PCAs: 'feasible and fair' - but not in favour
PCAs: 'feasible and fair' - but not in favour
Drawing on four newly published research studies, two of which involved CSE, Defra concludes personal carbon allowances are feasible and fair - if expensive to run
8 May 2008
The concept of personal carbon allowances — or individual carbon trading — has been judged by the Government to be "an interesting concept ... ahead of its time" in a report published on May 8th. But, favouring a ‘wait-and-see' approach, it has committed only to keep a ‘watching brief' on research into the idea.
Drawing on four newly published research studies, two of which involved CSE, Defra has concluded that a system of personal carbon allowances (PCAs) is feasible and relatively fair.
But, it also considers that the anticipated costs of developing and operating the scheme may outweigh the added benefits of each individual having his or her own carbon allowance. Defra compared PCAs with a simpler scheme of limiting the supply of services which cause carbon emission by capping the emissions of energy suppliers, petrol retailers and airlines.
Simon Roberts, CSE's Chief Executive, urged Defra to maintain a more active interest in the issue: "As a result of these studies, there is now much more understanding of how a PCA scheme can work, what it might cost to run, and who the winners and losers might be. But the studies have also exposed huge gaps in knowledge, and before putting the issue of PCAs on a ‘watching brief' these gaps should be filled."
These thoughts were echoed by MPs on the Environmental Audit Committee who called on the Government to "seize the reins on this, lead the debate and co-ordinate research". In a new report, published at the end of May, they described PCAs a "radical" idea with "potential to engage the population in the fight against climate change". [See www.parliament.uk/eacom for details.]
Under a PCA scheme, individuals would get an equal allowance to cause carbon emissions which would be surrendered when paying for fuel and flights. Those who emit more than average would have to buy allowances from those who emit less — or cut their own emissions.
A Rough Guide
CSE explored the concept in detail for Defra, publishing A Rough Guide to Individual Carbon Trading (www.cse.org.uk/pdf/pub1067.pdf) at the end of 2006. The report laid out a research programme required to answer many of the unanswered questions about the concept. These latest studies for Defra addressed a number of these questions.
CSE undertook a major examination of the social distribution of carbon emissions across the UK population. Working with the University of Bristol, this enabled an assessment of the types of household which might ‘win' (i.e. have more allowances than they need) and which might ‘lose' under a PCA scheme.
The study concluded that most low income households would be ‘winners' but that about 2 million would start with fewer allowances than they needed. These ‘losers' were particularly concentrated in rural areas without access to the gas network and in one person households in larger-than-average homes. CSE's research team identify a number of further steps required to produce a full picture of how carbon emissions — and the opportunities to reduce them — are distributed across the population. The full distributional impacts report and executive summary for Defra can be found at www.cse.org.uk/pdf/pub1106.pdf
Simon Roberts said: "Our work has revealed a much clearer — though still not complete — picture of the social distribution of carbon emissions. This makes it possible in future to assess more accurately the social impact any climate change policy — from carbon trading to carbon taxes to energy saving regulations."
CSE also made a significant contribution to the pre-feasibility and costing study undertaken for Defra by the multinational management consultants, Accenture. This found that it would be relatively straightforward to set up the system and create carbon accounts within the banking system alongside current accounts and to link the surrendering of carbon allowances to payments like chip and pin and direct debit.
However, the scale of the operation — perhaps 50 million individual carbon accounts — would create significant annual running costs (potentially in excess of £1 billion per year). These operating costs would be significantly higher than for a scheme which capped the supply of carbon ‘upstream' from a much smaller number of energy suppliers and retailers. The suppliers would then pass on in their prices the costs of reducing carbon emissions. The full technical feasibility report and executive summary for Defra can be found at www.cse.org.uk/pdf/pub1107.pdf
Additional benefits
Commenting on Defra's overall conclusions, Simon Roberts, said: "Defra may be right that it is more effective to cap the supply of carbon ‘upstream' rather than control the demand ‘downstream' through PCAs — but they could also be wrong because there are still key gaps in knowledge.
"For example we need to know what would make individuals more likely to make the lifestyle changes that are required: having to manage their own carbon allowance, or simply having to pay extra for more carbon-intensive services. If it's the former, then the additional benefits of PCAs would potentially justify the additional system costs.
"We also need to understand how the significant negative social impacts of an ‘upstream' scheme — which would cause price increases for key services like heating — could be addressed.
"It would make sense for Defra actively and quickly to pursue answers to these outstanding questions to keep the PCA option genuinely open so that it can be available if the evidence shows it adds real additional benefit."
The full set of Defra studies together with its synthesis report can be found here.