DEFRA pre-feasibility study into 'TEQs' made public

[Shaun Chamberlin]

DEFRA yesterday published the results of their 'pre feasibility study' into personal carbon trading. The headline finding is that ?personal carbon trading has potential to engage individuals in taking action to combat climate change, but is essentially ahead of its time and expected costs for implementation are high?.

The study consisted of four reports in the following areas, commissioned from various bodies:

i) Technical feasibility and potential cost ? Accenture
ii) Effectiveness and strategic fit ? DEFRA
iii) Public acceptability ? Opinion Leader and Enviros Consulting
iv) Distributional impacts ? Centre for Sustainable Energy

as well as a synthesis report which attempted to draw together the conclusions of all four.

All of these reports can be accessed on the DEFRA website at: http://tinyurl.com/5ffje4
The Centre for Sustainable Energy published a response yesterday: http://tinyurl.com/5g95w5

Below is a copy of the abstract and executive summary from our response. The full response can be viewed in PDF format at: http://www.teqs.net/DEFRAPFSresponse.pdf



DEFRA's pre-feasibility study into Personal Carbon Trading - A missed opportunity

The Lean Economy Connection
9th May 2008


Abstract
This short paper summarises the response of the Lean Economy Connection to DEFRA?s prefeasibility study into personal carbon trading. While welcoming the additional research in the field, we believe that a number of important misunderstandings are contained in the papers, and that DEFRA?s consequent decision to delay a full feasibility study into the TEQs concept is ill-advised in the absence of other realistic and effective means for addressing climate change and fuel depletion.

The DEFRA synthesis report states that,

?To ensure the research areas were as compatible as possible and could be brought together into this synthesis report it was necessary to provide a baseline description of a personal carbon trading scheme, and setting some key assumptions around scheme design... For the purposes of this project, a Domestic Tradable Quotas (DTQs) model was assumed.? (p.5)

As this DTQs model (now known as Tradable Energy Quotas ? TEQs) was developed here at the Lean Economy Connection, we welcomed the Government's interest and investment and were happy to comment on the drafts of the four reports.

However, while the brief specified that the TEQs scheme should be the subject of the four reports, the different reports explicitly addressed significantly different schemes, making it hard to draw together a coherent set of conclusions from DEFRA?s pre-feasibility study as a whole. We will therefore address these reports separately.



Technical feasibility and potential cost ? Accenture

We believe that the Accenture report has made a useful contribution to research in the area of feasibility and cost, and welcome their headline finding that there are no insurmountable technical obstacles to the implementation of TEQs.

While we believe that the total set up costs of between ?700 million and ?2 billion, and running costs estimated at ?1?2 billion per annum may be somewhat overstated, we would also emphasise that the hypothecated income to Government generated by the sale of TEQs allowances to organisations would be ?6 billion per annum, based on the same assumptions. Additional savings would also be generated through the redundancy of other existing schemes.



Effectiveness and strategic fit ? DEFRA

The headline finding of this report is that,

?Government policy should look to raise visibility of personal carbon emissions where it can be done cost-effectively. Increased visibility would be expected to translate into raised awareness and as a result behavioural change. However, the additional visibility delivered by personal carbon trading would be limited and as it would come at a high cost, it would need to deliver very considerable savings to be justified. This suggests that other measures to increase the visibility of personal carbon emissions and influence carbon saving behaviours should be explored.? (p. xii)

This report has highlighted ? as we have ourselves ? the inadequacies of a personal carbon trading scheme that does not involve the whole economy, but explicitly states that it does not examine the economy-wide TEQs model. Indeed, it also proposes ?softening? the hard emissions cap which is
central to the TEQs model, and thus removing the guarantee that the national carbon budget is actually achieved.

We strongly dispute the report?s argument that its conclusions on this alternative model nonetheless apply equally to TEQs.



