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Howdy, TEQs
Jamais Cascio, 29 Nov 05

stepsdown.jpgProblem: we need people to reduce their individual carbon footprints.
Solution: we need to give them an incentive to do so.

David Fleming knows what that incentive should be: he calls them "TEQs" -- Tradable Emissions Quotas. Under the TEQs scheme, individuals would be issued a quota of allowed emissions on a weekly basis, and would have to charge any purchase of carbon-emitting materials (chiefly fuel) against that quota. If the week's purchases amount to less than the quota, the remainder can be saved up for a carbon splurge (like a long flight) or sold off to other, less-efficient, participants in the program.

If this sounds a bit familiar, it should; it's essentially the same idea as the Domestic Tradable Quotas proposed by the Tyndall Institute in the UK (we've talked about DTQs here and here). What makes the TEQs model different is that David Fleming first originated the tradable quota concept back in 1996, and has spent the last decade working on the idea. He's spelled out in some detail how the TEQs program would work in a Creative Commons-licensed pamphlet entitled Energy and the Common Purpose (PDF).

At the start, a government registry issues TEQs quota units to companies and to individuals on a per capita basis, probably via an electronic smart card:

When consumers (citizens, firms or the Government itself) make purchases of fuel or energy, they surrender units to the energy retailer, accessing their quota by (for instance) using their TEQs Card or direct debit. The retailer then surrenders TEQs units when buying energy from the wholesaler. Finally, the primary energy producer surrenders units back to the Register when the company pumps, mines or imports fuel. This closes the loop.

Over time, the number of TEQs units allotted to each person and company gradually reduces, so that one's efficiency has to continue to improve, albeit gradually.

It's not hard to poke holes in the TEQs concept. Having to make certain purchases using two accounts (one for the money, the other for the carbon) is awkward, at best. Cheating would be rampant, and measures to cut down on it would inevitably lead to greater government monitoring of personal behavior. Theft of TEQs cards would be a problem. Both too-slow and too-fast compliance can upset the scheme, the first by pricing the remaining units out of the reach of all but the wealthiest, the second by pricing the remaining units so low as to create a perverse incentive for the hold-outs to stay hold-outs.

What TEQs (as well as DTQs and other, similar plans, such as "Personal Carbon Allowances") do correctly, however, is to identify an underlying positive approach to getting people to do the right thing with a commonly-held good (in this case, the environment).

Incentives to reduce carbon can take a number of forms. The moral incentive would be to remind people at every opportunity why they need to reduce their carbon outputs, so that the good-hearted and wise can do so; unfortunately, the "good-hearted and wise" do not constitute a sufficient plurality of us to make a real differnce. This is, more or less, the situation in which we now find ourselves.

Another option could be the negative incentive, wherein the emission of increasing amounts of carbon results in increasingly painful punishments, something that people will take active measures to avoid; unfortunately, punishments nearly always lead to resentments, and an effort not just to avoid the punishment but to get rid of the system of punishment. This is the "carbon tax" scenario, and while it has the advantage of being easy (in principle) to implement, its inherent regressivity and the broad cultural aversion to taxes pose significant challenges.

The remaining option would be the positive incentive, one making the desired behavior lead to rewards of some kind. This idea of a positive incentive underlies Fleming's call for TEQs: the better you are at avoiding carbon emissions, the more money you can make by selling your leftover quota units to other people.

But if TEQs aren't an optimal form of positive incentive, what is?

It's a difficult question to answer. Efficiency Tax Credits, for example, would be the positive-incentive mirror version of Carbon Taxes, giving people temporary (or even permanent) reductions of their taxes when they make certain high-efficiency purchases. It wouldn't have to be just hybrid cars and home insulation, either -- the tax credit could come from buying a bus pass, a home within a certain distance of work, or keeping net power use below a certain point. This, too, would lead to cheating, such as the creation of goods and services that met the letter but not the spirit of the law. And potentially large tax breaks are hard to imagine having a long life in a time of massive deficits.

It may be that we end up with a carbon tax scheme simply because it's simple to implement, and the mechanisms for avoiding its problems are familiar (e.g., low-income credits, compensatory reduction of other taxes). The one aspect of carbon taxes that will be harder to fix is something inherent to all "sin" taxes: if it's successful, it loses steam as a source of revenue. We see this happening right now with gasoline taxes -- proposals to change to miles-traveled taxes (instead of gallons-consumed) is a direct result of the growing popularity of high-mileage vehicles like hybrids.

Even if I don't fully support the TEQs idea just yet, I do have to give Fleming -- and the other proponents of tradable rations -- credit for trying to come up with a novel solution to the problem of excessive carbon emissions. TEQs may not be the final answer, but they may well point us in the right direction.

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Comments

I always view such trading schemes with suspicion. On the one hand, it's a way to stick it in the eye of those who are always saying "the market will solve all ills;" on the other hand it's what I believe Richard Heinberg calls "taxing the right to be immoral."

I should not be so suspicious -- I'd make out like a bandit, since the carbon footprint for my household is currently under one ton annually! But it sure would be nice if people could be convinced to behave morally with respect to the earth, without getting paid to do so.


Posted by: Jan Steinman on 29 Nov 05

These artificial markets, while a good idea, are unlikely to ever become reality. Market forces will take hold in the long long however. The market of available resources and diminishing environement in which to spend those resources.

Things will sort themselves out, whether we intervene in our own abuse of the Earth or not.


Posted by: pauric on 29 Nov 05

This is the way to do it:
First year give everyone a 1,000 dollar carbon allowance then slowly and steadily increase taxes on fossil fuels. At the end of the year the tax on fossil fuels is high enough (on an annualized basis) to pay for a 1,000 dollar per person carbon allowance.
In the second year you increase the carbon allowance to 2,000 dollars and continue to steadily increase the tax on fossil fuels. Do the same for years 3 and 4. Hopefully around this time fossil fuel usage should peak and just to keep the carbon allowance (now $4,000 per person) the same, taxes on fossil fuels will have to go up.

Liberals could get behind the idea of Carbon Allowances because everyone benefits equally. Environmentalists could get behind the idea because it would be a very effective way to reduce the use of fossil fuels. Conservatives would hate the idea but could avoid paying carbon taxes by avoiding the use of fossil fuels.
(A win - win - I can live with it kind of situation. )


Posted by: jim moore on 29 Nov 05

Jim, I totally agree with your concept of carbon allowances, it is more practical than the article's proposal. It avoids the issue of people having to deal in money and credit, plus removes the administration cost of a carbon smart card system, the true cost of fossil fuels would begin to be reflected with the associated taxes, there would be less room for cheating, and it would be the 'over users' who would be put at a disadvantage.

How might this work for businesses? An allowance quota based on their turnover?


Posted by: Hef on 30 Nov 05



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