surface transport also be included. Hence, it is possible that the majority of UK emissions will be captured under one or other cap and trade scheme by 2013. […] Implementing a PCT scheme in parallel with these trading schemes would thus result in the majority of UK emissions being covered by PCT and another trading scheme. In other words there would be a very considerable degree of "double counting".[25]

The fact that there would be double counting in some parts of the carbon chain is not in dispute. However, evidence as to what impact this double counting would have on the efficacy of the instruments concerned seems to be inconclusive. While the Tyndall Centre and the Centre for Sustainable Energy both suggested in evidence that double counting could only be avoided by fundamentally altering the nature of the EU ETS to allocate emissions rights to energy end-users,[26] thus creating a single, economy-wide scheme, other witnesses argued persuasively that double counting would not present a significant problem. Professor Ekins believed that 'in principle, it does not seem to me that there is a problem if there is overlap',[27] while Matt Prescott of RSA told us: 'so long as the carbon market that was set up to support a personal carbon trading scheme was a separate currency from the EUAs of the ETS and EU ETS, then the two schemes would be able to operate side by side'.[28] Further research is required in this area. However, on the face of it the issue of double counting would not reduce the effectiveness of personal carbon trading or detract from the other advantages of the whole concept.

37. 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.


38. Any consideration of personal carbon trading will need to take place in the context of the Climate Change Bill. Although the Bill will contain enabling powers for introducing new trading schemes through secondary legislation, the Government has made clear that it does not envisage using these powers for introducing a personal carbon trading scheme. 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.

39. However, the provisions of the Climate Change Bill would provide an appropriate framework for the setting of caps and budgets under a personal carbon trading scheme. The Bill provides for a statutory basis of five-year carbon budgets, setting binding limits on emissions, with three successive budgets (set 15 years ahead). This system of long-term, fixed national budgets is exactly the framework that would be required for setting caps for personal carbon trading. Personal carbon trading caps could be set as a sub-category of the national budget. The Energy Saving Trust told us that the targets under the Climate Change Bill 'would provide the necessary long-term emissions reduction signal to business and individuals and should therefore be consistent with any PCA allocation'.[29] Personal carbon trading caps would need to be subject to the same accountability and independent scrutiny as we have insisted upon for national carbon budgets.[30] 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.


40. Although there is no direct precedent for a personal carbon trading scheme, there are established technologies that fulfil the functions required, not least the banking and transaction system itself. Richard Starkey was clear that this could be easily adapted for a personal carbon trading scheme: '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'.[31]

41. The CSE have also found the success of store loyalty cards particularly encouraging:

Estimates vary between 65% and 85% for the proportion of households which have at least one loyalty card. However, the scale and rate of take up of loyalty cards is probably less relevant to individual carbon trading systems than the findings that: (a) people seem perfectly prepared to buy things using more than one card per transaction, and; (b) these companies have established enormous databases which securely store personal data and vast amounts of transaction data.[32]

The CSE calculated that the Tesco Clubcard database collects some 50 billion pieces of data per year. Based on the Tyndall Centres's estimations of transaction figures, the CSE calculated that a personal carbon trading database would have to process 15 billion pieces of data per year.[33]

42. The most significant operational difficulty lies in the administration of allowances and accounts. Simon Roberts told us:

We have a very good transaction system and we have a very good accounting system […] you could create a carbon account and you could link it up with the transaction systems and you would not need to build anything new to do that. […] 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.[34]

This view was shared by Richard Starkey:

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 account 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.[35]

43. The Government operates large-scale systems, but a great part of the expertise in managing systems of this kind resides in the private sector. This expertise will need to be harnessed, and it may also be appropriate for the private sector to play a substantial role in the operation of a personal carbon trading scheme. An expert seminar run at the RSA concluded that, while Government could be responsible for allocating credits and data protection, the private sector could undertake day to day operation of the scheme.[36] The London Congestion Charge was cited as an important example. Like personal carbon trading it is a statutory scheme, involving multiple transaction methods, but which has been successfully operated by the private sector (admittedly at a cost that some people consider unacceptably high).

44. The RSA is enthusiastic about the participation of business, in particular the role the banks could play:

We […] envisage a major role for business in organising and facilitating the personal carbon market. The opportunities associated with this would be dictated by its governance, but must exist in order to provide an incentive for businesses to seek to play a role in the operation of the scheme. Given the likely role of existing banking and IT infrastructure, a range of organisations would be in a strong position to play a role. […] There is a strong case to be made for banks and credit card companies to handle the PCAs. Banks have the system and knowledge in place.[37]

45. If the Government takes advantage of the expertise and infrastructure of the private sector, the technical and operational aspects of a personal carbon scheme could be easily realised. 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.

46. 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.

Achieving acceptability

47. The current debate on personal carbon trading has largely ignored crucial questions of acceptability. CSE, in their report to Defra, said:

In assessing the current state of the debate on individual carbon trading, we found a range of interests largely focused on the operational minutiae of specific schemes and on examining the minor theological differences between them. Yet the differences between the schemes appear to be less important at the stage than the largely untested assumptions shared by them all about public responses and political feasibility […] It is important at this stage to ground the debate quickly in considerations of political and practical feasibility - and that all potential policy instruments for achieving UK carbon emissions goals are considered on a similar basis.[38]

In considering the question of public acceptability, it is important to recognise that we should not be trying to drop a fully-formed, all-encompassing scheme into place. The necessary policy framework does not yet exist, the operational challenge would be immense, and such an approach risks overwhelming and alienating the public. 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.

48. Personal carbon trading will require sustained support across a broad political spectrum. There would need to be consensus both on the need to implement the scheme, and on the importance of sticking with the scheme in difficult periods. In order for the scheme to have a meaningful effect on behaviour, the public would need to accept it as a long-term measure, rather than as an interim policy that could end at the next election. This consensus will not be easy to achieve, although the Climate Change Bill will go some way to creating the right conditions. Professor Ekins told us:

The Climate Change Bill is a very important political innovation because that will make it more difficult for politicians to opt out of the agenda altogether. I think it will mean that politicians, given these targets, if they do not like one set of policies for carbon reduction, they will have to put forward another set of policies for carbon reduction instead of just saying. "We do not like that." That is potentially an important discipline.[39]

49. Political acceptability will inevitably rest on public acceptability. Although Simon Roberts told us there was an increasing public appetite for Government intervention to help people reduce emissions,[40] personal carbon trading is a radical step. Recent experiences of public opposition to road pricing and fortnightly waste collections suggest that any move to implement carbon trading or extensive carbon taxation could be very difficult indeed. Research by the Energy Saving Trust revealed that only a third or less of individuals questioned thought that measures such as green taxes (34%), road pricing (tolls and congestion) (30%) and carbon rationing (28%) were socially acceptable.[41] Professor Ekins told us:

I do not think that either of them [green taxes or personal carbon trading] are politically acceptable at the moment. It is not politically acceptable to impose policies that will cause people to reduce their emissions. That is the baseline where unfortunately we are.[42]

50. 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.

51. Our witnesses agreed that opposition to personal carbon trading often stems from a lack of understanding either of the need for such a mechanism, or of how the scheme would actually work. Acceptance increases if this is explained. Richard Starkey's experience was that 'people's hostility to a personal carbon trading scheme is inversely proportional to the amount of detail they have about it'.[43] Simon Roberts told us that arguments against personal carbon trading are usually founded on general arguments against constraining carbon use, rather than anything solely attributable to personal carbon trading:

It is not a question of doing this or nothing but it is a question of doing this or doing those 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?"[44]

52. 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.


53. The allocation curve of the personal carbon budget will need to be set sensitively. A cap that is too taxing, too soon, risks breaking any fragile covenant between public and government on this matter. On the other hand, the later action is taken the steeper the curve will need to be. Paul Allen, of the Centre for Alternative Technology, told us:

The optimum carbon descent steepness curve is one that begins immediately. The longer we leave it, we are moving away from the optimum because we are making the descent steeper and steeper, and therefore the social transition harder.[45]

Also, the Stern Report noted that early benefits can be gained by disproportionate effort at the beginning, making a stricter cap, earlier, even more attractive. A balance will have to be struck between achieving meaningful carbon emissions and gaining public acceptance of the scheme.

54. Even after the initial phase, the setting of the allocation curve is not as simple as drawing a straight line down to the 2050 target level. Complex considerations of distributional effects and 'crunch points' must be taken into account if the curve is to stimulate the correct balance of emissions reductions and public engagement. Simon Roberts of the CSE told us:

All those things [such as choosing not to go on holiday] 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.[46]

Although personal carbon trading aims to drive change in a way that less restrictive policies could not, careful consideration will need to be given to the point at which further change becomes unachievable at a reasonable cost.