Public acceptability ? Opinion Leader and Enviros Consulting

The headline finding of this report is that,

?Overall, the degree of resistance to individual behavioural change was less than had been expected compared to previous research Opinion Leader has conducted in this area. But even in this light, when first proposed at the meetings, there was a strong feeling against the perceived idea of Government-imposed ?limits? on carbon emissions from individuals. Of the three policy options proposed, PCT was seen as the most complex and difficult to understand, even though some could see that it may be more equitable than the other two options.? (p.50)

The report's methodology was based around focus groups, in which a generic personal carbon trading scheme was briefly described to these groups. The results support our view that without an in-depth understanding of both the detail of the TEQs scheme and the severity of the challenges it is designed to ameliorate, attitudes to energy rationing are generally almost as negative as those towards carbon taxation.

As outlined in the DEFRA synthesis report, this report ?can only be taken as a snapshot of the group?s very first reaction to the proposal? (p.13). We believe the most interesting area for further research is the change in attitudes during deeper explanation and exploration of the topic. Our own experience over the past twelve years suggests that once the scheme design is fully understood attitudes tend to be overwhelmingly positive.



Distributional impacts ? Centre for Sustainable Energy

This report adds to the weight of evidence that TEQs would be a financially progressive policy instrument, and we agree with the conclusion that, since a small number of low-income households may nevertheless lose out from the introduction of personal carbon trading (albeit by a relatively small amount), these exceptions could be addressed through compensatory measures, such as the existing benefits system.

However, we also believe that the reports represent a missed opportunity, as they focus exclusively on TEQs in relation to climate change, but do not address the benefits of applying TEQs to the related challenge of depleting fossil fuels. With the North Sea producing steeply declining quantities since 1999, and the UK now a net importer of both oil and gas, this is a critical issue.

Due diligence in the context of rising energy prices, global production trends and the geopolitical climate requires that an energy rationing scheme be ready for implementation at short notice as a means of guaranteeing access to fair shares of energy as supply tightens. For a full assessment of the benefits of TEQs, any investigation into distributional impacts would need to consider and compare the distributional impacts arising from an energy shortage without an effective rationing system in place.



In Conclusion

Overall, DEFRA?s pre-feasibility study represents a useful addition to the body of research in this area, but does not constitute the detailed systems-audit of TEQs which could be the basis of a decision on whether to take the scheme forward. DEFRA?s press release yesterday stated that:

?The Government remains interested in the concept of personal carbon trading and, although it will not be continuing its research programme at this stage, it will monitor the wealth of research focusing on this area and may introduce personal carbon trading if the value of carbon savings and cost implications change.? (our emphasis)

In the absence of such a properly grounded evaluation, the development of ways of including the personal and the commercial sector both in the reduction of carbon emission and in the rationing of fuel has stalled. This leaves the United Kingdom and other economies unprepared and vulnerable to the consequences of energy shortages and unmitigated climate change. It is to be hoped that a full, grounded and careful feasibility evaluation will be commissioned in Britain or elsewhere in the near future. This is now a priority.

[Adam1]

Thanks for this Shaun. Two (slightly unrelated) questions:

1) What is the current status of the Carbon Trading Bill and the provisions in it to introduce a TEQs scheme without further primary legislation?

2) If a UK-based manufacturer and supply chain that is under a TEQs scheme has a competitor in a country that does not. Will the UK manufacturer and its suppliers not be at a disadvantage compared with its non-UK counterpart? Is there a simple mechanism for "levelling the playing field"?

[Shaun Chamberlin]

Hi Adam, quick responses..

1) It's not a carbon trading bill, but the UK's draft Climate Change Bill. As you say it will allow for a TEQs-type scheme to be introduced in the same way as a new tax can be, although I think it most politically unlikely that this would actually happen without it being put to a Parliamentary vote.

I believe the Bill's still moving through the Parliamentary debating/drafting process, but there's no doubt it will happen. There's still an open question as to whether it will call for 60% or 80% emissions cuts by 2050 (both inadequate). The chair of the Climate Change Committee has been appointed in the interim though (Adair Turner) and things are moving forward. I believe it is scheduled to become law this year, but you'd have to check the Parliamentary site or somewhere similar for precise details.

