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Review of the tradable emissions rationing scheme TEQs In a future of scarce fossil fuel reserves there is an unavoidable role for rationing. Tradable rationing holds the possibility of being more efficient than fixed rationing by providing an incentive to use less. However there are issues to resolve in making such schemes generally acceptable and avoiding pitfalls. The following comments were kindly invited by Shaun Chamberlin of the Lean Economy Connection. The review uses information from a booklet about Tradable Emissions Quotas downloadable from http://www.teqs.net/ and comments on a Simpol forum. It will be updated as new information arrives. I see an important role for rationing amidst the overwhelming likelihood of future scarcities. Sharing is better than grabbing. Assuming that after the crunch government and commerce are able to function at all then some variation of electronic tradable rationing would help. This crunch+scarcity scenario and the other view of TEQs as a climate tool appear to need further development in areas where the current scheme may not operate as intended, in particular with operation during supply disruptions, progressiveness, adequacy of investments, avoidance of decoy 'solutions', loss of nature, and centralised data harvesting. For TEQs to achieve its potential it must be able to do 'what it says on the tin'. You asked for my ideas - please see the guest article in the Autumn '07 Simpol newsletter which is also available at http://www.blindspot.org.uk/briefing.html. This work was presented at a NATO Advanced Research Workshop and is being published by the NATO Science Programme. These reforms are potentially compatible with a future robust form of rationing by allowing rationing to work with the grain of the (reshaped) market and by vastly boosting the available flows of funds to support the local and global 'transition'.
1. Economic growth Whilst the use of energy must fall, the overall cost of energy (which includes dismantling of obsolete infrastructure, new energy supply infrastructure, replacement energy-using equipment, rising market prices for scarce gas and oil, and the cost of TEQ units) does not seem likely to fall (as suggested on page 36). Although economic growth is commonly associated with "the consumer goods that we actually want" (page 37) I understand that the actual measure underlying growth, GDP, comprises all goods and services produced throughout a nation. So economic growth can arise equally in both sustainable and unsustainable societies - it is certainly not wedded to unsustainability. The TEQs list of "intermediate goods" (page 37 para a) could be usefully separated into unproductive activities (which perversely add to growth) and examples of economic inactivity, such as wasted resources, traffic congestion, illness and desertification which undermine future potential for growth. Economic growth in recent years has been positive only due to massive growth in unproductive activities and (without radical economic change) economic growth in future years is increasingly unlikely due to the spread of many forms of economic inactivity (as predicted by Stern). Already many governments find they cannot afford things they could previously, despite rising taxes and debt. Thus there may be little point arguing to end growth (which is set to happen anyhow), but considerable benefit in discussing how to influence the activities and 'inactivities' that feed into it. You may aloer examine the mythology of consumerism, since on page 37 TEQs seems to be offering energy savings as a route to greater spending on consumer goods. Please consider whether people really want the things themselves (which are frequently a nuisance) or the services (including status signalling) provided by the goods? This is an essential distinction without which energy transition is inconceivable. You may care to consider the mythology of economic growth from a politician's perspective. Growth is used as a shorthand for "look how clever I am - vote for me" whilst (as shown in the above paragraph) growth has tended to plod on whether their policies are clever or progressively disastrous. Although this explains the political obsession with growth, there are other reasons why politicians value growth - it provides steadily growing revenue from taxes. This enables politicians to budget and to make promises to electorates. Growth is also the well-spring of the economic confidence game - people invest because they anticipate things going well. Hence the assertion on page 37 that falling growth does not matter and that growth must stop is not a strong selling point for TEQs. The statements on employment (page 37) are missing the analysis to back up the claim that TEQs would be a net job provider. There would certainly be plenty of work, but translating this into jobs is not automatic. Unpredictably rising costs to businesses and no certainty of sharing a delayed flow of reinvested revenue would tend to close energy-dependent businesses and to cut employment. Avoiding this requires a range of measures to be in place. One of these is the possible role of diverse local currencies in supporting livelihoods, piggybacking on a TEQs trading scheme. 