55. 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.


56. Emissions that could realistically be included under a personal carbon trading scheme—although with varying degrees of difficulty—are:

In each case, an approved rate of exchange would need to be set between the product or service purchased and the number of carbon allowances to be surrendered. This would need to vary for different fuels (so a green electricity tariff would require the surrender of fewer allowances); or, in the case of aviation and public transport, the length or method of travel. Retailers would calculate the carbon value of a product or service according to this rate of exchange, and the consumer would surrender carbon allowances accordingly. Individuals themselves would not be required to make complex carbon footprint calculations for their purchases.

57. Some types of emissions would be easier than others to include under a personal carbon trading scheme. Household electricity and gas use would be measured by the power companies as usual, the carbon allowance total calculated according to the energy mix and amount consumed, and communicated to customers as part of their normal bill. Gas canisters and bags of coal would be worth a certain amount of carbon units. For road fuels, the cost per litre would be calculated firstly in pence, and secondly in carbon, with the customer required to surrender a certain number of carbon allowances at the same time as paying for the fuel. Aviation would involve single transactions, comparatively few in number when compared with public transport in general, and highly significant in terms of carbon impact. However, the inclusion of aviation under a personal carbon trading scheme would present inevitable difficulties as to which flights should be eligible, and how the system could be fairly implemented beyond domestic flights. These difficulties would need to be overcome not only due to the carbon intensity of air travel, but also because the use, or otherwise, of air travel would represent a key variable for individuals in balancing their carbon allowance.

58. It is less clear whether it would be possible, or perhaps more crucially, worthwhile, to apply personal carbon trading to the use of public transport. Although the development of systems such as the Oyster card have proved that quick and easy surrender of units (whether cash or carbon) for individual journeys is possible, there remain concerns over the inclusion of public transport. The memorandum from the Environmental Change Institute listed a number of reasons why it might not be prudent to include public transport in a personal carbon trading scheme, at least at the beginning of its life. Among these were:

Surface public transport comprises only a small percentage of individuals' total emissions;

Inclusion of public transport could easily double or treble the total number of carbon credit transactions per year, while only affecting a small proportion of personal emissions;

It is difficult to accurately calculate the emissions associated with an individual's travel on different public transport modes due to fuel choices, occupancy and distance travelled.[47]

59. Certainly it might be possible in future stages of a scheme to envisage the inclusion of some areas relating to public transport: most simply, perhaps, substantial purchases such as long distance rail travel or season tickets. However, any such move would need to be carefully analysed in order to assess its impact on the shift towards lower-carbon lifestyles. It is important that the public are not faced with a mixed signal: although the surrender of allowances for public transport would be minimal in comparison to the purchase of road fuels, a public transport system that was entirely exempt from personal carbon allowances would provide a far clearer incentive for individuals to leave their cars at home.

60. The more types of emissions included at the beginning of a scheme, the more complex the implementation of the system, and the greater the leap of faith required from the public. A careful balance will need to be struck: on the one hand, a scheme encompassing many emissions risks making individuals feel under siege and confused by comparing different types of emissions; on the other hand, the more emissions covered under personal carbon trading, the greater the flexibility individuals would have in deciding how to manage their emissions and carbon allowance.

61. Stern has shown that the sooner action is taken, the more effective it can be. It is for this reason that we believe it is more important to implement a reduced scheme than to delay action while worrying over how to develop the perfect, fully-formed, all-encompassing scheme. 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.


62. Individuals who are either highly environmentally or fiscally conscious are likely to engage more closely with personal carbon trading, tracking their carbon use and managing their accounts. To a degree, they would stand to benefit from this, in the same way that any financial management provides benefits. Most individuals will surrender allowances at point of purchase with little further interaction. Some individuals will not understand the system and will require assistance and encouragement.

63. Professor Ekins was confident that the association between carbon emissions and financial loss or gain could bring about significant engagement with the scheme.