2) I already answered this in the other thread where you asked it. For a fuller reponse see there , but via the wonder of copy and paste:

"This is addressed via an import tarriff on countries that do not have their own method for incorporating energy/carbon costs into manufacture. Until recently this was often derided as politically unthinkable, but no longer: http://news.bbc.co.uk/1/hi/world/europe/7201835.stm "

[RevdTess]

2) I already answered this in the other thread where you asked it. For a fuller reponse see there , but via the wonder of copy and paste:

"This is addressed via an import tarriff on countries that do not have their own method for incorporating energy/carbon costs into manufacture. Until recently this was often derided as politically unthinkable, but no longer: http://news.bbc.co.uk/1/hi/world/europe/7201835.stm "

From the article:

I think we should be ready to continue to give the energy-intensive industries their ETS allowances free of charge - or to require importers to obtain allowances alongside European competitors, as long as this system is compatible with WTO (World Trade Organization) requirements."

I expect this would be a lot easier with a Barack Obama in the White House. Otherwise the WTO fight could be ... prolonged.

[Adam1]

I already answered this in the other thread

Sorry must have missed that.

Trade tariffs. Wow. Assuming that this was applied at the EU level, that means either:

(a) The EU managing to persuade the WTO to change its basic purpose - dealing with climate change/peak oil reality is more important than protecting free trade.

Or

(b) The EU pulling out of WTO, with all the political costs and risks that entails.

And

(c) That TEQs would have to be implemented by all EU countries at the same time.

Some large hurdles there but the changing circumstances post peak may start to make the apparently impossible possible.

[Shaun Chamberlin]

Yes, it is certainly a big challenge for any country to take responsibility for its part in this global problem without suffering the backlash from disadvantaged domestic industries.

Of course the flip side is that the country gets a headstart in developing the carbon economy, technologies and lifestyles that the rest of the world will be moving towards. Always assuming that humanity does actually adapt to its global circumstances of course, and not just keep ploughing on until we hit the wall.

It appears that Barroso, like me, sees only two alternatives to simply ignoring the problem:

i) global agreements

or

ii) tarriffs on those who do not do their part

There is of course a third - allowing domestic industries in reponsible countries to suffer, but that is even more unthinkable than tarriffs.

[Shaun Chamberlin]

I expect this would be a lot easier with a Barack Obama in the White House. Otherwise the WTO fight could be ... prolonged.

Agreed Tess. And I haven't forgotten the open question remaining in our other thread. I'm waiting for David and I to get a chance to get together and discuss it - possibly after my Parliamentary talk on Tuesday.

[RevdTess]

I expect this would be a lot easier with a Barack Obama in the White House. Otherwise the WTO fight could be ... prolonged.

Agreed Tess. And I haven't forgotten the open question remaining in our other thread. I'm waiting for David and I to get a chance to get together and discuss it - possibly after my Parliamentary talk on Tuesday.

I had to go back and remind myself where we'd got to, but yes I'm still interested in your answer to that last question.

I do have a simpler question while we're on the subject which I'm going to post at the bottom of our other thread.

[Shaun Chamberlin]

Trade tariffs. Wow. Assuming that this was applied at the EU level, that means either:

(a) The EU managing to persuade the WTO to change its basic purpose - dealing with climate change/peak oil reality is more important than protecting free trade.

Or

(b) The EU pulling out of WTO, with all the political costs and risks that entails.

Hi Adam, just thought I'd pass on something I picked up on the other day. The New Economics Foundation produced a report a few years back entitled Free Riding on the Climate: The possibility of legal, economic and trade restrictive measures to tackle inaction on global warming. It was essentially an argument for exactly the kind of tarriffs I'm talking about. Now what is most interesting is that not only is Barroso now talking about the idea, but when NEF wrote the report they extracted an admission from Pascal Lamy (then at the European Commission, now Director-General of the WTO) that the EU would be within its rights to pursue that course of action.. Interesting...

[Shaun Chamberlin]

http://www.project-syndicate.org/commentary/collier1

"The tariff proposal ? contained in the central piece of global warming legislation now before Congress ? would impose emission controls on domestic industries starting in 2012. It would also levy punitive tariffs on greenhouse-gas-intensive products imported from countries that lack ?comparable action? to that of the US, starting in 2020. Industrial lobbies and labor unions are pushing hard for these sanctions to take effect more quickly.

