Examination of Witnesses (Questions 60-79)
MR RICHARD
STARKEY
10 JULY 2007
Q60 Mr Chaytor: What would be the
benefits of cap and share as against a straightforward upstream
auction?
Mr Starkey: I think the proponents
of cap and share would say that it is important for people to
be able to hold the certificate in their hand showing their share
of the atmosphere, their emissions rights. There is something
empowering about that. The atmosphere does not belong to organisations,
it belongs to individuals, you have got your share in your hand
and that sort of thing, but it happens just once a year. With
personal carbon trading there is that reminder of your carbon
emissions every time you buy petrol, every time you pay a utility
bill and every time you buy gas and electricity. One might argue
there is increased visibility and that increased visibility may
justify the increased complexity and increased cost. In summary
what I am saying is you are weighing up the costs and benefits
all the time. It is not right just to look at costs; you need
to look at the cost-benefit analysis.
Q61 Martin Horwood: Can I test you
on the operational feasibility of this? You are very confident
that the existing transactional technologies can cope with this
system?
Mr Starkey: Yes.
Q62 Martin Horwood: What would be
the equivalent of purchasing carbon credits in existing technologies?
Mr Starkey: What would be the
equivalent?
Q63 Martin Horwood: Are you thinking
of something where you would run up a carbon bill, do you have
a top-up card or do you have to buy them online? How would you
imagine that practical part of it working?
Mr Starkey: When you say run up
a carbon bill, I do not think you would be allowed to go overdrawn
on your allowance so in that sense it would be different from
a bank account, if your bank allows you to go overdrawn.
Q64 Martin Horwood: So it would not
be like a credit card?
Mr Starkey: No.
Q65 Martin Horwood: It would be more
like a top-up scheme?
Mr Starkey: It is not the same
as a top-up scheme. With a top-up scheme stuff is coming onto
your card. In this system stuff is going out of your account.
It is perhaps more like a debit card.
Q66 Martin Horwood: You talk in your
report about individuals then purchasing units if they want to
carry on emitting carbon. How would they do that in practice?
Where is the existing analogy?
Mr Starkey: There are four routes.
They could purchase them online with a credit or debit card. Just
as you purchase a book from Amazon or eBay, you could purchase
them online from your bank. You could go into your post office
and buy them that way. You could easily do it over the telephone
either by speaking to a real person or through an interactive
voice recognition system. In the previous session you asked questions
about what happens if people cannot cope with the scheme or are
not able to understand it. People are able to set up an arrangement
whereby they automatically sell their emissions rights as soon
as they hit their account and then they buy them at the point
of sale, but they do not know that they are buying them at the
point of sale. They are simply paying an increased price. They
are just transacting money. That is the fourth way of buying.
Q67 Martin Horwood: That sounds broadly
like a top-up scheme, does it not? You have to go out and physically
purchase it before you then carry on emitting. There is not a
perfect analogy for this in any existing scheme or any existing
technology. If everybody tries to do it the price will go up quite
sharply. Somebody is suddenly going to find the holiday they were
budgeting for is not something they can afford because it includes
a long-haul flight.
Mr Starkey: That is the same under
any cap and trade system. If you restrict the amount of carbon
in the system then not everybody can burn all the carbon that
they want to. The question is not how big the cake should be because
every system restricts the size of the carbon cake but rather
how that cake should be sliced up.
Q68 Martin Horwood: What I am trying
to test is whether there really is any analogy in existing technologies
or systems for this kind of scheme. There does not seem to me
to be anything that would operate quite like this. Compared with
the systems that you are hoping will cope, like credit card systems,
actually this is going to operate quite differently, is it not?
Mr Starkey: When you buy petrol
you simply put your card in the reader and money moves from your
account into the account of the petrol station. The card allows
the petrol station to export money from your bank account into
their bank account. In the same way, if I am buying petrol under
this scheme, I put my carbon card in the reader that already exists
in the petrol station and that transaction allows the petrol station
to take carbon emissions rights from my account into their account.