If people understood that carbon was money, they would take it very seriously. They would participate in any scheme that was set up. […] The challenge will be to really connect that very abstract, transactional environment which will resemble the money environment with people's energy use and perceptions of energy use and a recognition that, when they turn the central heating up, that will mean that this parallel money as well as their normal money is going to be hit. The big difference about the parallel money is that it is rationed. There is a fixed amount out there in the nation and they will need to buy in a market that is fixed. That is quite a different kind of market to the one people are used to.[48]

64. A significant misconception is the amount of active 'trading' required in order to participate in the scheme. Unless an individual chooses to involve themselves in the speculative buying and selling of carbon allowances, the trading aspect of the scheme is largely invisible. An individual will have a certain balance in their carbon account. When they make carbon purchases, allowances are surrendered from this account. If the individual's carbon account is empty, allowances must still be surrendered at point of purchase. The retailer will automatically buy carbon allowances on the customer's behalf, and surrender them immediately. The cost of the carbon allowances bought in this way will be added to the amount paid by the customer. The customer does not have to actively search for extra allowances, though the price of these point of sale allowances will vary with the carbon market.

65. This process would also be used to account for those who were unable or particularly unwilling to participate directly in the scheme. Richard Starkey explained how it would work in this case:

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.[49]

In this way, non-participants still receive their allowance of carbon, and still receive money when these allowances are automatically surrendered without being used. They simply pay higher prices for the products and services included under the scheme. They will experience the scheme as a carbon tax, but with an extra sum of money arriving in their accounts every month. The personal carbon trading scheme is not undermined as it still has a full number of participants, who are still paying for their carbon use.

66. This 'pay as you go' approach to carbon trading would have some disadvantages. Firstly, it is less effective at raising public awareness and understanding of carbon use, because the carbon transaction is less visible. Secondly, customers would have to buy carbon at its market price. If carbon prices were high, customers could be worse off than if they had used their own allowances to pay for goods.

67. 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.

68. A regular issue (for example weekly, or monthly) of allowances onto the market should ensure that the allowance market remains fluid and that there is minimal risk of the market itself 'running out' of allowances. However, as with any market, regulation would be required in order to safeguard against market failure, and to provide contingency plans in the case of extraordinary events such a particularly cold winter.

69. Personal carbon trading is often associated with the idea of a carbon card. The carbon card is one of the most regularly cited manifestations of a personal carbon trading scheme, and such a card could indeed play an important role in bringing visibility to the scheme, as well as engendering a sense of ownership. Matt Prescott explained why a card could have an important role to play in achieving public acceptability for the scheme:

The purpose of the scheme is very much to give ownership down to the level of the individual and the community and enable them to control it, hence the interface would need to be something that was comprehensive for the scheme but also comprehensible from the point of view of individuals. The original suggestion of a stand-alone credit card, of sorts, which has been talked about for probably the last 12 months would give you that "in the wallet" visibility that you are involved in the scheme.[50]

However, a personal carbon trading scheme would need to operate on a number of different platforms in order to facilitate different kinds of transactions: for example, allowances could be surrendered via a carbon card (at a petrol station, for instance), via direct debit (for electricity bills), or through an internet transaction (for online purchases). All of these transactions would draw on the same carbon account. Matt Prescott emphasised the range of transactions required:

It is obvious to see that domestic household utility bills are not often paid using one of the existing card systems but more often either through a pre-paid meter or direct debit and hence we would be looking at a mixture (a) of technologies and (b) of interfaces that we would need to tie in in an understandable way, such that the scheme looked neat and tidy to the public but actually properly did dovetail a number of different infrastructures in order to deliver that.[51]

This range of interfaces is also important for the public's acceptance of the scheme: it makes the scheme more versatile and accessible, meaning that the public can engage with the project in the way which is most convenient for them. This extends not only to transactions, but also to the ways in which individuals can access and manage their account.

70. Some of the most vehement objections to personal carbon trading are based on fears of state control and data storage. However, there is no reason why access to a carbon account and use of a carbon card could not be protected with some of the same measures used to protect bank accounts and credit or debit card (i.e. such as passwords and pin numbers) with the similar protection against fraud and even provisions for lost and stolen cards.[52] It would be practically impossible to eliminate fraud entirely, but measures can be taken to manage and minimise the risk of fraud to the point where security is no longer a barrier to public acceptability.


71. Public acceptability for personal carbon trading can only be achieved if the public feel they are being supported in meeting the requirement placed upon them by Government. The public will need to be given help and guidance to achieve these carbon reductions. Nick Eyre told us:

Personal carbon allowances would set an overarching instrument for individuals and carbon but that would not address every barrier to behavioural change and investment […] There would still be a need for specific interventions.[53]

Similarly, the Environmental Change Institute noted in their memorandum that 'If PCA were to be introduced, it would not be a stand alone policy. It would simply form the umbrella mechanism within which a wide range of other policies would operate'.[54] 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.

