Examination of Witnesses (Quesitons 161-179)
MR MATT
PRESCOTT
24 JULY 2007
Q161 Chairman: Good morning. Thank you
for coming in. I understand you have just published your interim
report for the CarbonLimited project.[1]
Would you like to say a little bit more about what the project
involves and what your findings have been so far?
Mr Prescott: We have not quite
published our interim report. It is due at the end of the month,
but obviously much of that information is now pretty much prepared.
The project has been running for 18 months and will run for another
18 months, specifically looking at personal carbon trading. During
that first 18-month period we have focused on a number of the
big academic questions behind the idea. We have focused on issues
to do with economic efficiency and impact, et cetera. We have
done some initial work on the technological infrastructure and
some of the IT systems that we could use. We have looked at some
of the privacy issues that have been popular in discussions. We
have also had a preliminary set of conversations with a number
of publics, moving forward with switching into more of a conversational
mode with the population, to start to tease out some of the public
acceptability issues in more detail, and also moving into a more
practical phase where we are testing some of our ideas on the
ground and visiting communities to explore how some of these can
manifest themselves.
Q162 Mr Caton: Thank you, Chairman.
In your submission, you are particularly enthusiastic about the
role the private sector can play, both in administering the system
and providing the impetus for keeping it running at a useful pace.
What exactly do you envisage the private sector undertaking in
a personal carbon trading scheme and why are they better suited
to do it?
Mr Prescott: We are quite salient
about which parts of the economy kick into action in order to
support such a scheme and the private sector is one which has
a lot of the existing infrastructures that one might need to support
the kind of user interfaces that we would envisage. For example,
if we were looking at the idea of carrying around a personal carbon
credit card, then naturally some of the banks already have existing
credit card infrastructure and local knowledge about how those
could work and be set up and are very experienced at dealing with
some of the issues around fraud and gaming of market-places. Certainly,
if one were to take the banking sector as an example, there is
a lot that is already in place that they might be able to do but
the issue for us is to take a step back and look at what is required.
For many people in the UK a bank style approach to a personal
carbon trading scheme might not be all that appropriate, so we
are also looking at what the public sector could do to support
such a system as well. We very much see a mixed portfolio of options
and we very much want to explore each of those. As I have mentioned,
one of the things we have already done is that we have looked
at the IT infrastructure which naturally does lead us into some
of the banking sector organisations particularly.
Q163 Mr Caton: Could you expand a
little bit on the balance between the role of the Government and
the private sector? In doing so, do you think there could be a
problem of credibility with the public if they felt that the scheme
was actually owned by the private sector?
Mr Prescott: The most important
message that we would wish to communicate about the idea of a
personal carbon allocation and a tradeable one is that the ownership
rests with the individual. That is the most important point about
the whole idea because, with an ownership at the level of the
individual, you are, if you like, reversing the hierarchy of responsibility.
By taking responsibility for a share of the UK's emissions reduction
target and having those emissions rights in their hand, the people
of the UK could then choose how to move forward with those and
appoint those credits to any of the systems that might be on offer,
any of the traders or any of the organisations offering to operate
the scheme or whatever. The first and most important thing is
that it is owned by the individual. The second thing is that the
types of organisations that would operate the scheme would be
those best suited to do so, subject to the government guidelines,
but the government guidelines we feel should be as light as possible
so that the system is not seen as a government one but as a shared
ownership scheme, if you like, between civil society, business
and government. Therefore, as I mentioned, the types of organisations
that might choose to act to offer services to individuals to operate
their accounts could be in the private sector, such as banks,
but they could also be in the public sector, such as, for example,
a housing association, which might choose to gather credits together
on behalf of their residents in order to invest those in longer
term energy security gains, such as local renewable energy schemes,
for example, which the residents would choose to sign up to in
order to give them a longer term energy security signal, and then
the market-place itself would be interacted with via the housing
association rather than by the individuals, but at the choice
of those individuals, who may, for obvious reasons, in many cases
not necessarily have strong financial skills or a strong interest
in playing into the market-based environment. The interface with
the individual would be one of choice but the ownership would
very much rest with themselves.