European Commission President Jos? Manuel Barroso, French President Nicolas Sarkozy and industrial chambers of commerce strongly advocate a similar tariff system, leading many analysts to predict that the EU will also adopt some sort of green tariff system in the next few years. "

[jo]

When I was at a New Year's Party, I met a man from DBERR, and he said "you don't want to have a Carbon Border Tariff", or something similar.

These free-marketeers, they can't ABIDE protectionism (unless it's for their own countries).

[PaulS]

I am introducing TEQ to a local group here in Cornwall, but have had a few objections. Can you help me answer them, please?
Here they are
------------------------------------------------------------------
I have had a bit of a look at TEQs and I still need to be convinced.

It would seem on the surface that the Government has conducted some research into the rich/poor issue, but to my mind it does not answer some fundamental iquestions. We all know that data can be manipulated and this area is particularly complex from the point of view of social research.

It is not just enough to say that the rich use more energy than the poor.
We need to know what proportion of disposable income is spent by the rich on energy and the same figure for the poor.
The use of energy can be offset in a variety of ways by buying the best technology from which the poor would be excluded. It doesn't look as if this has been factored in.
The key problem which is overlooked is one of choice. If I am rich and choose to uproot to Madeira and live all the year round at an ambient temperature of 29 Celsius I won't need heating. I won't be able to do that if I am poor.

The other big problem is that this is a form of control over carbon emissions. If energy created from carbon sources were kept separate from that produced by other sources, then there would be some incentive to a) produce more carbon free energy b) switch to use of carbon free energy. However all energy is lumped together into the grid. Therefore I do not know if my TEQ supply has come from a Nuclear Power station or a dirty coal fired one. If I have used my skill to produce a low carbon source, I do not want to see this "taxed" as if it were "dirty" so I will cease to be a green entrepreneur.

It is also an imposed solution from a centralised control, you will get your energy this way, like it or not. It is not flexible and works on a lowest common denominator principle. People will spend their time trying to beat the system rather than inventing better technology.

[Shaun Chamberlin]

I am introducing TEQ to a local group here in Cornwall, but have had a few objections. Can you help me answer them, please?

Sure, Paul, thanks for getting in touch.

It would seem on the surface that the Government has conducted some research into the rich/poor issue, but to my mind it does not answer some fundamental questions. We all know that data can be manipulated and this area is particularly complex from the point of view of social research.

There is no specific question here for me to address, but for more information on this topic, and links to the research that has been done on the distributional impacts of TEQs, go here:
http://www.teqs.net/faqs/#Rich

In short, TEQs has been repeatedly found to be strongly redistributive and to benefit the vast majority of poorer households. I might mention that one of the pioneers here is Dr. Brenda Boardman, who is also one of the leading campaigners on fuel poverty.

It is not just enough to say that the rich use more energy than the poor.
We need to know what proportion of disposable income is spent by the rich on energy and the same figure for the poor.
The use of energy can be offset in a variety of ways by buying the best technology from which the poor would be excluded. It doesn't look as if this has been factored in.
The key problem which is overlooked is one of choice. If I am rich and choose to uproot to Madeira and live all the year round at an ambient temperature of 29 Celsius I won't need heating. I won't be able to do that if I am poor.

This is exactly the sort of analysis done in the research on distributional impacts. It is an important point that many poorer households are unable to afford high-efficiency appliances, unable to insulate their homes etc, and this is indeed taken into account in the research. It is gross energy usage that fundamentally determines whether a family would be better off under TEQs, and despite these disadvantages, it does remain true that poorer households still tend to use less.

TEQs is a national scheme, so the option of uprooting to Madeira is not within its scope, but relocating from, say, Inverness to Cornwall would be. It is true that TEQs will be kinder to those with lower-carbon lifestyles - that is, after all, a reflection of the physical reality of climate change - and it may indeed be harder to live in a low-carbon way in Inverness than in Cornwall. It is far from impossible though.

