REDUCING GLOBAL CARBON EMISSIONS

Cap and Share and Cap and Dividend
Drastic cuts in greenhouse gas emissions are required to avoid climate catastrophe. A worldwide agreement to secure such cuts will be impossible to negotiate unless the pain and benefits are shared equitably around the world. Moreover, the sharing system must be robust enough to ensure that cuts agreed actually happen.
Suppose you're watering your garden with a hosepipe connected to a sprinkler. If you wanted to save water, what could you do? One way would be to plug up the sprinkler holes, one by one. But wouldn't it be easier simply to turn the tap off a bit?

It's much easier to cap the fossil fuels - coal, oil and gas - entering the economy, than to try to control the emissions they cause. A scheme named Cap and Share seeks to provide a simple, workable and ethical economic framework for dealing with the climate crisis. It's much easier to cap the fossil fuels - coal, oil and gas - entering the economy, than to try to control the emissions they cause.

A scheme named Cap and Share seeks to provide a simple, workable and ethical economic framework for dealing with the climate crisis. The fuel suppliers obtain those permits indirectly from adult individuals who are given an annual certificate representing their share of the country's CO2 emissions allowance (in a global scheme this would be the global cap on emissions divided by world's adult population* less an allowance, say 15%, to provide for a transition fund, sequestration projects and overheads . Cap and Share is both robust and equitable.
It has the additional advantage that, until it is adopted globally, it can be used by individual nations to make their emissions take a downward path. The Scheme was devised by the Foundation for the Economics of Sustainability (FEASTA) and is described in some detail in its publication 'Cap and Share - a fair way to cut greenhouse gas emissions' .
Cap and Share, is not presented as the complete solution to the global warming crisis, but would make a substantial contribution to reducing greenhouse gas emissions if adopted globally. Cap and Share (C&S) and Cap and Dividend (C&D) are both upstream capping schemes involving the distribution of permits of equal value to individuals. The following diagram illustrates the basic principle:

In this diagram the cap is applied at the upstream ends of both the direct and indirect links between producers of fossil fuels and the consumer:

* There is some debate about whether children should also be included. If children were included, would this encourage larger
families?

The only difference between them is that C&S involves the issue of permits directly to individuals which can then be cashed at a bank or post office, whereas C&D works by auctioning permits and giving (rebating) the revenue to individuals equally.
The more widely known Contraction and Convergence (C&C) scheme is also based on the principle of fairness, but contends that emissions allowances (pollution authorisation permits - PAPs) should be allocated to governments of countries, rather than individuals. Cap and Share/Dividend maintains that either:

(i) equal permits should be given to all adults who can then cash them in at a bank, post office or other cash distribution point,

or

(ii) equal amounts of cash are given to individuals through a trust (Sky Trust) from the revenues obtained through the auction of the permits.

The important point to bear in mind is that C&S can operate at the regional, national and international level and even be applied to just certain sectors of the economy. It is also adaptable for use in conjunction with the EU ETS.
For a national, rather than international programme, permit prices would be different in each country and would depend on supply and demand and on how stringent the cap was applied (not directly on whether the country was rich or a big carbon-user).

If C&S operated globally (or in a group of countries) then there would be a single permit price. There would also be a uniform allocation across countries of permits per capita, and this would fix the stringencies of caps in the various countries. If a rich and a poor country were linked, then the price of permits in the rich country would go down and in the poor country they would go up. Permits would flow from the poor country to the rich and money in the other direction.
The essence of C&S is that it shares out the 'scarcity rent' that will arise either because of oil, gas and coal resource depletion or because the supply of fossil fuel has been made artificially scarce because of the need to prevent climate change. It does so by making the PAPs it issues scarcer than the supply of fossil fuels so that, rather than all the scarcity rent going to the producers, it is shared by everyone. Delays in negotiating an international climate treaty involving an effective emissions cap will simply mean that huge sums in scarcity rent continue to flow to fossil energy producers, a flow that could unbalance the world economy and cause social unrest on a massive scale.
When considering how the scheme will operate in reality on a global scale, several questions come to mind. Who would decide on the cap, administer the distribution of permits and ensure that the agreed reductions in carbon dioxide emissions was actually happening? Who would administer and control the distribution of permits in each country? How could the costs of special unforeseen difficulties in adapting to the changes be accommodated?