If you get rid of the overdraft bit of it, it is analogous to
using a debit card to move money from one account into another.
Q69 Chairman: There are some quite
difficult practical questions here. What happens if you are an
American, you just come in and you rent a car in London and you
want to fill up with petrol?
Mr Starkey: You just use the pay-as-you-go
option. You buy your emissions rights at the point of sale.
Q70 Chairman: If you are not a citizen
you have not got an allowance, have you?
Mr Starkey: Which is why you buy
them at the point of sale.
Q71 Martin Horwood: Then it is like
a top-up system. You are allowing people to keep purchasing and
push the price up quite sharply.
Mr Starkey: Are you talking about
a reward card or a top-up system? In a top-up system, like with
a mobile phone, I can buy an infinite amount of credit.
Q72 Martin Horwood: In systems terms
there is quite a difference between something like an Oyster card
where the allowance is on the card and something like a bank account
where your account is with the main server of the organisation
that has it. Operationally these are quite different systems.
Mr Starkey: That is how your bank
account works. Your money is held in electronic blips on a database
somewhere.
Q73 Martin Horwood: No, because on
a bank account you can run up endless bills if you are not responsible.
You are saying that you would have a system that stopped you at
some point.
Mr Starkey: I am saying, if you
are looking for a perfect analogy, there is not a perfect analogy
because it breaks down at the overdraft point. In terms of moving
money from one electronic account to another using a card, then
I think a bank account is an analogy that people will understand.
With this you are getting stuff put into your account for free
whereas you have to go out and earn your money to put into your
bank account.
Q74 Martin Horwood: If you really
do put a cap on it then that is not like a bank account because
you very rarely reach the point where your card just stops working.
What about the people who are not really capable of using a credit
card at the moment or who struggle with things like tax credits,
because you are moving from a voluntary system with credit cards
or one that is, in the case of most bank cards, vetted by the
institution that issues the card to make sure that people are
credit worthy for instance? In this scheme you are issuing the
Domestic Tradable Quota to everybody. Is there not a risk for
the people at the margins who are not going to be able to participate
properly in this scheme?
Mr Starkey: If you do not want
to use a card you do not have to use a card. If you do not want
to think about emissions rights you do not have to think about
emissions rights. Just one thing has to happen. Your emissions
rights are automatically placed into your electronic account,
let us say, once a month. Either you yourself or, if you are not
capable of doing that, someone on your behalf can set up an arrangement
whereby those emissions rights are automatically sold to a bank
as soon as they hit your account. You make that one arrangement
and then for the next 15 or 20 years, however long you are alive,
you do not have to think about it again. Then whenever you go
to a petrol station to buy petrol or pay your electricity bill
you simply just pay in money. The electricity company or the petrol
station is adding on the cost of the emissions rights to your
bill. You do not even have to think that they are doing that,
that is what is happening in practice; you are just being faced
with a financial quantity that you pay over. You can just transact
completely in money if you want to.
Q75 Martin Horwood: That ends up
being just like a carbon tax, does it not?
Mr Starkey: It does end up being
just like a carbon tax if everybody chooses to do that. This is
one of the criticisms that have been leveled at personal carbon
trading and it is one of the points that I made in my written
evidence, that if everybody chooses to sell their emissions rights
immediately upon receipt and then just buy at the point of sale
you could argue that it is just a very complex and sophisticated
and expensive way of implementing a carbon tax. There are a number
of reasons why not everybody would do that. This is a very important
area of research that needs to be done. One of the reasons given
in the last session was that some people might enjoy fiddling
around with their accounts and managing them and playing the market.
I think another reason would be that it is a very convenient way
of being able to work out how much you have emitted because just
as you have a bank account and you get a bank statement, so if
you have a carbon account you will get a carbon statement maybe
once a month or once every three months, but on that carbon statement
(or you could access it online) it will say that Martin Horwood
over the last three months has bought this amount of petrol and
has this amount of emissions relating to his petrol purchases,
this amount of emissions relating to his gas purchases and this
amount of emissions relating to electricity purchases. So on one
piece of paper you can see whether you are above average, below
average or at the average, whereas on all the other schemes, as
far as I can see, you would just have to keep all your petrol
receipts and go back to your electricity and gas bills and work
it all out. There is some convenience in having an account and
a statement as you can see very conveniently where you stand.
