Bill Totten's Weblog

Sunday, February 24, 2008

If the cap fits, share it

Instead of setting up a new currency in carbon, cap and share utilises the oldest rationing system in the book: the price mechanism

by Mark Lynas

New Statesman (January 31 2008)

It is strange how little British people know about what goes on in Ireland. The Irish government is just a few months away from introducing a scheme to tackle greenhouse-gas emissions which is revolutionary in its ambition and scope, and could be extraordinarily important as a model for the rest of the world. Yet no one here has heard anything about it. A search I conducted on a news database returned a grand total of zero documents.

Ireland's energy and environment ministers are both Greens, governing in coalition with the more traditional Fianna Fail party. The Green Party's condition for entering the coalition was a climate-change bill - imported, as is often the custom, from the UK. This bill will be passed soon but, like us, Ireland at present has no coherent programme for actually getting the cuts in carbon emissions that the new legislation will mandate. Except that now the Irish may have invented just the tool for the job. It is called "cap and share". Remember the phrase - you could soon be hearing much more about it.

In previous issues of this magazine, I have argued strongly in favour of carbon rationing, under which every adult citizen would get a share of the country's carbon allowance to "spend" on fossil-fuelled things such as flights, heating and petrol. The idea is radical, and - with its wartime connotations - evokes images of shared sacrifice in the face of a great emergency. However, it would not be easy to implement: because carbon rations would have to be tradable in order to be economically efficient, the government would need to set up and police 48 million carbon accounts. This presents privacy as well as administrative problems. It also establishes carbon as a kind of parallel currency: people who are over their ration limit (or have already sold their share) would have to buy carbon at market prices in order to purchase fuel. We would, in effect, need to become a nation of carbon currency speculators - quite a tall order, when most people can barely even manage their mortgage.

This is where cap and share comes in. The proposal being considered by the Irish government - and likely to be announced in December's budget - takes a very different angle. Carbon permits are created not to regulate individual consumption, but to share among all adult citizens the revenue generated from carbon trading. In order to sell petrol, a company such as Shell would need to have sufficient permits. It would need to buy these from Irish citizens, who would then find themselves receiving GBP 100 or more in the post in order to offset rising prices at the pump.

As Richard Douthwaite, an ecological economist who sits on the council advising the Irish government about the system, explains: "Cap and share is a way of upping the price of fossil fuels and recycling the money to citizens. It is rationing at the top level rather than at the level of individuals."

So, instead of setting up a new currency in carbon, cap and share utilises the oldest rationing system in the book: the price mechanism. You don't need a carbon credit card; petrol will still be bought and sold in plain old money. But the price will go up, because petrol entering the economy will be restricted in line with the legally established need to reduce greenhouse-gas emissions. Instead of going to the companies or the government, however, the extra revenue from these higher prices will be going back to ordinary consumers. The higher price establishes a clear incentive for people to adopt low-carbon lifestyles, while ensuring that the poor are not disadvantaged and that the rich - who tend to have higher emissions - pay more.

Cap and share would not cover the whole economy. The current Irish proposal is for only the road transport sector to be included at the initial stage. Nor need it regulate industrial emissions, which are covered by the European Union's Emissions Trading Scheme. Because of the ETS, cap and share need only cover those instances where consumers buy fossil fuels directly, generally for either domestic heating or transport.

If the cap and share scheme is duly implemented, Ireland will have invented an ingenious way of restricting greenhouse-gas emissions with a minimum of pain and fuss. Most people may even find themselves better off. Here in the UK, even though we, too, have a climate bill going through parliament, there is little sign from the government of coherent thinking about how any of it will actually be implemented. I suggest a trip to Dublin - by ferry, of course.

Bill Totten


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