If C&S were to be adopted internationally, a Global Atmosphere Commons Trust (GAT) would cap greenhouse gas emissions at their present level. Then, using the best scientific advice, it would tighten the cap each year so that emissions eventually fell to a level at which they were no longer causing the climate to change. The distribution would be done through national Climate Protection Trusts (CPTs) upon receipt from the GAT. Fossil fuel producers would then need to purchase enough PAPs to cover the eventual emissions from the fuels they sold. Only these small number of fossil fuel suppliers would need to buy permits from the banks.
A corps of inspectors would be set up to verify that the quantity of fossil fuel each company produced was in line with the number of PAPs it had bought.

The third question would be answered by establishing a Transition Fund administered by the GAT which would withhold about 15% of PAPS which it would sell. A proportion of the proceeds would be allocated to national governments which had proved that some or all of their citizens were much more seriously disadvantaged by emissions restrictions or the effects of climate change than people in other countries. The Transition Fund would not be used for poverty relief or to compensate for historic injustices. All of it would go to capital projects.
Could the whole of an individual's PAP allowance be cashed by person to which it had been issued? Not necessarily - say 10% could be stipulated for community projects to develop local energy supplies or to reduce fossil energy use. In every local area, projects would compete with each other to persuade people to give them enough of the special permits to sell to raise enough funding to go ahead.

Because the main fossil fuel suppliers are in a position to 'hold the world to ransom' and would react to any reductions in their income that C&S would bring about, a rent-sharing agreement with them would be required. They could be brought into such an agreement with an undertaking to help them adapt to a post fossil energy economy (by developing concentrating solar power for example).
Governments will benefit by taxing the economic activities generated when individuals cash their PAPs.

Considering the UK alone, it is not hard to see the considerable difficulties and bureaucracy involved in measuring the carbon dioxide emissions from those involved in the EU ETS downstream scheme. The downstream TEQ scheme, however, has a strong equitable base but TEQs will cost more to set up and to run, since all transactions involving a fuel purchase will have to be tracked, and also all companies will have to be policed.
There are tens of thousands of organisations and smaller companies and 60 million individuals making a downstream permits system expensive and very difficult to administer. However, if the cap on emissions is applied upstream, then a far more practical, simple and equitable system is possible. The advantages of the C&C, C&S or C&D over downstream schemes like the EU ETS become immediately apparent when the systems of control and monitoring are compared. In the case of the Cap and Share scheme, upstream suppliers must have permits before they sell fuels into the economy. In the UK these fuels enter the economy through 10 oil refineries, 4 natural gas import terminals on the North Sea coast, 10 deep mines and 30 open cast mines and 12 dedicated coal port facilities. Figures are collected at these locations about exactly how much oil, gas and coal enter the economy. Such a system would be simple and cost very little. In this way all the greenhouse gas content emitted from burning fossil fuels throughout the entire UK economy can be controlled.

Although C&S can be operated in conjunction with the EU ETS, it would clearly be better if all direct and indirect emissions were covered by the simpler C&S scheme. This would also mean that individuals, rather than companies or governments, would be compensated directly for the rising costs of fuel. If the scheme were to be rolled out internationally, this would also help to alleviate the poverty of the world's poorest people who would be otherwise made even poorer by rising fuel prices. Unfortunately, the British government is considering the continued application of the EU ETS carbon trading scheme for large companies coupled with a similar scheme for companies and local authorities, etc which are too small to be included. These would be supplemented by 'green taxes. The Cap and Share or the similar Cap and Dividend (or the proposal put forward by the Global Commons Institute, Contraction and Convergence) may be the only fossil fuel reduction schemes acceptable to the rapidly developing nations of SE Asia and Russia.

