Memorandum submitted by RSA CarbonLimited
EXECUTIVE SUMMARY
RSA CarbonLimited does not believe that personal
carbon trading (PCT) needs to be described as part of a whole-economy
system, but should be seen as an instrument for individuals to
share responsibility for greenhouse gas emissions with government
and industry. PCT is the idea that individuals would be in receipt
of a personal carbon allowance (PCA) and that this would be tradable,
subject to a cap. This is one of a series of measures that could
be employed to deliver emissions reductions at the level of the
citizen, one which would by its nature be engaging and, arguably,
empowering as citizens hold for themselves their right to pollute.
RSA CARBONLIMITED
Initially a three year project running between
January 2006 and December 2008 to explore the feasibility of a
system of personal carbon trading. The project has a core staff
of three; a director, Matt Prescott; co-ordinator, Lucy Stone
and researcher, Ben Castle, supported by other RSA staff and a
number of strategic external relationships with organisations
able to provide relevant necessary expertise. These include CarbonSim,
Atos Origin, Morgan Cole and Moneyswap, amongst others.
AREAS UNDER
INVESTIGATION BY
RSA CARBONLIMITED
Current areas of focus include:
1. Economic impact analysis focussing on
the nature of the market place required to support a PCT scheme,
including market design and regulation, the likely economic efficiency
of PCT in emissions reduction and the interaction and strategic
fit of PCT with other trading schemes, proposed and current. This
work consists of stakeholder workshops, expert interviews and
economic modelling. The team of researchers is advised by a steering
group of: Michael Roberts, CBI; David Green, BCSE; Ed Mayo, National
Consumer Council; James Cameron, Climate Change Capital and Kevin
Anderson, Tyndall Centre.
2. An exploration of the technology requirements
and privacy impacts, including consultation with IT providers
and technology experts through expert workshops and interviews
with a resulting working paperi. We are currently examining some
of the design proposals with Atos Origin to understand the costs
and feasibility of re-using existing technology infrastructure.
3. Examining likely impact on households
and options for personal/household/community carbon management.
Initially focussed on Cardiff, as a case study, this strand of
work is analysing the potential impact of personal carbon allowances
on different housing types, community groups and demographic groups.
It will be assessing the potential for public agencies, housing
associations or local authorities, for example, to manage carbon
allowances on behalf of citizens and communities.
4. Exploring the impact of a PCT scheme on
the transport sector. Through a steering group chaired by transport
expert David Quarmby OBE, we are looking at the practicalities
of the inclusion of aviation and public transport in a PCT scheme
and modelling carbon emissions reduction through behaviour change
across transport modes.
5. The likely public acceptability of a system
of PCT is being explored through a series of deliberated citizens
forums, CarbonLimited Cities, which may include a number of non-UK
cities to enable the project to explore public acceptability both
within and beyond the UK.
6. The international context is also being
explored in the US, with a US advisory group set up chaired by
Branko Terzic and a US project launch scheduled for November 2007.
The programme of work will look to mirror exploration of the key
questions in a US context, as well as provide learning through
practical initiatives.
The following section responds to the keys areas
of interest set out by the Environmental Audit Committee.
ECONOMIC IMPACTS
This is under investigation in a joint project
with Green Alliance, due to be published in October 2007. (See
number 1 in "Areas under investigation" above for details).
The likely relationship with and impact on other carbon markets
will be explored as part of this work. However, there is no assumption
that a relationship need exist with other carbon markets, save
to provide a "safety valve" for the scheme's ultimate
sponsor, presumably the government, given a shortfall of PCAs.
Approximate scheme costs will also be considered as part of this
work. Investigation to date suggests that the potential nature
of the role for aggregators and market makers could mean they
could carry some or all of the operational costs associated with
the scheme, voluntary or mandatory.
IMPACT ON
THE PUBLIC
AND PUBLIC
ACCEPTABILITY
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. There would
need to be either a subsidy for these individuals, in the form
of additional carbon allowances, or supporting benefits, or exemption,
with the cap adjusted accordingly. The infrastructure required
to support citizens in living low carbon lifestyles is a pressing
issue that will have to be tackled with or without a PCT scheme
in order to meet the UK's target for emissions reduction. The
design of a PCT scheme which begins with a generous allowance
and is slowly reduced to meet targets, would provide the long
term signal and security for product and service providers to
invest in and deliver this infrastructure.