72. Most importantly, individuals would need to have the knowledge and means to assess their own carbon footprint and where they stood to fall in the personal carbon market. Nick Eyre was insistent on this point:

If people do not know what their carbon footprint is, they do not know whether they would be a buyer or a seller within a trading scheme. That is a pretty fundamental thing that they need to understand before they can engage with the system.[55]

The obvious tool for this purpose is a carbon calculator. Defra have recently introduced their Act on CO2 calculator, which enables individuals to calculate their carbon footprint from home energy use and transport patterns. We commend Defra's Act on CO2 calculator.[56] 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. This could build upon the important work already being undertaken by the Energy Saving Trust. Nick Eyre told us:

People need help to figure out how to reduce their emissions. The Energy Saving Trust programme, which advises people on what their energy use is, what their carbon footprint is, and, more importantly, how it can be changed, provides the key piece of information that any individual needs to participate effectively in a personal carbon allowance market. Until we have that sort of information the market will not work because it is a fundamental principle of markets that they only work properly when people are informed.[57]

The Energy Saving Trust also suggested that better metering systems would be essential in order to rise the energy and carbon awareness of households.[58] 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.

73. We also await with interest the outcome of new programmes providing individually-tailored, paid-for domestic assessment services, such as the pilot being planned by the Energy Saving Trust, and the Green Concierge Service running as part of the Mayor of London's Green Homes Initiative.[59] These schemes aim to provide, at a cost, a personalised carbon footprint assessment (in the case of EST, also including emissions from transport) with structured action plans and follow-up assistance. Such schemes will provide useful data on the effectiveness of more personal and structured forms of advice, and on the willingness of individuals to pay for energy-saving services. Under a personal carbon trading scheme, more direct programmes such as these could have a significant role in helping households to meet the challenges and opportunities offered by personal carbon trading.

74. It is not enough to know one's carbon footprint and understand its implications for the personal carbon allowance. Individuals must also be provided with the opportunities to reduce their emissions. In part, this can be resolved by the provision of information and advice. For changes involving significant capital outlay, such as home insulation or the installation of microgeneration capacity, assistance and grant schemes may be required. The Environmental Change Institute emphasised that 'new and existing efficiency and carbon emissions standards would [need to] continue to be tightened'.[60] In the future, policies will need to go beyond facilitating changes to existing lifestyles, and focus on encouraging significant changes in lifestyle trends:

Transport and planning policy would need to find more effective ways of encouraging the use of lower carbon modes and, eventually, lower mobility lifestyles. Not only would these policies enable and encourage people to live lower carbon lives, they could also be used comprehensively in advance of PCA to broaden the low carbon options available.[61]

Personal carbon trading could form the backbone of a wide programme of policies designed to facilitate the move not only to low-carbon households, but also to a low-carbon economy.

75. Finally, any development of a scheme would also need to take into account the costs and demands on business, especially fuel retailers, energy providers and travel services, arising from personal carbon trading. The handling of carbon credits will require training, equipment and publicity. Government will have to assist in providing these facilities in order to make any proposals to introduce personal carbon trading palatable to the businesses who will have to implement the scheme as part of their transactions with customers.


76. The question of 'fairness' will be central to the public acceptance of a personal carbon scheme. Emissions from the domestic sector will have to be reduced or constrained in some way if we are to meet our emissions targets. The question is whether personal carbon trading would create greater inequalities than any other scheme used to do this. Professor Ekins was adamant that there was little chance of finding a truly 'fair' scheme:

No one model is going to be perceived by everybody to be fair. Fairness is something that is fought out in the political process day by day. This will have to be too.[62]

77. Richard Starkey identified many groups who could feel disadvantaged by an equal per capita allowance, most notably those suffering from fuel poverty. He insisted that the cause of such inequalities needed to be carefully assessed:

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 these instruments.[63]

78. The memorandum from the Centre for Sustainable Energy also recognised that the existing policy landscape was unlikely to favour any instrument of this kind:

None of these situations [of inequality] are the result of PCAs; they are simply the reality of a society and an energy market—already blighted by inequalities and socially regressive pricing practices. Indeed, these situations are the reality within which any policy designed to constrain and cut individual carbon emissions will have to act.[64]

79. 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. However, it must be remembered that a personal carbon trading system could be much less onerous for disadvantaged groups, including those suffering from fuel poverty, than alternative policies designed to cut carbon emissions, such as green taxes.