Q164 Colin Challen: I should start
my questions by mentioning that I am a member of the RSA and have
been slightly involved in the project, in its early days. You
have touched on the technology side. Of course there has been
the debate about whether or not everybody should be issued with
a card. Some see that as the introduction of some sort of ID card,
with civil liberty problems attached to it. Do you think it would
be necessary for everybody to have a card, like an Oyster card,
or could you manage the system and the transactions on the system
without necessarily having to have a card of the credit card type?
Mr Prescott: I think the interface
is very important. The ultimate purpose of the scheme is to bring
about behavioural changes at individual and community scale, I
think it would be fair to say, and, therefore, the visibility
of the scheme needs to be high—and necessarily so, because,
as we see it, we have upstream carbon instruments in play of which
the public are not especially aware and which do view more as
a tax, in feel. 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
a scheme. However, we have looked into that particular approach
and the retailers to whom we have spoken are not particularly
keen, due to extra time at checkouts, extra staffing and educational
requirements, and potential revenue lost under a voluntary scheme
rather than a mandatory scheme. The alternative would be to piggyback
on existing card technologies, if one were to follow that route.
The main options that stand up for us are the loyalty cards and
the pre-paid cards that are starting to emerge. It would be possible,
depending on the coverage of the transactions, to gather much
of the data that you need from one of those existing infrastructures,
and those are popular with the retailers when one talks about
this idea with them but also would mean there would be very little
in the way of additional infrastructure cost to set up the scheme.
It would be entirely done at the back end, behind the scenes,
and nothing to do with point of sale, software changes, et cetera.
That is the more popular route. Many people do have loyalty cards
and the coverage of those is quite broad and the understanding
of those is quite high. However, 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 prepaid meter or
direct debit and hence we would be looking at a mixture (a) of
technologies; and (b) of interfaces, that we would want 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.
Q165 Colin Challen: Have you had
discussions with credit card companies and are they in any way
enthusiastic about it or do they have any objections to it?
Mr Prescott: Yes, we are talking
to a range of organisations about operating the system. They are
generally reticent to talk about introducing new technologies
which will cost time at the point of sale but they are generally
very positive about reusing their existing infrastructure to support
such a scheme because they can see that, once introduced. If introduced,
there could be some business opportunities for them and some alternative
uses for networks into which they have already put time and effort.
Q166 Jo Swinson: I should start off
by saying I am signed up to the RSA website that tells you how
much carbon you have been using. I heard about the project and
thought it was quite interesting. It sends me an email every so
often with what today's carbon price would be. It is a very interesting
project you are involved in. I was interested to look at the variety
of methods you have to try to assess the public acceptability
of the scheme. In your memorandum, you mention citizens' forums,
Carbon Limited Cities, and so on. What are the results so far
of what you think the public reaction would be to personal carbon
trading and where do you think more work is needed?
Mr Prescott: The citizens' forums
which we are calling Carbon Limited Cities have not actually been
launched yet, unfortunately. That will kick off around September
of this year and run for a while. We will be using market segmentation
approaches to test quite accurately—this is probably the
Energy Saving Trust's market segmentation that we use—and
to look at some of the key questions about this idea in detail
with the public and be able to put some very solid research forward
with respect to public attitudes. For the moment, as I mention
in my introduction, it is quite anecdotal the evidence that we
would have because it is not based on any particular segmentation.