In the USA, the Political Economy Research Institute indicates how Cap and Dividend and Cap and Giveaway would impact on people in the country's five income bands. For a 15% GHG reduction target the annual income of the poorest fifth would decrease by 6.2% under the giveaway scheme, but would increase by 14.8 % under the dividend scheme. The income of the richest fifth under the giveaway scheme would increase by 5.1% and under the dividend scheme would reduce by a mere 2.4%.

In June 2008 consultants AEA Energy and Environment presented a report on Cap and Share to the Irish government's Comhar Sustainable Development Council. This report 'Cap and Share: Phase 1; policy options for reducing greenhouse gas emissions Interim Final Report' for the transport sector only. Cap and Share was compared with the following alternatives:

· DTQs/TEQs - Domestic tradable quotas/Tradable energy quotas
· PCR - Personal carbon rationing
· RAPs - Rate all products and services
· Carbon tax
· Voluntary schemes
· Fuel excise duty

Of all these alternatives, the report concludes that Cap and Share is the most favoured.
Copies of the Cap and Share proposals and the independent report can be obtained from the Cap and Share web site -

http://www.capandshare.org/download_files/C&S_Feasta_booklet.pdf
http://www.capandshare.org/download_files/C&S_AEA_report.pdf

A second report on Cap and Share was commissioned by Comhar in 2008 - 'A Study in Personal Carbon Allocation' and produced by AEA in conjunction with Cambridge Econometrics -

http://www.capandshare.org/download_files/Comhar_Cap&Share_Report.pdf

The Lean Economy Connection (LEC) does not feel that these reports accurately assess the advantages it sees that TEQs have over C&S permits. It will be seen from the table below that TEQs score better in terms of public engagement. This relates to the belief that when individuals have energy rations they will become more energy/carbon numerate. It is believed that individual energy counting will create a sense of common purpose and that because of this the carbon energy descent will be achieved more quickly and efficiently. However, this will be difficult to prove and it should be borne in mind that individuals will gain more financially from C&S permits because they cover all fossil fuel use, not just the fuels we buy like petrol and heating oil. Another point made by LEC is that it is the speed of the fossil energy descent that is the most important factor and that this objective would be best achieved by TEQs. However, this contention is also difficult to prove and an equally strong case could also be made for C&S, whose initiators have the very same objective.
There is little doubt that both schemes would encourage investments in renewables. However, it is also clear that neither scheme would work if individuals did not have enough opportunities to reduce their use of fossil energy. Hence,governments will need to make adequate investments in renewables and public transport in line with the reducing carbon cap and these would need to be substantial even before a carbon capping or energy rationing scheme was initiated.

In the table above increasing numbers indicate better performance

Cap and Share as a Global Scheme
Studies of Cap and Share in South Africa and India under a global scheme reveal the considerable contribution it would make to the relief of poverty despite price increases caused by a tightening cap on CO2 emissions and the high dependence of both countries on energy produced from coal.
The two reports consider the effects of a range of carbon prices and a per capita CO2 emission allowance of 3.71 tonnes (4.37 tonnes less 5% for a transition fund, 9% for seqestration projects and 1% for overheads).
Coal provides 93% of South Africa's electrical energy and emissions from burning fossil fuels have doubled in the past 25 years. Demand for the country's coal exports will decrease in time and there will be a strong incentive for the country to develop renewable sources of energy. Because of the high coal dependence, the initial impact of C&S would have a considerable negative effect on the country's GDP whilst at the same time reducing extreme poverty and inequality. The richest three income deciles are net losers while the bottom seven are net winners. Over time there is likely to be a relative decline in long-distance international trade so that opportunities for import substitution will improve.
In India C&S would have an all round positive effect with 90% of the population standing to gain. National income could double mainly because most people currently use little fossil energy. Incomes of the poorest 10% would increase 80 fold for a carbon price of 400 euro per tonne.