Bear in mind that TEQs is only a vehicle for implementing the climate science. If there really were locations in which it is impossible to live without emitting unsustainable levels of carbon, then ultimately we will have to cease living there if we are to address climate change. However, I suspect the UK is rather short on such places, and TEQs is far more likely to stimulate ingenious (and very likely unforseen) solutions.

The other big problem is that this is a form of control over carbon emissions. If energy created from carbon sources were kept separate from that produced by other sources, then there would be some incentive to a) produce more carbon free energy b) switch to use of carbon free energy. However all energy is lumped together into the grid. Therefore I do not know if my TEQ supply has come from a Nuclear Power station or a dirty coal fired one. If I have used my skill to produce a low carbon source, I do not want to see this "taxed" as if it were "dirty" so I will cease to be a green entrepreneur.

This is indeed a big problem for certain other suggested approaches to carbon reduction, but is actually one of the great strengths of TEQs, stimulating creativity for just the reasons outlined. Under TEQs all energy sources are carbon rated, and one TEQs unit/ration will allow you to purchase a quantity of fuel or electricity that produces 1kg of CO2 over its lifecycle. This provides an incentive not only for any means of producing low-carbon energy (if there is such a thing as entirely carbon free energy - taking into account manufacturing etc - it would require no TEQs units at all), but also for more carbon-efficient processes. For example, if BP developed a lower-carbon supply chain or refining process they would gain a competitive advantage on the high street by requiring fewer TEQs units from their customers than the competition.

It is also an imposed solution from a centralised control, you will get your energy this way, like it or not. It is not flexible and works on a lowest common denominator principle. People will spend their time trying to beat the system rather than inventing better technology.

This appears to be more of a general feeling than a specific point, but I suspect it is based on assumptions about how the TEQs scheme would operate, rather than on the reality. I would point the enquirer to Chapter Three of the TEQs report (only four pages and freely downloadable here). TEQs is in fact designed explicitly to flexibly stimulate local ingenuity and creativity.

The only aspect of TEQs that is centrally imposed is the national carbon budget. As far as we can see, the alternative approach wherein people voluntarily decide whether to respect the natural limits imposed by climate change will be both ineffective and unfair on those who take their responsibilities seriously. Accordingly, TEQs would impose this nationally. But within that, how people decide to work together to reduce their carbon footprints or generate low-carbon energy is entirely up to them. They can even decide not to do so, but then they will have to pay those who are doing their bit for the privilege.

I hope all that is helpful in your discussions with your local group, and makes the thinking behind the scheme clearer.

By all means invite the objectors to join the discussions here in the forum directly if they still have concerns. Our FAQs page is also a useful, and regularly updated, resource.

All the best,
Shaun

[emordnilap]

If energy created from carbon sources were kept separate from that produced by other sources, then there would be some incentive to a) produce more carbon free energy b) switch to use of carbon free energy. However all energy is lumped together into the grid. Therefore I do not know if my TEQ supply has come from a Nuclear Power station or a dirty coal fired one. If I have used my skill to produce a low carbon source, I do not want to see this "taxed" as if it were "dirty" so I will cease to be a green entrepreneur.

I think this looks like a very simple misunderstanding. Apologies to Shaun for posting my take on it, as follows:

All energy is lumped together in the grid, this is true. But of course you would know who you pay the bill to - and they should provide a breakdown of where your electricity is sourced, surely?

As a real, in existence example, my supply is 100% from renewable sources during winter (they proudly proclaim on the bill), going down to around 70% in summer. As that supplier provides more renewable energy to its customers - either by building the infrastructure or sourcing from other low-CO2 generators - that summer supply should look better and their winter surplus they sell to other, probably 'dirty', generators, cutting the amount of fossil fuel being burnt.

Bear in mind, with a C&S/TEQ system in place, renewable energy becomes the cheaper option - you don't have the added burden of CO2 and equivalent to pay for, so my neighbour, who hasn't yet even thought about how dirty his electricity is, will get a heavy bill compared to mine, for the same amount of juice.