Carbon Currency

I just found an interesting speech by the Rt. Hon. David Miliband MP. Over in the UK they seem to be far ahead of us on the issue of climate change. In his speech Mr. Miliband proposes an idea that has been around in one form or another for over a decade – a carbon currency. His interests in this concept, aside from the end result of limiting carbon dioxide emissions, are those of fairness and flexibility. There are fledgling carbon trading markets for large utilities, but Miliband wants to bring it down to the 44% of carbon emissions that result from personal choices about energy use.

Imagine if every adult in the U.S. had an extra account at his or her bank. Every year the government would deposit into this account a certain number of carbon credits. When buying gasoline, diesel, heating oil, propane, natural gas, or electricity, each person would have to withdraw from that account and transfer carbon credits into the account of the company selling the energy. The company would then transfer the credits back to the government on the basis of the amount of fuel or electricity sold.

The transfer could be built into gas company credit cards. People could write checks from the account to the local utility. The U.S. mint could even issue carbon notes, much like our present currency, for people who want to make cash transactions. It could become a second national currency.

As long as someone stayed under the carbon limit there would be no negative financial impact. People who ride bikes to work or drive small hybrid cars could sell their extra carbon credits to people who want to drive large cars. People could retrofit their houses for energy efficiency and sell their extra carbon credits to pay for the work. Over time, as people adjust to the new pay-as-you-go carbon reality, we could reduce the number of carbon credits allocated per year. Certain noble (and solvent) individuals might forgo the potential income and retire their extra carbon credits.

Of course, commercial entities and industry would be on the same kind of budget. There would be transaction costs, but most of these transactions could be automatic and electronic. When you pay your power bill, some of your carbon credits could auto-deposit into PowerCo’s account. When PowerCo contracts with NaturalgasCo for 500 million cubic feet, the carbon credits would shift from account to account, and thence to the national stockpile, to be reissued the following year.

It is a radical proposal, and not just in its restriction on emissions. It is a pay-as-you-go system, a system that makes our personal impact on the planet tangible. Right now we can burn fossil fuels without being forced to think in a quantifiable way about the damage we are inflicting on the environment. A carbon currency would be valuable for the general change in mindset as much as the decrease in carbon emissions.

Comments

[Todd]

I like the brittish idea of a carbon tax much more. If you wanna drive a big gas guzzling SUV, you should be taxed accordingly. This way, those who purchase energy efficient vehicles leave a much smaller carbon footprint and are taxed much less. Smaller vehicles also cause less wear & tear on the public road systems. This promotes responsibility among comsumers. It never ceases to amaze me the speed at which those SUV's are traded in at times when fuel prices increase. Even more amazing is their short-term memories when fuel goes back down they buy SUV's again.

[robby]

Let me see, The single mother who lives in Eden and commutes to her Stowe restaurant job in her gas-guzzling old truck or hand-me-down station wagon would pay extra into the national carbon account, but the account would subsidize the architect/trustfunder who bikes to his office in Stowe and then drives his Prius to the airport before jetting off to his second (third?) home in Thailand for a little sport fishing on his diesel power yacht. Or, to simplify the exchange and make it more local and person to person, when she waits on his table she could just forgo her tip. You may want to carbon tax the miles people fly, but what happens when the architect changes planes in Bangkok and flies to Australia on a regional, non-participating airline? How about the foreign companies he is invested in, the ones that aren't participating in any sort of carbon exchange and which he may not even know about since his money is managed by some guy in Connecticut?
I like the idea, but you need to think through the global nature of carbon creation, the excess carbon created by the additional consumption of people who have the means avoid the taxed carbon but still contribute to the problem, and the fact that the capital expenditure necessary to improve one's carbon footprint is beyond the reach of many people.
The problem is that carbon creation is global, but the ability to regulate it is regional, at best.
Cheers,
Robby

[LA]

It might be useful to look at the American experience of rationing during WWII for insights about the challenges of consumption regulation and how to implement a personal carbon allowance (PCA) scheme.

After the U.S. was provoked into joining the war, it drummed up popular support for the war effort. Posters, slogans and songs stirred patriotism, fear and hatred. Suddenly, were engaged in a global crisis. The war was not as popular as we remember, but even so, Americans became convinced that there was a job to be done.

The government made the responsibility of the war effort personal with rationing, a means of distributing scarce resources in a fair and equitable way. Each man, woman and child got the same allocation of food stamps, with no trading allowed. The system was complicated, rigid, and unpopular. It encouraged black market trading and organized crime. It wasn’t always fair. Sometimes the new coffee shipment would disappear from the shelves before Rosie could get off her shift and get to the store. Still, it was better than doing nothing, right?

Let’s assume that at some point, the U.S. government is provoked into taking real action to mitigate global warming. Let’s assume that the government is considering a personal carbon allowance scheme.

Could a national PCA scheme be more simple, flexible, equitable and empowering than temporary rationing during WWII?

One challenge that WWII rationing avoided, but that a PCA scheme must face, is this: the idea of carbon scarcity and regulation is quite abstract. Sugar, coffee, gasoline and shoes are tangible in a way that carbon dioxide pollution is not. It will require education and creative messaging to bring an entire population up to speed about why X pounds of hamburger meat “costs” the same as a tank of gas, in terms of carbon. It will require up-to-date, unbiased inventories of carbon emissions by source and activity.

However, a PCA scheme would take advantage of modern electronic accounting systems. A single debit card carrying tons of CO2 beats a confusing array of stamps, coupons and stickers. We have the technology to make carbon accounting simpler than rationing was.

The ban on trading ration stamps was a problem during the war, so the PCA would have to allow people the freedom to buy and sell excess carbon credits.

As for equity, a major issue would be the initial distribution of carbon allowances. Does each person – whether infant or elder – get the same allowance? What kind of pollution is a person entitled to, and would that be a function of age, income, occupation, geographic region? If infants got the same allowance as an adult, would parents be encouraged to have more children? I think many people would agree that having a higher income should not automatically entitle a person to polluting more. Should farmers have a higher carbon allowance than teachers? What about the folks in Wyoming who drive forty miles to get to the grocery store?

If each person over the age of 18 received the same carbon allowance, there would be an incentive to choose to have fewer children, to do work that uses less fossil fuel, to live closer to one’s resources, and so on. There would be grumbling, carbon slogans, black markets, organized carbon crime, but there could be less pollution. Some might enjoy a rediscovery of things past: more walking, more nights at home, dependence on working animals, living closer to town. Is this fair? Is this empowering? I’m not sure, but I'm intrigued. It would certainly be radical.