2. Economic model 3. Systems thinking TEQs compares itself favorably to the two other national climate responses (economic correction and regulation), however the comparisons lack rigour. Other forms of rationing are not considered, particularly forms which avoid skyrocketing unit prices in times of scarcity. Other forms of economic instruments besides flat-rate taxes are not considered, particularly forms which offer a tax-free threshold for basic energy use. Taxes are prejudicially described as "punishment" since they add to household budgets despite this only applying with flat rate taxes (without zero-tax thresholds). TEQs of course also add to household budgets via increased charges for all products and services, and for energy if more is needed than allocated. There are many other weaknesses in the comparison tables of page 34 and 35, some with the result that the actual operation could be the reverse of what is described. There is no comparison table for the option of regulation, just discussion around the theme that "command and control is obsolete". It is worth remembering that TEQs and the rules surrounding it (LCA methods, allocations, trading, reinvestments, enforcements) would form quite a bundle of top-down regulation. Similarly, correcting problems that arise applies equally to TEQs, since side-effects such as loss of nature, waste-burning, energy poverty and neglect of pollutants would all require compensating regulatory protection. Regulation is not all bad, being the basis of all nature conservation and employee protections. Weak regulation has caused 98% of the UK housing stock to be obsolete with respect to energy efficiency. Both peak oil and climate change follow directly from a lack of suitable regulation, so omitting the costs of most externalities from prices and allowing free markets to devour the planet's banquet of resources. 4. Investment flows TEQs does not offer that it will stimulate flows of investment sufficient to match the scale and urgency of the full range of tasks to achieve a stable climate and independence from unsustainable energy sources. Perhaps this issue is to be left open,to be addressed by others in future? Despite the TEQs booklet's omission of analysis to consider the scale of the work and the range of available sources of investment, the audience for TEQs are likely to assume that TEQs revenue will be sufficient for the task - based on the TEQs 'guarantee' of meeting emissions targets and the suggestion that revenue will be available to support local projects as needed. If the necessary investments cannot be afforded then the TEQs 'guarantee' may not apply and the scheme may create hardship instead of transition. TEQs discusses the need for funding for local energy improvements but there is minimal discussion of regional and national investments. Global redistribution, implicit to the convergence part of contraction and convergence, is not discussed. Can TEQs handle this, especially in the early years when unit prices and revenues may be low? If not then are other reforms needed? A return to local taxation based on property holdings rather than residency? A greater proportion of national taxes to be allocated locally? Sharing access to land for co-housing communities and growing food? Schemes to share stockpiles of wealth which currently serve only to make the rich richer? Measures to redirect the massive global waste of wealth on weapons and use of weapons (see GPP for example)? Integration with TEQs of local currency schemes which could harnessvoluntary efforts (and underpin ebay-style feedback systems)? Sustainable economic reform of global markets? Stabilising climate means achieving sustainable development globally - let's not underestimate the scale of investment needed. 5. Positive vision vs constraint I guess since TEQs is listed as a possible Simpol policy it does indeed hope to be introduced (via national schemes) on an international scale. At both national and international scale there are PR challenges for schemes based on constraint. This commonly spells scarcity, economic decline and top-down controls in people's minds. Which explains politicians' reticence to agree suitable international emissions targets over the past 15 years. Perhaps the lean economy vision can be worked up to become a more complete vision of a society creating enough abundance to meet everyone's needs? The interplay of scarcity and abundance through economics is the great question of our time, which remains strikingly neglected. Alternatively can TEQs be worked up into a life-boat plan and await the inevitable consequences of most governments' comprehensive neglect of planning beyond oil? Due to peak oil, supplies are already scarce, which suggests an immediate 'selling point' for TEQs. Scarcity makes rationing obvious. On the day the nation's fuel pipes start whistling some form of rationing should be ready to roll. As one of the active group in our local transition town project I'm grateful for your interesting talk to us but would have to admit that the group have not really begun the discussion of policy options which would allow a decision on whether to