We do find that people will naturally take the core idea for the
personal carbon trading scheme (that you receive a personal carbon
allocation that is tradeable, et cetera) and will apply it to
themselves and will immediately respond if they feel they might
be on the losing side, if you like. The issues that tend to get
raised repeatedly are to do with the availability of public transport
(which is generally a rural/urban issue, to put it crudely); to
do with local climate (some people feel that parts of the UK,
if one were to apply a UK-wide scheme, might be requiring additional
units, carbon credits); and the other main area of interest is
around children. All of these touch on the vital question of the
equity or the perceived equity of the scheme. In their Domestic
Tradeable Quota paper, the Tyndall Centre talks about an equal
per capita allocation. Many people feel that is inherently fair
and many others feel that is inherently unfair because of their
circumstances. We feel it is very important indeed to separate
between people who are able to make choices to reduce their carbon
emissions from their lifestyle and those who are not. An obvious
and good example of somebody with a lower carbon footprint would
be somebody in a multi-occupancy household with a general low
carbon lifestyle versus somebody in a single occupancy household,
but the single occupancy household might be an individual who
has chosen to live on their own and is able and has the means
to, or it might be somebody who through no fault of their own
finds themselves living alone, and we do feel it would be important
to be able to distinguish between those two groups. That same
example can ratchet out around other sections of society and hence
we are doing work to look at specific case studies and to look
at what kind of mechanisms you might need to use to support people
who are disadvantaged by the scheme in such a way. The fuel poverty
question, if I might touch on this, is a big one in this respect,
in that those people who are fuel poor generally have high carbon
emissions from their households. Obviously that is not a showstopper
because, in essence, the scheme is redistributive. However, it
does mean that we need to make a choice about which way to avoid
that disadvantage. For us, there are three ways which we go into
in more detail. One is to increase the allocations to those households,
which would then mean we were moving away from the per capita
allocation. Another would be to adjust other benefits to that
household, perhaps through the social services network or wherever,
in order to avoid the disadvantage using related schemes targeting
household energy efficiency, like Warm Front. Thirdly, one could
exempt those households from the scheme and adjust the cap accordingly.
Once we look into the case studies of individuals under the scheme,
we will find those at a disadvantage through no fault of their
own, and we just need to explore how we can avoid that disadvantage.
Q167 Jo Swinson: As well as creating
a complex scheme that might be fair, it is also about it being
perceived to be fair.
Mr Prescott: That is right.
Q168 Jo Swinson: This is surely where
the whole thing can fall apart, if the public do not accept it.
I am thinking of recent public reaction to alternate weekly collections
or to road user charging. When radical changes are perceived to
affect people, even if it is for the environmental good, very
often there is not the support out there. The people who have
been engaged in this so far have tended to be people who are quite
interested in the issue, environmentally conscious people. How
do we make it work for the vast majority of people out there?
Some of the opposition will come from people who will lose out,
disadvantaged groups, but some of the opposition will surely come
from people who just want to keep a high carbon lifestyle and
do not like the thought of being asked to change or pay for it.
How would you propose that we can increase our public acceptability?
Mr Prescott: There are a number
of issues in that question and it touches on different sections
of society as well. Firstly, our philosophy in running this project
is very much one of co-production—and I hesitate to use
that word—in so far as we want to work with the population
to explore the detailed issues and describe an instrument that
will work for the maximum number of people, with public buy-in
through that process so that we can demonstrate that we have consulted
very much during design phase rather than at the end of the design
phase. That is important for us in the way we are approaching
the project. It is quite right to say that interested groups will
always take part in a voluntary scheme first. We accept that.
The introduction of the voluntary scheme which we are planning
to bring about during the course of this project will naturally
attract these types of groups initially, but we can nonetheless
still achieve a certain level of learning from that, certainly
in terms of infrastructure provision in ease of use and generating
a big debate. That is a useful step. The next step beyond the
voluntary scheme for us is what one might call an "incentivised
voluntary scheme". This touches back on parts of the role
of the private sector where one could imagine, for example through
a CSR budget or through some other identified funds, that a private
sector organisation wishing to operate the scheme could offer
an incentive to voluntary participants in the form of financial
reward or some other reward in kind, and hence you would then
start to attract a slightly wider demographic of people. The private
sector have shown an appetite for marketing environmental issues
so far. If we can harness that appetite to market a cap and trade
scheme, then one could see development of some very interesting
proposals from the private sector to individuals, with incentives,
which might well attract a far greater body of the population.
It is from that point that then the conversation about its acceptability
at the mandatory stage could take place. There were more questions
in there which I do not think I quite got to.
Q169 Jo Swinson: There is the issue
of disadvantage, because they live in a cold climate or far away
from public transport, which will create opposition. But, in relation
to opposition from people who are just resistant to change in
their lifestyle or paying more for their current lifestyle, how
do we go about getting them aboard schemes like this?