80. In all the proposals for personal carbon trading, allowances are hypothetically distributed on an equal per capita basis: every adult individual receives the same allowance, irrespective of his or her circumstances. It is from this basis that allowances are then bought or sold, to account for the inevitable inequalities in carbon usage. Richard Starkey explained that an equal per capita allowance, although not perfect, was perhaps the most straightforward solution:

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.[65]

However, while an equal per capita allowance may be the fairest method in a philosophical sense, its failure to account for individual circumstance may make it seem less appealing from a political point of view.

81. Varying allowances would, however, create a raft of difficulties. Firstly, there is the difficult decision of to whom to award extra allowances, how much to give, and the bureaucratic challenges of administering this. Secondly, there would be the near impossible task of satisfying all parties that their interests were being adequately taken into account, and thereby maintaining support for the project. Thirdly, and most crucially for the success of the scheme, there is the question of how individuals can be encouraged to reduce their carbon emissions if they know that there is a long list of exceptions. Dr Fawcett summed up the resentment which might arise from such a set-up:

If you go round saying that a person who has ten times higher emissions that me is allowed a lot more because there are all these factors that are problematic for them, like they have a big house and they live in the country or they simply have to drive 100 miles a day or whatever, how am I as a low emitter going to feel about that? Pretty irritated, I would think. There are more low emitters than there are high emitters. There are moral reasons for not varying the allowance, except perhaps in a small number of cases. The practical reasons completely dwarf the argument and principle about why you simply could not run a system like that.[66]

Having said this, there could be simple allowances (comparable to those used in the tax and benefits system) that give extra credits to groups, such as parents with children, the elderly, and disabled people, whose greater need for private transport and warmer homes is unambiguous.

82. 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.

83. Identifying this genuine need is not as simple as assuming that those with lower incomes will inevitably be worse off under such a scheme. It is important to remember that individuals will not incur any cost for carbon provided they remain within their allowance, and could even gain money if they have excess allowances to sell. The RSA reflected that:

There is received wisdom and some research to show that carbon emissions and socioeconomic status have a positive correlation—those on higher incomes and in more stable social conditions are responsible for higher carbon emissions. They are more likely to live in a larger house, have more than one car and travel frequently by air. Those in lower socioeconomic groups use less carbon. This is one of the attractive elements of the scheme—it is progressive and largely redistributive. It would be socially fairer than a flat tax on carbon, which would penalise those causing fewer emissions in the same way as those causing high levels. However, there are some who are the exception to the rule, and it is important to distinguish between those who choose to use more carbon, due to lifestyle choices, status and luxury, and those who have few or no relevant choices to make due to housing condition or lack of public transport.[67]

84. It is essential this general redistributive trend is emphasised if personal carbon trading is to gain public acceptance. The Centre for Sustainable Energy encountered a number of negative reactions to the idea of a scheme, of which the two most fervently held were: 'the poor would be trading their deprivation for cash' and 'this is just another scheme/scam/rip-off where the rich can pay to pollute and the poor suffer'. The CSE countered this reactions as follows:

Such reactions, usually driven by well-meaning social consciences, unfortunately ignore the facts that at present the poor receive no cash for their deprivation and the rich currently pollute without paying anyone. Under a system of PCAs, at least the poor would, on average, be paid for their deprivation. And, on average, it would be the rich who would be paying the poor in order to sustain their carbon-intensive lifestyles. […] These facts do not make such a system perfect and PCAs will certainly not create an 'equal society'. But by starting from an equitable distribution of rights to emit carbon dioxide amongst the population, it is undoubtedly socially progressive.[68]

One way to persuade the public of the generally progressive nature of PCT would be to publicise, at the outset, examples of a range of typical households whose lifestyles in terms of travel choices and home heating, etc., are commonplace, and who can be shown to be net gainers from the scheme.