support TEQs. I hope you can bear this in mind when mentioning support from the transition town movement. It is similarly not yet known how the public would respond to rationing but we can guess this would be a matter of necessity rather than choice. Attitudes of peak oil, climate action and environmental enthusiasts is not likely to represent public attitudes. There is a quirky psychology amongst those of us who have been struggling against the mainstream for many years. Since we see things getting worse and a lack of any comprehensive response we tend to be more accepting of 'tough' constraints which we hope would force others to share the burden before it's too late. Unfortunately us greenies also tend to fixate on 'issues' and to neglect the scope for positive supportive visions and deep economic reform. 6. Nuclear power, biofuel crops and waste burning TEQs seems to offer an exemption for local energy production (page 24) but the booklet does not mention waste-burning. Without meaningful consultation or public consent, the UK government is currently signing up communities across the country to irrevocable 25-30 year contracts to burn waste and to produce waste-derived fuels for burning (see more about waste). Government will be keen to gain an exemption for this activity and to mask the massive destruction of resources and health. Unregulated waste and timber burning is an obvious option for people who cannot afford to heat their homes or in times of supply interruptions. If TEQs allows recyclable resources and living biomass to become tomorrow's emissions then any "guarantee" (point 12 of first page of booklet) of meeting national carbon reduction commitments would not apply. The TEQs "guarantee" is similarly not valid due to GHG effects of industrial chemicals (such as refridgerants and cleaning solvents) and of emissions from land use, land use change and forestry. In addition it is likely to soon be clear that the GHG concentrations to which humanity is already committed are too high, which will require a surviving human society to become net-GHG negative. TEQs does not discuss what happens around and below the "zero" level of emissions. The TEQs 'step' drawings are all blank in this range. This is a fascinating area with the potential to contribute a lot to all possible climate responses by shaping up positive visions and economic models. The fear of civilisation vanishing in a final puff of smoke at zero emissions is unfounded but there are serious obstacles to be faced and overcome. Net negative emissions will require a rapid rebuilding of global photosynthetic productivity (plant life on land and sea). For the past thousands of years humanity has been savaging nature and the current form of TEQs will need further work before it can be part of the solution rather than part of the problem. All current and future human influences on both sinks and sources need attention, not just a selection of energy-related emissions. The TEQs emissions "guarantee" is convenient for politicians seeking certainty but this would happen at the expense of uncertainty in energy costs due to unpredictable market prices for units. Businesses and households need predictable pricing in order to plan spending so a potentially volatile unit price is a serious obstacle to implementing TEQs. Economic corrections such as taxes and precycling insurance cannot guarantee predictable emissions cuts but they can respond to progress with cuts. Adjustments to taxes or premiums can also guarantee emissions cuts over time. 7. Scarcity Scarcity is not a scenario of orderly transition, with or without rationing. What might desperate people and governments not be prepared to do? How many people would it take to wreck things for everyone else? Government may become incapable of "enabling" anything. Picture a national or global version of New Orleans triggered by any combination of 'natural', economic, military, terrorist or political disaster. Cooperative behaviour presumes a degree of shared optimism about the future and enough available resources (of all kinds) to meet everyone's basic needs. Without this, rationing would still be the best distribution method in an era of scarcity - but not a pretty sight. TEQ unit prices can remain low (as offered on page 36) only in fairly idealistic circumstances, where all participants trust and cooperate successfully with each other over decades during which there are no significant energy supply disruptions. The effect of supply interruptions on a tradable rationing scheme may need more thought. Page 26 reveals that supply disruptions would turn TEQs into a multi-product rationing scheme. This is almost certain to extend beyond the energy products discussed in the booklet but there are difficulties just with energy. From the moment of the first supply interruption the volume of units on the market would have to be shrunk to match the available supply of all disrupted goods (otherwise rationing could not occur). Fuels and units would both be stockpiled and all units on the market would most likely be purchased. The assumption on page 20 that the volume of units for sale on the market would stay between 51 and 52 weeks supply appears groundless. There