UK and Irish governments told to implement personal carbon trading

The British government should reconsider its decision to put on the backburner the idea of personal carbon trading, especially since the Irish government has now been advised to roll out a pilot for the transport sector.

Britain should consider giving individuals a personal carbon emissions allowance that they can use or trade, in order to help the country meet its CO2 emissions target, the Environmental Audit Committee (EAC) told the government last week. The government had earlier in the month dismissed the idea.

Hilary Benn, the environment minister, told me at a climate change conference (Think 08) that the scheme was too early (meaning that people weren't ready for it), too expensive and too complicated to explain and to administer. Additionally, he argued that there was a danger of inequity in the system, disproportionately affecting the elderly, rural and poor who would have to be compensated.

However, the Irish government has just received a recommendation to trial a form of Cap & Share in the transport sector.

The Defra report deliberately underplayed the carbon benefits and admitted to a low level of research quality citing a "reduction in personal emissions of 0-10% - although these figures have been drawn from research on metering and energy displays rather than trials of personal carbon trading... a low range of 0-5% reduction is assumed. Though [even] a 10% reduction would still not be sufficient to balance the cost-benefit assessment more favourably."

The Environmental Audit Committee disagreed. "Existing initiatives are unlikely to bring about behavioural change on the scale required, with many individuals choosing to disregard the connection between their own emissions and the larger challenge," the EAC said. "Personal carbon trading might be the kind of radical measure needed to bring about behavioural change." It would be more effective and fairer than bringing in "green" taxes.

Hilary Benn said the cost of introducing PCAs would be between £700m and £2bn.

However, Tim Yeo, the Conservative EAC chairman, strongly disagreed, saying difficulties of implementing the scheme could be overcome and calling for more feasibility work. He said that if the private sector were to administer it, it could be done a lot cheaper, along the lines of supermarket loyalty cards. "It engages people at all levels in their decisions, about whether they heat their house to a slightly lower temperature, whether they really need to put air conditioning in their flat, whether they really need to take that flight," he said.

Meanwhile, Ireland forges ahead

But PCAs are not the only such scheme on the table. At the end of May, British consultants AEA Energy and Environment released their interim final report, commissioned by Comhar, the Irish national sustainable development council, into Cap & Share, which the coalition government is seriously considering. Their conclusion was that Cap & Share is much fairer, cheaper, and more cost-effective.

Under Cap & Share, permits for the right to emit carbon are given to the population, who can then choose whether or not to sell them to companies introducing fossil fuels to the national economy. (Currently of course permits are given away under the EU emissions trading scheme, which boosts the energy companies’ profits at consumers’ expense.) As only a small number of firms are importing or producing energy, this makes C&S easy to administer. Each fuel company is required to purchase permits to match the eventual emissions from the fossil fuels they extract or import, with the total number being reduced year on year to promote the transition to a low carbon society.

Of course companies have to add the cost of the permits to their prices and this puts up the cost of everything sold because all goods and services have an energy content. But the Irish environment organization Feasta comments: "it's just as fair as any other scheme. Under the proposal lower income households, on average, would benefit since they have lower than average energy consumption and would receive emissions certificates worth more than the increased fuel costs they incur. "

How much would it cost?

AEA compares 10 different ways of rationing carbon currently being considered around the world, including carbon taxes. Their report is far more detailed than that produced by Hillary Benn’s department.


The AEA report compares the various carbon reducing schemes on offer. The green colour symbolizes the most benefit and the redder shade the least benefit.

They say the cost of "the Cap and Share scheme... would be lower than the more complex personal carbon allocation options but higher than introducing a carbon tax. For the Cap and Share scheme the cost of administering the fuel suppliers is likely to be secondary to the costs associated with issuing certificates to the general public. Our simple bottom up estimate... puts the transaction costs for a system where certificates are cashed in remotely in the range 8-11% of the value of the certificates. This range depends on income and assumes an allowance price of €20/tCO2 and a bank direct transaction charge of 5%. At higher carbon prices the cost effectiveness would be better, with transaction costs around 6-7% for a price of €50/tCO2."

AEA therefore recommends the system to be introduced on a trial basis first of all in the transport sector in the Republic of Ireland "with subsequent consideration to sectoral and geographical expansion" in the North. This would also combat the fuel tourism which currently goes on, as fuel is cheaper south of the border – which I witnessed first hand recently. Measures would be needed to shield the vulnerable from increased costs. AEA suggests not allocating to children, "although again consideration will be needed for increasing support to families".

AEA concludes its comparison thus: "Cap and Share and the Sky Trust currently appear the most favourable [schemes]. The schemes that treat individuals as an emitting entity (Tradable Energy Quotas, Personal Carbon Rationing, Rate All Products and Services and the Ayres Scheme) look the least appealing, because of their complexity and the resulting costs. Furthermore, the lack of public engagement, uncertainty over environmental outcome and no direct compensation for individuals mean non-traded options such as a carbon tax and direct regulation score less well in our analysis than Cap and Share and Sky Trust."

[The Sky Trust is an American idea whereby permits to pollute are auctioned and the revenue generated given to households in order to "lock in public support for emission reductions, no matter how high fuel prices would rise." The dividends could be used by residents to subsidize the price of energy-efficient appliances and/or renewable energy generation.]

The Irish Environmental Protection Agency is currently considering the recommendations. If the Irish government goes ahead it will be another case of the Republic courageously going first where its neighbours in the British Isles later follow – as with banning plastic bags and smoking in pubs. The ‘Celtic Tiger’ can certainly teach us a thing or two about looking after our health and the environment. How surprising is that?

Further illustrations of how the different schemes work: