Survey
Personal carbon trading: A critical survey
Part 1: Equity
Richard Starkey ⁎
Tyndall Centre for Climate Change Research, Pariser Building, University of Manchester, Sackville Street, Manchester, M13 9PL, United Kingdom
a b s t r a c ta r t i c l e i n f o
Article history:
Received 10 May 2010
Received in revised form 7 September 2011
Accepted 29 September 2011
Available online 27 November 2011
Keywords:
Personal carbon trading
PCT
Equity
TEQs
PCAs
In recent years, there has been considerable discussion within UK climate policy circles regarding the appropriateness
of personal carbon trading as an instrument for greenhouse gas emission reduction. This paper is
the ﬁrst in a two-part survey of personal carbon trading (PCT), the term used here to describe proposed
(sub-)national greenhouse gas emission trading schemes under which at least some emissions rights are allocated
to and surrendered by individuals. After introducing the various proposed PCT schemes, the paper
compares, in terms of equity, the two most-discussed PCT schemes with two alternative emission trading
schemes and a carbon tax. The papers' two key ﬁndings are as follows. First, there are strong arguments
that the equal per capita allocation proposed under some instruments is not completely fair. Second, the
ﬁve instruments compared can be equivalent in terms of their equity. Along with equity, efﬁciency and effectiveness
make up three key criteria for comparing environmental policy instruments. As PCT has no advantage
in terms of equity, the paper concludes that any case for PCT will depend on it having advantages in
terms of efﬁciency and/or effectiveness. Whether PCT has such advantages is explored in Part 2.
© 2011 Elsevier B.V. All rights reserved.
1. Introduction
In recent years, there has been considerable discussion within UK
climate policy circles regarding the appropriateness of personal carbon
trading as an instrument for greenhouse gas emission reduction.
This paper is the ﬁrst in a two-part survey of personal carbon trading
(PCT), the term used here to denote (sub-)national emission trading
schemes for reducing emissions from fuel combustion, under which
at least some emissions rights are allocated to and surrendered by eligible
individuals. Eligible individuals, henceforth simply “individuals”,
are, roughly speaking, adults. The term is fully speciﬁed in
Section 7.
The paper compares the two most widely discussed PCT schemes
▪ Tradable Energy Quotas (TEQs)
▪ Personal Carbon Allowances (PCAs)
with two proposed alternative trading schemes
▪ Cap and Dividend (C&D)
▪ Cap and Share (C&S)
and the carbon tax
▪ Tax and Dividend
Emission trading schemes are traditionally classiﬁed as upstream
or downstream. Under upstream schemes, emission rights are surrendered
by fossil fuel suppliers and, under downstream schemes, by energy
users. Under this classiﬁcation, TEQs and PCAs are types of
downstream scheme, whilst C&D and C&S are types of upstream
scheme. What then is the rationale for comparing upstream schemes
with downstream schemes and a carbon tax? In a word, equity, as all
ﬁve schemes take what might be termed a “(roughly) equal” approach
to emission reduction.
Along with equity, efﬁciency and effectiveness make up three key
criteria for comparing environmental policy instruments (Gunningham
and Grabosky, 1998; Stern, 2008). Efﬁciency and effectiveness are the
focus of Part 2 of this survey following the focus on equity in Part 1,
which proceeds as follows. Section 2 sets out the scope of the schemes
discussed in this survey along with the emissions typology used.
Section 3 then describes the range of proposed PCT schemes whilst
the three alternatives to PCT are described in Section 4. This is followed
by an extended analysis in Sections 5 and 6 of the approaches
to equity of TEQs, PCAs and the three alternatives. Section 7 discusses
the issue of who should be an eligible individual and Section 8
brieﬂy concludes.
When comparing PCT with alternatives, the devil is very much in
the detail and a two-part survey provides the opportunity to explore
in detail various aspects of equity, efﬁciency and effectiveness. Thus,
this survey complements the recent single-paper survey by Fawcett
(2010).
Ecological Economics 73 (2012) 7–18
⁎ Tel.: +44 161 306 3700; fax: +44 161 306 3255.
E-mail address: r.starkey@ntlworld.com.
0921-8009/$ – see front matter © 2011 Elsevier B.V. All rights reserved.
doi:10.1016/j.ecolecon.2011.09.022
Contents lists available at SciVerse ScienceDirect
Ecological Economics
journal homepage: www.elsevier.com/locate/ecolecon
2. Preliminaries
2.1. Scope
The schemes discussed are all schemes for reducing emissions
from fuel combustion. Of the greenhouse gases regulated by the
Kyoto Protocol, fuel combustion releases carbon dioxide, methane
and nitrous oxide. In, for example, the UK, emissions from fuel combustion
constitute by far the largest component of total emissions.
Carbon dioxide emissions from fuel combustion account for over
95% of total carbon dioxide emissions in the 2008 inventory and
emissions from fuel combustion of all three gases account for 85% of
total inventory emissions (MacCarthy et al., 2010).
2.2. Emissions Typology
Fig. 1 shows a nation's emissions from fuel combustion. These can
be classiﬁed as direct and indirect. Individuals or organizations emit
directly when they themselves combust fuel, and, in Fig. 1, organization's
direct emissions are divided into those from the generation of
electricity and from other combustion activities. Individuals or organizations
emit indirectly when they consume goods or services, the
provision of which involved direct emissions by one or more
(other) organizations. Thus, after accounting for transmission and
distribution losses, an electricity generator's direct emissions are
equal to the indirect emissions from the electricity use of the individuals
and organizations that constitute its customers plus the direct
emissions from the small proportion of its generated electricity it
uses for operational purposes.
Individuals customarily refer to their use of fuel and electricity as
their energy use. Thus, their (direct) emissions from fuel combustion
(Box 2) and (indirect) emissions from electricity use are here referred
to as their energy emissions. Similarly, organizations' energy emissions
consist of emissions from all organizations' electricity use (4+7) and
non-generators' fuel combustion (1+5).1
Organizations' energy emissions are ultimately embodied in the
energy, other goods and services consumed by individuals. Organizations'
energy emissions embodied in the energy individuals consume
are those resulting from the provision of the infrastructure need to
deliver individuals' energy, and are referred to as individuals' INDIE
emissions (9). Organizations' remaining energy emissions are embodied
in the other goods and services individuals consume, and are
referred to as individuals' COGS emissions (8).2
Thus
Total emissions from fuel combustion
¼ individual energy 2 þ 6ð Þ þ organizational energy 1 þ 4 þ 5 þ 7ð Þ emissions
¼ total energy emissions 1 þ 2 þ 4 þ 5 þ 6 þ 7ð Þ
¼ individual energy 2 þ 6ð Þ þ COGS 8ð Þ þ INDIE 9ð Þ emissions
invisible
ORGANIZATIONS
DIRECT
INDIRECT
(Electricity)
INDIRECT
(COGS)
EMISSIONS
E
F
F
Electricity (E)
INDIVIDUALS
Fuel (F)
2 3 5
76
8
SUPPLY & DISPOSAL OF
INDIRECT
(INDIE)
ENERGY EMISSIONS (2+6)
ENERGY EMISSIONS (1+4+5+7)
OTHER GOODS & SERVICES
E
4
1
F
INFRASTRUCTURE TO
HEAT &
POWER
DELIVER INDIVIDUALS’ ENERGY (9)
Fuel combustion
by electricity
generators
Consumption
of other goods
and services
Fuel
supply
Others’
electricity use
Fuel
combustion
Fuel
combustion
by others
Electricity
use
Generators’
use of own
electricity
Fuel suppliers’
combustion of
own fuel
Fig. 1. Emissions from fuel combustion: a typology.
1
Emissions from generators' fuel combustion (3) are equivalent to those from all organizations'
electricity use (4+7).
2
These include emissions embodied in their consumption of government services.
8 R. Starkey / Ecological Economics 73 (2012) 7–18
3. Personal Carbon Trading Schemes
Using this typology, Section 3 describes the various proposed PCT
schemes, beginning with the two most widely discussed: TEQs and
PCAs.
3.1. Tradable Energy Quotas (TEQs)3
Originally known as Domestic Tradable Quotas, TEQs were formulated
by Fleming in the mid-1990s (Fleming, 1996, 1997, 2007; Fleming
and Chamberlin, 2011). The scheme consists of three elements: setting
the carbon budget, surrendering emissions rights and allocating emissions
rights. Of course, rights must be allocated before being surrendered
but, for ease of exposition, the elements are described in this
order.
3.1.1. Scheme Description
The carbon budget is the maximum quantity of Kyoto gases from
fuel combustion that a nation may emit annually and is reduced
each year in line with national emission reduction targets. The budget
is set 20 years ahead to give society a long-term signal regarding
emission reduction.
Emissions rights are known as carbon units, with a unit deﬁned as
the right to emit 1 kg of carbon dioxide equivalent. Whenever (1) individuals
and organizations other than electricity generators purchase
fuel or electricity and (2) fuel suppliers and electricity
generators use their own fuel or electricity for operational purposes,
they must surrender carbon units to cover the emissions (that will
be) released by the combustion of the fuel or the generation of the
electricity purchased or used. That is, individuals and organizations
must surrender units to cover their energy emissions.
Each year, a quantity of carbon units equal to the carbon budget is
allocated by government to individuals and organizations. The proportion
allocated to individuals is equal to the proportion of total energy
emissions represented by individual energy emissions in the
period prior to TEQs' implementation. (In the UK, the current proportion
is around 40%.4
) Carbon units are allocated to individuals free and
on an equal per capita basis. In addition, child beneﬁt would be increased
to reﬂect the additional energy used and, thus, the additional
carbon units required in households with children.
Organizations must purchase units on a national carbon market.
Units enter onto the market from two sources. First, the government
auctions those units not allocated to individuals, and Fleming proposes
that the auction revenue is hypothecated to assist individuals
and organizations reduce emissions. Second, those individuals
whose energy emissions are below the level permitted by their allocation
(“below-allocation individuals”) can sell their un-surrendered,
surplus units onto the market.5
Those individuals wishing to emit at a
level above that permitted by their initial allocation (“above-allocation
individuals”) must purchase additional units on the market. Visitors
to a nation operating a TEQs scheme are not allocated units and
must also purchase units on the market.
3.1.2. Further Details
Each individual's carbon units are deposited in an electronic carbon
account at regular intervals (perhaps monthly). From here, individuals
can surrender units to gas and electricity utilities by direct
debit, and to motor fuel retailers by means of a stand-alone carbon
card.6
Surrender from a carbon account is here referred to as Type 1
Surrender (S1), see Fig. 2, Box 1.
Under TEQs, high street banks and the post ofﬁce would act as
market makers, buying carbon units at auction and from individuals
wishing to sell, and selling units to organizations and individuals
wishing to buy.7
Units would be traded using familiar trading channels:
telephone, internet and over the counter. Individuals would periodically
receive a carbon statement recording the units surrendered
from their account and those purchased from and sold to market
makers.
Carbon units can also be purchased at the point of sale for immediate
surrender. Those using this facility would include (1) individuals
(visitors from abroad) without carbon accounts (2) individuals
with carbon accounts who have surrendered all their units and (3) individuals
at petrol stations with units in their account but without
their carbon card. Such a facility would be made possible by energy
retailers purchasing units on the carbon market and selling them on
to customers. When a retailer purchases units, they pass from the
market maker's account to the retailer's. But when a customer purchases
units from a retailer, they do not pass to their account from
the retailer's. Nevertheless, the customer can still be said to surrender
them back to the retailer in that, having acquired ownership of the
units through purchase, they immediately relinquish (i.e. surrender)
that ownership. Such surrender is here referred to as Type 2 Surrender
(S2), see Fig. 2, Box 2. Under TEQs, an individual can engage solely
in S2 by arranging for a market maker (e.g. her bank) to purchase her
carbon units immediately they are deposited in her carbon account,
and then purchasing all units for surrender at the point of sale.8
Under TEQs, it is likely that some individuals will wish to know
whether their energy emissions are above or below allocation (i.e.
above or below the national average). However, as S2 does not involve
the ﬂow of units from the individual's carbon account to the
retailer's, the surrendered units do not appear in her carbon statement.
Thus, she cannot tell from her statement whether she is
above or below allocation. The units purchased from utilities and
motor fuel retailers would appear, respectively, on utility bills and
fuel receipts and thus, in theory, the individual could ascertain her
energy emissions through totalling the quantities on her bills and re-
ceipts.9
However this would likely prove too laborious for most.
By engaging solely in S1, an individual ensures that all carbon
units surrendered are recorded in his carbon statement and, thus,
can know from his statement whether and by how much he is
above or below allocation. Note that engaging solely in S1 requires
above-allocation individuals to purchase additional carbon units
from market makers rather than at the point of sale.
Of course, individuals can engage in a mixture of S1 and S2. For example,
an above-allocation individual might engage in S1 until their
carbon account is empty and then engage in S2 to cover their
above-allocation emissions. Note that organizations are also able to
engage in S1 and/or S2. The extent to which individuals and organizations
engage in S1 and/or S2 is crucial to assessing the efﬁciency of
TEQs and is discussed in Part 2.
3.2. Personal Carbon Allowances (PCAs)
Under TEQs, individuals are allocated emissions rights to cover their
energy emissions. However, under PCAs, formulated by Hillman, they
would ideally be allocated rights that, in addition, cover the COGS emissions
arising from their use of public transport (Hillman and Fawcett,
3
Fleming uses “Energy” rather than “Emissions” as he regards TEQs as suitable for
allocating not only emissions rights but also oil rights in response to “peak oil” (Fleming
and Chamberlin, 2011). See Part 2.
4
Based on the UK's 2008 emissions inventory.
5
Alternatively, they can save them for future years or gift them to e.g. friends or relatives.
It would be possible to include an option to retire units.
6
Alternatively, a surrender facility could be built into credit/debit cards.
7
Organizations with the highest energy emissions could instead purchase units directly
at auction.
8
After units are surrendered (by S1 or S2) to energy retailers, for accounting purposes,
they are then surrendered up the energy supply chain and back to government.
9
Presumably, unit surrendered would be converted into emissions, a straightforward
conversion as X carbon units surrendered=X kg of emissions.
9R. Starkey / Ecological Economics 73 (2012) 7–18
2004). Thus, if PCAs were today implemented in the UK, individuals
would be allocated 42% of rights as opposed to 40% under TEQs.10
However,
Hillman concedes that the complexity of calculating emissions associated
with individuals' public transport journeys is such that it
should not be attempted during the initial implementation of PCAs.11
Thus, during its initial implementation, PCAs would be similar to TEQs
in that individuals would be allocated emissions rights covering only
their energy emissions, the remaining rights would be auctioned and
organizations would purchase rights on the carbon market.12
The only
difference would be in their treatment of parents: under TEQs, parents
receive increased child beneﬁt whilst, under PCAs, they instead receive
additional emissions rights (Section 6).
Whilst TEQs and PCAs are the most widely discussed PCT schemes,
others that have been discussed are described subsequently.
3.3. Ayres Scheme
Under TEQs and the scheme proposed by Ayres (1997a, b), individuals
and organizations surrender rights to cover their energy emissions.
However, the Ayres scheme differs from TEQs in that individuals are allocated
100% of rights on an equal per capita basis. As under TEQs, organizations
purchase rights from market makers but, whereas under
TEQs, market makers purchase the majority of rights at auction, under
the Ayres scheme they must purchase all of them from the millions of
individuals to whom they are allocated. There has been no subsequent
research into the Ayres scheme, perhaps because the transaction costs
of market makers having to acquire rights from millions of individuals
are regarded as too high to make it viable.
3.4. Sectoral Schemes
Whilst the PCT schemes discussed thus far cover an entire economy's
energy emissions, others cover only those of a particular sector.
3.4.1. Transport Sector Only
Harwatt (2008), Raux (2010) and Wadud (2011) explore schemes
covering emissions from private motoring that utilize the systems
and technologies of TEQs (e.g. carbon accounts, carbon cards). Additionally,
Raux explores a scheme covering emissions from freight
transport. Harwatt's scheme allocates rights to adults on an equal
per capita basis whilst Raux discusses two allocations: an equal allocation
to (1) adults and children and (2) all car owners. Wadud discusses
three allocations: an equal allocation to (1) adults and
children (2) adults only and (3) vehicles.
3.4.2. Residential Sector Only
Niemeier et al. (2008) propose a household greenhouse gas cap
and trade (HHCT) scheme for the state of California covering residential
emissions only, again based around the sorts of systems proposed
by Fleming.13
Two possible allocations are compared: an equal household
allocation and an equal per capita allocation.14
4. Alternatives to Personal Carbon Trading
Three alternatives to PCT are brieﬂy described subsequently.
4.1. Cap and Dividend (C&D)
Formulated by Barnes (2001, 2008), C&D (formerly Sky Trust) is an
upstream trading scheme under which all emissions rights are auctioned
by government to fuel suppliers. These suppliers purchase rights
to cover the carbon content of their fuel, which they surrender back to
government when they sell their fuel or use it for operational purposes.
Barnes proposes that the auction revenue is allocated to individuals either
on an equal per capita basis or with parents receiving an additional
share for each child.15
Thus, whilst, under PCT, individuals are allocated
emissions rights, under C&D they are allocated revenue from the sale of
emissions rights.
In December 2009, US senators, Maria Cantwell and Susan Collins
introduced into the Senate the Carbon Limits and Energy for America's
Renewal (CLEAR) Act which proposes a C&D scheme for the US
(Cantwell and Collins, 2009). However, as of early 2011, the bill
had yet to gain momentum in Congress (Connolly, 2011).16
Market
maker
Above-
allocation
individual
Energy
retailer
£CU
BOX 1: Type 1 surrender (S1)
Carbon account
Market
maker
(Above-
allocation)
individual
Energy
retailer
BOX 2: Type 2 surrender (S2)
CU
£
£
CU = Carbon units
£ = Payment for carbon units
Carbon account CU = Carbon units
£ = Payment for carbon units
Fig. 2. Type 1 and Type 2 surrender.
10
Based on the UK's 2008 emissions inventory. This ﬁgure is rather smaller than the
50% quoted by Hillman and Fawcett (2004, p. 126)
11
For example, the emissions attributable to a bus passenger's journey depend upon
factors including the type of bus fuel used, the length of their journey, the (changing)
number of passengers on board during their journey and the terrain covered during
their journey.
12
Hillman's mention of an auction (Hillman and Fawcett, 2004, p. 141) suggests he
regards PCAs as covering total energy emissions. However, due to his focus on how
PCAs might affect individuals, the scheme is often characterized as covering individual
energy emissions only. Unlike Fleming, Hillman makes no mention of what is done
with the auction revenue.
13
Section 1's deﬁnition of PCT is formulated to include this proposal for a sub-national
scheme.
14
It is unclear whether those who receive equal shares are adults or all individuals.