Mr Prescott: Firstly, this debate
is premised on the need to cut emissions rapidly, hence it is
more a question of which tool or which mixture of tools we employ.
Under a personal carbon trading scheme, if one were in receipt
of one's personal carbon allocation but chose not to participate
in the scheme, then, at the point at which they made the purchases
relevant to the personal carbon allocation, they would be paying
some form of surcharge in order to obtain those credits from the
market and hence it would feel like a tax. That is the straight
choice. You either take control of your personal carbon allocations
and either employ somebody or choose to operate in the market
yourself and use that process to enable you to make the relevant
choices for you about how to live a lower carbon lifestyle or
you accept that you will be taxed. I think it would not be a problem
once there is a strong enough conversation and a strong enough
participation to incentivise a voluntary scheme for that debate
to be had in public.
Q170 Chairman: What makes you think
that personal carbon trading will result in community action?
Mr Prescott: We do not assume
that it will but we are looking at how it could. We have a particular
programme of work that is initially taking the Cardiff South and
Penarth constituency as a case study. We are looking at a variety
of housing types and a variety of demographic groups within that
constituency, first of all to explore what would be the most efficient
carbon reductions at either household or community scale, and,
secondly, what community based groups or community based organisations—and
I mentioned housing associations but it could be the local government
even—chooses or would be able to offer support to those
households that wanted to do something on a larger scale and a
community scale for reasons of common sense; that is, a greater
carbon reduction can be achieved at the community scale, for example.
That may be true in many cases, hence that population choose to
invest in their carbon credits in that way to bring about, as
I said, a longer term energy security gain for themselves. We
do not know that is how people will behave but we want to establish
what the options could be for individuals and play those out in
communities around the UK to put some evidence on the back of
that question which is whether or not people would choose to behave
like that.
Q171 Chairman: Would you envisage
people pooling their allowances if they were living in a block
of flats?
Mr Prescott: It may very well
be the best choice, if the household were paying a communal energy
bill. I have worked on a housing estate where people, because
they paid a flat communal energy tariff, chose to have both the
heating turned up full and their windows open, because that was
the atmosphere they most enjoyed in their flat. There was not
any economically rational reason why they should not do that but
also, because the flat was not one that they owned, they did not
necessarily have any incentive, for example, to install insulation
or whatever. One would extend that also to private sector managed
accommodation. Again, any investment on the part of the tenant,
the gains from that would not be felt by the tenant but by the
landlords. There are some particular issues around housing that
need to be explored and the idea of poling credits or personal
carbon allowances to act at community scale might very well be,
by some distance, the most obvious choice for somebody in that
kind of accommodation.
Q172 Chairman: How big could the
unit be for people working together? Have you thought about that?
Mr Prescott: It is a good question
that we will explore in Cardiff. For argument's sake, a particular
block of flats could be a community or a housing estate could
be represented as a community. I would suspect that smaller sizes
might work better—up to two or three houses in a street
or of that kind of scale—but we shall see the output of
our work in Cardiff.
Q173 Mr Caton: Your technical requirements
working paper mentioned the possibility of including an expiry
date for credits. Why would this be necessary? What sort of eligibility
period are we talking about?
Mr Prescott: That paper was exploring
some of the market based issues as well as those associated with
the technical infrastructure. This suggestion came from one of
our expert workshops. When we were discussing the Oyster card
scheme as an analogy, we were concerned that if people felt that
the value of carbon would rise rapidly over time then as carbon
becomes scarcer they might choose to hoard their carbon credits,
hold on to them, and hence you might see a market failure in respect
of trading early on. That was where the suggestion for a time
expiry came from. However, our thinking has probably moved a little
bit further. We now see perhaps the regularity of the allocation
as being the most important thing and with respect to the question
of maintaining a fluid market-place. So we would be thinking more
on a monthly basis for an allocation, which would chime with many
people's monthly income. Many people budget over a monthly period
of time financially, and hence budgeting over a monthly period
in terms of the carbon would also be a logical time frame and
may provide the fluidity required without the need for a time
expiry. But if we look at a cap and trade market such as the EUTS,
there are some interesting relationships between EUA credits,
between years and tradeability. All of these issues would need
to be set out, and we will do so in an interim report, in order
to explore how best to maintain the fluid market. It would also
be important not to allow the prices to vary, to fluctuate too
rapidly, because I think that would cause people a lot of problems.
