Environmental Leader

A UK think tank has released a report saying that if at the end of the UK’s first carbon budget period in 2012, carbon emissions have not reduced, the government will need to face up to the prospect of introducing personal carbon trading as a “plan B.”

Personal carbon trading would cut emissions by giving every person in the country a quota of free carbon credits which would be needed to buy electricity, gas, and even plane tickets.

“Unlike food rations during the war, carbon credits would be tradable, so people with small carbon footprints could sell their spare credits while people with gas guzzlers and houses full of energy-hungry gadgets would need to buy extra credits to cover their extra emissions,” the Institute for Public Policy Research says in the report, Plan B? The prospects for personal carbon trading. Over time the quotas would shrink, in line with the need to hit emissions reduction targets.

In recent years PCT has developed an increasingly high profile within the UKs political agenda, with expressions of interest by successive Secretaries of State for the Environment, and also from senior opposition politicians, IPPR says. Last year, the chair of the UK’s Environmental Audit Committee, Tim Yeo, said a personal carbon allowance is the best way to cut CO2 without hurting the poor

Supporters of PCT argue that the approach delivers on all three criteria for environmental policy – effectiveness, efficiency and equity. However, critics, including the Department for Environment, Food and Rural Affairs (Defra), argue that PCT is politically infeasible and would involve very high administrative costs.

According to the report:

Defra’s central estimate of the costs of setting up and running PCT is £2.6 billion a year. However, this estimate is sensitive to assumptions made about the specific costs of administering personal carbon accounts, which it is envisaged would run by piggy-backing on the banking system, and are costed by analogy to the administration of current accounts.

An alternative set of assumptions about this and other costs leads to a somewhat lower (but still large) estimate of the annual costs of PCT, in the region of £1.4 billion.  At this cost estimate, and a valuation of CO2 reduction at £60/tCO2, PCT would have to offer additional savings of at least 25 Mt (million tonnes) CO2 annually on average over the period 2013–20, above and beyond alternative low-cost policies such as upstream trading, in order to be a cost-effective way of reducing emissions over he period to 2020.

The main problem for PCT, in this case, is that the gap between targets for emissions reduction for 2020 and the expected impact of existing policies is not that large.