Even if designed as a fair and equitable solution,
there may remain the perception that it is unacceptable. This
will depend to a large extent on media responses and their ability
to communicate the concept. PCT should therefore not be presented
as a fully worked up solution, leaving the public with only the
option to protest (as with the Road User Charging proposals).
Genuine and open public dialogue and discussion at these early
stages that allow the public to feed into the design as well as
the debate will be critical. And this must be conducted by a non-government
or bias organisation. This is one of the reasons that CarbonLimited
is conducting citizen forums, online trialling (the next version
of CarbonDAQ) and open debate.
PRECONDITIONS FOR
A PCT SCHEME
TO BE
FEASIBLE, DESIRABLE,
AND PALATABLE
TO
(a) the public
Existing loyalty, pre-pay, credit and store
cards have enormous penetration into the UK public and the feasibility
of their operation for the handling of personal carbon accounts
looks good and is currently under investigation and testing by
CarbonLimited working with Atos Origin. A voluntary scheme targeted
at a wide demographic of citizens, as a "warm up" and
with the potential to deliver reductions in emissions, will, in
the view of the project team, be a vital precursor to a mandatory
scheme in the absence of an environmental catastrophe (as defined
by the popular media). Such a voluntary scheme will work only
if there is an attractive incentive built into it. Only at the
point when the public has sufficient understanding of a comparable
scheme and with strong political leadership, could it be made
mandatory.
(b) business community
We would advocate that the personal carbon market
is structured in such a way as to avoid the direct involvement
of business and industry in the buying and selling of credits
for their own compliance needs. We do, however, 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.
PRACTICALITIES AND
OPERATIONAL ISSUES
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. Accounts currently handle different currencies,
so they could easily deal with a PCA. Likewise, individuals' ownership
of multiple accounts and the facility to transfer between accounts
is commonplace. Chip and pin is currently run by banks, with one
card carrying two technologies, and it is also true that multiple
cards for a single account also already exist.
PCT could use a single, centrally-controlled
or dispersed database. The database could be run by the government
or privately. This would present options for government to contract
it out to the private sector to operate single database, or for
the banks to privately run dispersed database systems. There are
various problems associated with banks running dispersed databases;
such as the policing of participation in the scheme, and so further
research and consultation is needed on this issue. A Public-private
partnership model may also be tenable. This also removes the necessity
for a large central database, reducing both cost and privacy concerns.
Government would need to be involved at the
outset in the allocation of credits and in overseeing identity
protection. Many commentators feel that the system could then
be handed over to the private sector for operation. This was a
widely held view in an expert seminar run at the RSA. The London
congestion charge was raised as a good example of private sector
operation of a scheme with multiple methods for making transactions.
Much like the foreign exchange market, a charge could be levied
for managing transactions that fall outside of the personal carbon
market, thus encouraging take up. Pricing transparency in this
regards would be vital.
EQUITY ISSUES
AND AVOIDANCE
OF DISADVANTAGE
In their 2005 reportii, the Tyndall Centre advocate
an equal per capita allocation as the most appropriate way to
ensure fairness. After all, if everyone has an equal share, it
is a good basis on which to argue the equity of the scheme. However,
as Richard Starkey of the Tyndall Centre and ourselves have experienced
at public events, this does generate strong debate amongst the
public, mostly around higher carbon footprints associated with
living in remote areas, having children, or even living in colder
parts of the country.
There is an important debate around the potentially
redistributive nature of the instrument. It is often stated by
commentators and members of the public alike, that "the rich
can just buy their way out of it". While it is true that
it would be possible to buy extra PCAs to cover excess emissions,
money can buy most things, as well as pay carbon taxes or higher
prices for carbon intensive goods, so no matter what mechanisms
are used to control personal emissions, the wealthy are in a stronger
position to cope. PCT is an instrument which would recycle that
extra payment to those with below-allowance emissions in the form
of an incentive or reward.
In order for a system of personal carbon trading
to deliver the level of required behaviour changes in favour of
lower personal carbon footprints, individuals must have responsibility
for their carbon allowance. However, lifestyles differ from person
to person and the ability to reduce emissions differs between
households. It is on this basis that much of the discussion about
the equity of such a scheme rests.