85. It would be wrong to assume, nonetheless, that there will be no need for additional support. Some poor people will require further assistance, most notably to make the capital investments (in, for instance, home insulation) that will allow them to cut their carbon emissions. This would be the case under any carbon pricing mechanism. Groups at risk will include not only those on low incomes, or suffering in fuel poverty, but also those who are financially excluded and unable to budget successfully even without the additional demands of a carbon allowance. These groups could also be unable to access or understand the financial services that will help them make the most of their allowance. Although the 'pay as you go' option could go some way to accommodating the financially excluded, it could also entail a number of difficulties: the opportunity to gain money by managing allowances would be less visible, and there would be a particular risk of disadvantaged households 'cashing in' their allowances upon receipt, and then struggling to meet the cost of carbon purchases. It will be essential to provide guidance and support to help bring people inside the system and to avoid situations where the personal carbon allowance actually results in greater deprivation.

86. 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.

87. The inclusion or otherwise of children under a personal carbon trading scheme presents a similar dilemma. The presence of children in a household will clearly contribute to some increase in carbon emissions, both through household energy use and transport patterns. Any failure to accommodate this additional energy use would disadvantage families (especially those on low incomes) and would have severe implications for the popular acceptance of the scheme. Again, the crucial question is that of how parents should be compensated, and this is dependent on a proper assessment of the contribution of children to a household's carbon footprint. The answer, in this case, is far from clear. The Energy Saving Trust told us:

'We do not have the research to tell you what the marginal energy and carbon impact of having children is. Clearly, there is a positive one. Households with children use more energy and carbon than similar households without children, but we do not know by how much'.[69]

It seems unlikely that the average child would contribute enough to a household's carbon footprint to merit a full adult allowance. If children received a full adult allowance (a notion dismissed by David Fleming as 'bizarre'[70]) childless households would be doubly disadvantaged: not only would families be receiving extra allowances, which would likely exceed the additional energy use, but the national allowance cap would be divided not between the UK's 49m adults but between 61m adults and children, meaning smaller allowances for all.

88. The alternative would be to offer either financial compensation (essentially as an extension of child benefit) or additional, partial allowances (although this would still lead to a reduced personal allowance, overall). The Environmental Change Institute (ECI) confirmed that early research has favoured the latter option: 'preliminary research by UKERC, which has included a number of workshops with teenagers, suggests that a partial allowance for children, which is allocated to their parents (as in the case of child benefit), would be the most socially acceptable option.' However, this conclusion is a tentative one, with ECI insisting that further research is required.

89. 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.

24   Q 50 Back

25   Ev 22 Back

26   Ev 22 [Tyndall Centre]; Q 11 [Simon Roberts] Back

27   Q 204 Back

28   Q 175 Back

29   Ev 37 Back

30   Environmental Audit Committee, Seventh Report of Session 2006-07, Beyond Stern: From the Climate Change Programme Review to the Draft Climate Change Bill, HC 460, para 131. Back

31   Q 84 Back

32   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 23 Back

33   ibid. Back

34   Q 7 Back

35   Q 84 Back

36   RSA Carbon Limited 'Technology for Personal Carbon Trading-Outputs from an RSA expert workshop-December 2006' February 2007, p 6  Back

37   Ev 57 Back

38   Simon Roberts and Joshua Thumim, Centre for Sustainable Energy, A Rough Guide to Carbon Trading: The ideas, the issues and the next steps, November 2006, p 3  Back

39   Q 218 Back

40   Q 48 Back

41   The Energy Saving Trust, Green Barometer-Measuring environmental attitude, April 2007 Back

42   Q 202 Back

43   Q 99 Back

44   Q 17 Back

45   Q 153 Back

46   Q 6 Back

47   Ev 67 Back

48   Q 211  Back

49   Q 74 Back

50   Q 164 Back

51   Q 164 Back

52   A number of witnesses supported the view that existing banking technology could meet requirements of identity and account protection. See Qq 37-8, Q 76, Q 162, Ev 74. Back

53   Q 107 [Dr Eyre] Back

54   Ev 66 Back

55   Q 105 Back

56   The Carbon Calculator can be found at:  Back

57   Q 114 [Dr Eyre] Back

58   Ev 37 Back

59   See the Energy Saving Trust for further details of their pilot, and the Mayor of London for details of the Green Concierge Service. Back

60   Ev 66 Back

61   Ev 66 Back

62   Q 208 Back

63   Q 85 Back

64   Ev 2 Back

65   Q 86 Back

66   Q 195 Back

67   Ev 57 Back

68   Ev 1 Back

69   Q 125 Back

70   Q 159 Back

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