Q174 Mr Caton: I hear what you say
about the danger of hoarding, and that being important, the expiry
date, but I guess the counter danger is that if you have an expiry
date people spend and therefore emit more just because they know
that is going to happen. Is that part of your reason for moving
to monthly accounting periods rather than an expiry date?
Mr Prescott: Possibly yes. The
predicted price of carbon—and this is something again that
we are exploring but unfortunately at the present time I cannot
report it—would really determine whether that kind of behaviour
would be likely. I certainly know of people—and I shall
not name names—who are taking long-haul flights this year
for summer holidays because they perceive that some kind of carbon
reduction scheme is on the horizon and they want to get it in
while they can. Yes, I am sure that kind of behaviour would be
possible, and, again, it is all to do with detailed scheme design
to avoid any unwanted repercussions of such a detail.
Q175 Jo Swinson: I wanted to ask
how you see the personal carbon allowances fitting in with the
rest of the equality tools that we have in this area, including
the emissions trading scheme. Do you think they would interact
well or would we have to start with a clean slate to introduce
personal carbon trading?
Mr Prescott: It would be unfeasible
to start with a clean slate because we do not have one: we have
the Kyoto mechanism, the EUTS, the Renewables Obligation, Climate
Change Agreement, etc. But we do see multiple carbon instruments
on the same energy chain, so it is possible to suggest that it
is not a problem at all for the idea of personal carbon trading
that a number of these instruments exist and that they can overlap.
Indeed, with the EEC 3 moving into a slightly more visible location,
if you like, I think there is a certain level of recognition that
upstream instruments are not able to bring about the climate behaviour
changes downstream that are necessary and so a multiple number
of instruments on that line would be entirely possible. Also,
as I mentioned, the nature of the personal carbon allocation being
something which is very much yours to own as an individual, it
will feel different from a number of those other instruments that
I mentioned which do come through in perceived terms as taxation.
That would be my first point. The second would be that, 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 the EUTS, then the two schemes would be able to operate side
by side. They may want to be connected but we would suggest that
a personal carbon trading scheme should only apply to individuals
in the population. It would need some kind of safety valve but
it should not be able to be gamed by other organisations, who
would behave in different ways from individuals, and hence we
very much see personal carbon trading as the personal element
of what the Tyndall Centre described as the "domestic tradeable
quota" and, indeed, it need not be part of a domestic tradeable
quota. In fact, a domestic tradeable quota would imply a clean
slate, but, because that is not possible, we have reached the
conclusion that a domestic tradeable quota also is not possible.
Therefore, from the personal carbon trading scheme we are looking
at a percentage of the emissions reductions required by a nation
being allocated to the individuals and those then forming, if
you like, a shared responsibility with government and business
for achieving the reduction. It would be possible to put that
in place initially as an initiative (that is, as a voluntary scheme)
and later as a mandatory market-place without running into problems
with the other instruments that currently exist.
Q176 Mr Caton: In this inquiry so
far we have heard strong varying opinions on the value of pilot
schemes. What sort of pilots are going to be part of the carbon
energy programme and what information are you going to get from
them?
Mr Prescott: Primarily, two. The
first is one on which we are currently working with a private
sector organisation called ATOS Origin who are helping us to look
at each of the infrastructural options for operating the scheme
and to start testing those out. In terms of piloting the technology,
if you like, that is entirely possible and we will initially be
doing that with an unrepresentative sample, just to look at ironing
out some of the details of what would most likely be a card, and
then looking at getting a representative sample of the population
to take part in that pilot scheme. That is a technology pilot
that is entirely possible to do. However, that will not give firm
evidence regarding the behavioural response in the round, and
hence our programme for Carbon Limited Cities, using delivery
to fora to look at behavioural response. Secondly, the development
of our online tool, CarbonDAQ, which we are currently revamping
quite drastically to include a trading platform, possibly multiple
trading platforms, would be set up both as a public engagement
tool to come and learn about the idea but also as a research tool
for us, and we will be using, again, segmentation techniques.