15
Peter Barnes, personal communication, 23 May 2008.
16
For research papers and other background documents, see Cantwell (2009).
10 R. Starkey / Ecological Economics 73 (2012) 7–18
4.2. Cap and Share (C&S)
C&S was formulated by the Irish NGO, Feasta. Rather than being
auctioned to fuel suppliers as under C&D, emissions rights under
C&S are allocated on an equal per capita basis to individuals, who
then sell them on to fuel suppliers via market makers (banks and
post ofﬁces). Then, as under C&D, the suppliers surrender these rights
to government when they sell fuel or use it for operational purposes
(Feasta, 2008). Under the original formulation of C&S, rights are
posted out to individuals as a single certiﬁcate representing their annual
allocation. Alternatively it has been suggested that individuals
could be posted a booklet containing monthly or quarterly certiﬁcates
(Cap and Share, 2011b).
C&D is clearly not a PCT scheme as individuals are not allocated
rights. By contrast, under C&S, individuals are allocated and trade
rights. However, as under C&S's original formulation, the trading element
is minimal (certiﬁcate sold once a year), proponents chose not
to classify it as a PCT scheme.17
Section 1's deﬁnition of PCT is, thus,
formulated to exclude C&S.
4.3. Tax and Dividend
Under one variant of C&D, auction revenue is allocated to individuals
on an equal per capita basis. From the perspective of equity, the
same result is achieved by levying a tax on carbon and allocating the
tax revenue on an equal per capita basis (Section 5.2). However, there
has been little research into or political activity around such a “Tax
and Dividend” scheme.
Proponents of the trading schemes discussed here reject taxation
for two main reasons. First, on occasion, they fail to recognize that
taxation and trading can deliver similarly equitable outcomes, arguing
instead that taxation will uniquely disadvantage low-income
groups. Second, they hold that it is important to guarantee meeting
carbon budgets and point out that, unlike trading, taxation cannot
offer such a guarantee. See, for example, Barnes (2001, p. 42–43),
Fleming and Chamberlin (2011, p. 17) and Hillman and Fawcett
(2004, p. 133–134).18
Of the instruments discussed here, TEQs, PCAs, C&D and C&S are
the four that have been the focus of most research and political activity
and, for this reason, are those mainly discussed in Sections 5 and 6
which focus on equity. The equal per capita allocation under C&S and
one of the C&D variants along with the differential treatment of parents
under TEQs, PCAs and the other C&D variant explains the characterization
of their approach to equity in Section 1 as “(roughly)
equal”.
5. TEQs and Auction Revenue
This section introduces a version of TEQs under which the auction
revenue is allocated to individuals on an equal per capita basis:
henceforth TEQs–EAR (equal auction revenue). TEQs–EAR is contrasted
with Fleming's version of TEQs, under which auction revenue
is hypothecated, to highlight their potentially different consequences
for those on low income.19
5.1. TEQs–EAR: The Proportional Scenario
The comparison begins by considering TEQs–EAR under the “proportional
scenario”, a simplistic scenario under which individuals'
emissions are proportional to their income. The more complex real
world is discussed in Section 5.4.
In Fig. 3, AB represents the population ordered by emissions and,
thus, income. CDBA represents individual energy emissions in Year 1,
the year prior to the introduction of TEQs–EAR, with the lowest-emitting
individual emitting AC, and the highest, BD. Individual energy emissions
make up 40% of total energy emissions (the current UK ﬁgure). With the
introduction of TEQs–EAR in Year 2, 40% of carbon units are allocated to
individuals on an equal per capita basis (EFBA), units that permit a quantity
of energy emissions a few percent less than those in Year 1. The
emission reduction is CDBA–EFBA or GDF–EGC.