It is conceivable that other organisations would
want to, or have a strong reason to offer personal carbon account
management services to individuals. As an interesting example,
a housing association might offer to take responsibility for part
of an individual or household's carbon allowance. This would represent
a logical move given the limitations to household energy efficiency
options open to those in multi-occupancy dwellings, whether in
social or private rented accommodation. In such circumstances,
householders either do not have control of key energy related
choices, or have no existing financial incentive to make them,
for example where they pay a communal heating bill. Yet this is
counter-intuitive, as measures such as communal heating can represent
the cheapest and lowest carbon options.
A social landlord such as a housing association
or local authority would have an additional incentive to deliver
cheaper and lower carbon energy to householders given the management
of its residents carbon allowances—the better its achievements,
the lower its costs or the more it could earn through the personal
carbon trading market. Equally, in delivering this outcome, it
will seek incentives for it's residents to reduce their carbon
footprints, and as the landlord, will have a strong appreciation
of the ways that this can be achieved and, to some extent, the
capacity of its residents to deliver reductions. The housing association
or landlord is therefore in a strong position to design incentive
schemes for its residents that they can understand and that have
resonance with them. This is under investigation as part of our
work in Cardiffiii (See number 3 in "Areas under investigation"
above).
PILOTING
Full piloting of a personal carbon trading scheme
is a difficult undertaking, but it is possible to pilot aspects
of a given proposed scheme and to assemble the evidence that these
exercises would reveal. CarbonLimited is currently working with
Atos Origin to pilot a "carbon credit card" with an
initially small user group, with this group building over time.
The aims of this piece of work are to establish which IT infrastructures
could be employed to carry out the necessary functions of a PCA
and gather initial user feedback regarding the experience and
interface of the personal carbon account which will support it.
It is also possible to pilot the trading of
PCAs, which is the intention for the next version of the RSA's
"CarbonDAQ"iv, due to launch later in 2007. Currently
in development, CarbonDAQ will enable individuals and groups to
set parameters and trade PCAs. CarbonLimited will analyse the
data to support recommendations regarding both voluntary and mandatory
versions of a personal carbon trading scheme. Once combined with
the automatic collection of data via a "personal carbon credit
card", or other interface, CarbonLimited will be in the position
to fully pilot a voluntary PCT scheme.
THE INTRODUCTION
OF A
VOLUNTARY SCHEME
The scheme should be offered at the point that
we can, with reasonable certainty, measure the relevant carbon
emissions of an individual in real time, without the need for
them to input data. An allowance can be issued and incentives
put in place to stay within that allowance. The incentives might
be funded by grants, corporate sponsors, or individuals prepared
to be penalised for exceeding their allocation. The version of
RSA CarbonDAQ under construction will provide one possible basis
for operating a basic trial scheme according to these principles.
Lessons learned will inform the next steps in the scheme design.
AN EVOLUTION
TOWARDS A
MANDATORY SCHEME
Ultimately, according to emissions reductions
being achieved elsewhere in the economy, voluntary incentives
may not be adequate. To make the right choices, people will need
clear boundaries and price signals, just as industry, but with
room for individual lifestyles within. The role of government
in such a system will be twofold: to ensure compliance, or to
appoint a body to do so, "OfCarb" for example, and to
provide the full infrastructure to enable everyone to live within
allowance with minimal, if any, pain. This will necessarily involve
investment and support for emerging low carbon products and services.
IS A
SCHEME OF
PERSONAL CARBON
TRADING DESIRABLE?
CarbonLimited aims to answer this question fully
by the end of 2008. Interim findings due to be launched at the
end of July 2007 suggest that such a scheme would be technically
feasible and economically acceptable. The main thrust of the project
now is to examine public acceptability and potential for behaviour
change across a representative demographic sample of the UK and
US populations.
REFERENCE
i http://www.rsacarbonlimited.org/viewarticle.aspa?pageid=667&nodeid=55
ii www.tyndall.ac.uk/research/theme2/summary_t3_22.shtml
iii www.rsacarbonlimited.org/uploads/documents/RSA_PersonalCarbonTrading-ACommunityPerspective_25.pdf
iv www.theRSA.org/carbondaq
July 2007
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