We will enable people to set their own allocations and chose to
trade in their own ways and form their own groups, et cetera,
et cetera. There will be a lot of functionality but from that
functionality we will be able to see which are the most popular
methods that people are using and the kinds of behaviours different
groups are displaying. In an online environment, even though some
of those groups may well be geographically located in the UK and,
indeed, overseas, as this will be an international tool, we will
be able to learn a lot about behaviour in an online environment
through that. Between the technical front end, if you like and
the online back end, we will learn a lot, and then those two being
linked together so that the CarbonDaQ becomes the personal carbon
account that supports the card that they have for part of the
pilot scheme. It is that that will evolve into the voluntary scheme,
so that we see a number of the elements coming together that enable
a robust analysis of people's behaviour.
Q177 Mr Caton: You seem to agree
with many of our other witnesses that the big question is attitudes
and behaviour, and you are attempting to address that. However,
it has led some of them to say that you cannot have a pilot project
based on voluntary action in order to try to work out the details
of a mandatory scheme, just because, as has already been mentioned,
the people who get involved are already interested, whereas the
majority of the public, sadly, at the moment perhaps are not.
How do you respond to that?
Mr Prescott: Firstly, to reference
my timeframe of moving from voluntary to incentivised voluntary
to mandatory, this piloting work should at some point in the not
too distant future contain an incentive part, and hence we move
away from the usual suspects. However, there is a big danger that
one could try to pilot something and never really uncover the
key issues, which is why we are covering our bases and also doing
some modelling work to support the deliverative fora. The main
concern that was raised was really to do with piloting domestic
tradable quotas and I think this is where the confusion arises.
We are talking about a system of personal carbon allocations that
go to the population and those are tradable. The environment in
which those are tradable is not a whole economy scheme, because
the personal tradable units are not tradable with business or
industry. Indeed, that unit of currency is not necessarily also
traded by business and industry; that is where EEC and the EUTS
is operating. So we are talking about a separate scheme that is
focused on the individual. That, for us, is what personal carbon
trading is. The main problem with piloting the DTQ is that it
would be impossible to set up a whole economy trading scheme in
a microcosm but, if you forget about the rest of the economy and
focus on the behaviour of individuals and communities, I think
we can get a lot closer to an accurate piloting system than we
would if we were talking about domestic tradable quota. That is
the important distinction for us.
Q178 Colin Challen: Leaving aside
the question of public acceptability for a moment, do you think
that by the time of the next election, say in two years time,
we would have enough information of a technical nature and practical
nature to support the introduction of such a scheme? Do you think
that by then we may have ironed out any of the practical questions
which may be raised as objections?
Mr Prescott: There are the practicalities
of operating the scheme. I believe we will, by the end of 2008,
be able to report fully on the practicalities of operating the
scheme. This is quite a pressing issue and we are looking also
to minimise risk, hence looking at reusing existing infrastructure.
My feeling is that it is very much in place. We are not talking
about an ID card at all. The amount of information we would need
is far less than that and so the existing infrastructure networks
we have will be able to support the kind of scheme we are describing
here. The outstanding questions, I suppose, are around political
acceptability, which to some extent I believe we have just touched
on by talking about the various instruments in play, and I think
unnecessary concern about double counting. If we are talking about
different currency, there cannot be double counting. So political
acceptability, in terms of policies, I think will be there. It
is the public acceptability which is really the outstanding one
and that is why we want to put into play an incentivised voluntary
scheme so that there is a strong enough conversation about the
idea that, at the very least, people will have heard what it is
and have a good idea of what it is and many of the public should
have taken part in exploring it. I do not know if that answers
your question.
Q179 Colin Challen: Do you think
an incentivised voluntary scheme could be put in place at the
next election.
Mr Prescott: Yes.
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