seems to be nothing to stop wealthy participants hoarding or speculating as many units as they wish. Energy and units which were yesterday cheap would today both become expensive. This means that the "stabilising effect" of TEQs (page 21) could work in reverse following any supply interruption. Demand for units and energy is fairly inelastic in the short term: poorly insulated houses, inefficient machinery, non-cohesive neighbourhoods, patchy public transport and wasteful resource patterns cannot respond to the likely speed and scope of supply interruptions. Some of these require decades to alter. If any fuel is entirely switched-off, people could be paying dearly for units in the hope of then paying dearly again for fuel when supply returns. As units are withdrawn to match a small supply, both individuals and businesses would both find they lack energy and units (with great inequality according to people's previous stockpiling of units). Prices of all kinds of products would skyrocket in response to energy and unit costs. This would take money from people just at the time when they need it most - which is what TEQs proposes (on page 33) to avoid. It would appear that the 20 year "consistent and stable" TEQs budget considered essential on page 27 is possible only so long as there are no supply disruptions. 8. Kids and inequalities The booklet's proposal on page 38 for government to subsidise fossil fuel prices for the nation when international prices skyrocket is baffling. Governments' historical effect on fuel prices has been to inflate them with taxes. Reversing this policy would require massive new revenue streams which are not identified in the booklet. Spiraling fuel prices may arrive in tandem with spiraling TEQ unit prices caused by scarcity but reinvesting revenue from sales of units into subsidising fuel prices would appear to return the economy only back where it was without TEQs (minus all the operating costs and without any investment in oil independence). Perhaps consider the more likely scenario that most governments wouldn't dream of subsidising fuel prices for the whole nation and will instead ensure that meagre supplies go to essential services (health, fire, government officials etc). Since you wish to design a progressive scheme you could build-in a national allocation of both the units and the actual minimum energy people need. Plus ensure that government understands that people cannot live on energy alone. Energy scarcity will hit every aspect of life and people will look to government for help no matter how much they are told that responsibility lies with them (pages 30 and 35). Rationing with price capping, as in the World Wars, would be a weaker progressive option but still stronger than the current TEQs model. 9. Parallel currency 10. International trade 11. Transfer of responsibility The TEQs distinction between "push" and "pull" is superficially attractive both for the public (who desire autonomy) and government (who desire the perception of providing autonomy). However there are significant sources of push within TEQs, as there are in all possible interventions. Since participation will be legally enforced the public may come to the view (page 35) that TEQs is government's own scheme whilst government may prefer the view (page 28) that TEQs is citizens' own scheme. It may be tempting for TEQs to suggest that revenue will be waiting like a pot of gold, for communities to claim as needed. In reality this pot may be at the end of a rainbow (hard to reach). It will be government who decide the size of the pot (after deductions for national responses) and how it is spent. Government grants generally come complete with guidelines, criteria, form-filling, deadlines, delays, monitoring and auditing. Lessons may be drawn from some existing grant schemes for local authorities involving expensive government-controlled consultants who 'coach' localities to make only centrally-selected requests. Push can be disguised as pull. There is a similar difficulty with the democratic capacity of communities, which are unaccustomed to participative decision-making. Those currently involved in transition towns are overwhelmingly the most articulate and motivated individuals. How will those without such qualities be able to take part without feeling pushed along? The group decisions of communities could vary wildly in inclusiveness and ambition with potentially no autonomy for those who get left out. 12. Big Brother Unlike the existing distributed flows of financial information, TEQs would offer government largely centralised sources of data and new contracts into which data-harvesting clauses could be inserted in the fine print. This is sadly not paranoia, as may be seen from the recent reports of data-harvesting clauses in GPS tracking systems which had not been revealed to the public. Finally - a conclusion!
TEQs may also be considered as one of the national options for climate security. However unlike contraction and convergence, it is not the only plausible option (and taxes are not the only economic options). The TEQs option could be developed by exploring further outstanding issues:
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