If you are going to allocate emissions rights on an equal per
capita basis some people may well be keen to know if they are
above average, just below average or at the average. This is a
very easy and convenient way of telling where you are at.
Q76 Dr Turner: The Tyndall Centre
thinks it is very important to prevent fraud within the system.
Given that initially carbon allowances would presumably be worth
not very much, it is a bit like the first round of the European
ETS, so there will not be much profit in committing fraud. Do
you think fraud is really going to be a significant problem, and
what sort of level of security do you think will be needed to
prevent it?
Mr Starkey: The price of an emissions
right depends upon the supply and the supply is the cap. The Chairman
mentioned earlier about my colleagues who gave evidence to you
earlier this year about the Climate Change Bill being consistent
with a 4 degree C rise and if the Government is genuinely committed
to 2 degree C we are talking about very deep cuts in emissions
year-on-year, 6-9%. If you are constraining the supply of emissions
rights that tightly it may well be that the price is considerably
higher than it was at the beginning of the EU ETS where the cap,
everybody acknowledges, was very loose. Who knows what prices
you will see? It depends upon the stringency of the cap, but if
the cap is as stringent as it needs to be consistent with a 2
degree C target you may see very high prices, which presumably
increases the incentive to commit fraud. I think there are basically
two types of fraud, there is identity fraud and card fraud. Identify
fraud is where you fraudulently open multiple accounts. So whereas
you would be entitled to one account, you may be able to fiddle
it so you got four accounts and you would have a lot more emissions
rights to sell. This is why it is important to have some sort
of rigorous procedure for enrolling people into the scheme, ie
you have to prove to me in some way who you are. There was a question
in the earlier session as to whether you could do that through
ID cards. If ID cards were in place it would be a convenient way
of enrolling people into the system. We have worked quite hard
to say this scheme is not dependent on ID cards. If ID cards were
not implemented for some reason, there are plenty of other ways
by which you can verify people's identity conveniently and to
a high degree of assurance. Like them or not, if ID cards were
in place that would be a convenient way of verifying someone's
identity. That is the first type of fraud, identity fraud. The
second type of fraud is card fraud. Well, chip and PIN would be
the obvious way of dealing with that.
Q77 Dr Turner: You have got something
that requires a secure system and it is mandatory. This inevitably
makes people think of comparisons with an ID card system in any
event. There is a certain amount of positive confusion there.
Civil liberties groups tell us that they are not worried because
it is purpose specific and used for a specific purpose and not
a "single identifier that is used for multiple purposes".
Do you think that public perceptions will be easily won over as
far as this is concerned? Do you think you will have a problem
with the public?
Mr Starkey: The public is not
a homogenous lump. The blog that David Miliband wrote on personal
carbon trading got by far the most responses to any of his blog
entries. A large number of people said this was a great idea and
there are a large number of people who said it is "Big Brother",
it is the State interfering, the State is going to be able to
track what I am spending on petrol, on electricity and so on and
so forth. It will be very important to reassure the public that
privacy issues have been taken very seriously. Clearly we have
the Data Protection Act and there is the European Convention on
Human Rights. It has to be made very clear that this is a privacy-friendly
scheme. I have talked to someone at LSE who was instrumental in
writing their very large report on ID card schemes who is interested
in doing some work to look at this very aspect of privacy. I think
it is a very important issue that you raise.
Q78 Dr Turner: Do you think anonymity
could be guaranteed? How would you do that?
Mr Starkey: In what sense? When
you use a credit card it has your name on it.
Q79 Dr Turner: Yes, but nobody else
has access to your credit card account except you.
Mr Starkey: No. In the same way
you would have to ensure that no one had access to your carbon
account other than you except in very exceptional circumstances.
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