In Fig. 4, IJBA represents the population's COGS+INDIE emissions
in Year 1, these “other emissions” making up 60% of total energy
emissions. In Year 2, KLBA, the remaining 60% of carbon units, are
auctioned by government and permit a quantity of other emissions
the same few percent less than those in Year 1. The emission reduction
is IJBA–KLBA or MJL–KMI.
Implementation of TEQs–EAR is assumed to result in
1. a reduced emissions factor for electricity
2. increased energy efﬁciency in new equipment
3. the discovery of abatement opportunities that were cost-effective
in Year 1 but undiscovered20
If, under these assumptions, AH consume the same level of energy
services in Year 2 as in Year 1, then they will become below-allocation
individuals with C*G*HA energy emissions and a surplus of EG*C* carbon
units (Fig. 3). Under these assumptions, INDIE emissions also fall
in Year 2 and, if below-allocation individuals purchase the same basket
of other goods and services as in Year 1, so too will their COGS emissions.
Thus, in Year 2, below-allocation individuals' other emissions
are I*M*HA. Organizations are assumed to pass on the full cost of units
and so I*M*HA also represents the cost passed on to below-allocation
individuals. However, although they face this additional cost, they also
receive KM*HA in auction revenue, giving them additional income of
KM*I. Thus, in total, they are better off in Year 2 by EG*C* units+KM*I
money (Fig. 4).
If below-allocation individuals save their surplus units for future
use then, compared to Year 1, above-allocation individuals and organizations
must collectively reduce their energy emissions by GDF+
(MJL−KM*I*).21
Conversely, if below-allocation individuals sell all
their surplus units, then above-allocation individuals and organizations
must collectively reduce their energy emissions by the smaller
quantity (GDF−EG*C*)+(MJL−KM*I*).22
However, it is plausible to suppose that, rather than consuming at
Year 1 levels and saving KM*I (money) and EG*C* (units or the money
from their sale), below-allocation individuals will wish to use KM*I*
plus money from the sale of (some of) EG*C* to increase their consumption
of energy and/or other goods and services.23
5.2. Equity Equivalence of Instruments
Fig. 4 can be used to illustrate how, in terms of equity, TEQs–EAR is
equivalent to C&S, Tax and Dividend and the equal per capita version
of C&D. That is, if, for simplicity, it is assumed that these instruments
17
Richard Douthwaite, personal communication, 17 May 2008.
18
The question of when it is preferable to use a tax or trading has long been discussed
(Weitzman, 1974). For a useful, non-mathematical review, see Hepburn (2006).
19
For simplicity, the increase in child beneﬁt alongside TEQs (Section 3.1) is not considered
here.
20
One referee suggested these assumptions might not hold in the scheme's ﬁrst year.
However, under a regime of (very) rapid emissions reduction they might. And in any
case, they are illustrative of what will happen across the lifetime of the scheme.
21
The share of reductions made by below-allocation individuals and organizations
will depend upon the shape of their respective marginal abatement cost curves.
22
This quantity equals [(GDF−EGC)−CGG*C*]+[(MJL−KMI)−IMM*I*]. (GDF−
EGC)+(MJL−KMI) is the reduction in total emissions in Year 2. Above-allocation individuals
and organizations must collectively reduce their emissions if, as assumed
here, this reduction is greater than CGG*C*+IMM*I*.
23
If below-allocation individuals wish to purchase more energy and engage in S1,
they will need to retain some of their EG*C* units. Alternatively, they can sell them
all and engage in S2 (Section 3.1.2).
11R. Starkey / Ecological Economics 73 (2012) 7–18
(1) have equal implementation and participation costs and (2) generate
the same level of awareness of abatement opportunities, then
below-allocation individuals will be better off to the same degree
under each.
Under the equal per capita version of C&D (or under Tax and Dividend),
EFBA+KLBA represents the amount raised at auction (or
through taxation) and EG*HA+KM*HA the revenue received by
below-allocation individuals. Assuming that organizations pass on
the full cost of rights (or the tax) and below-allocation individuals
consume at the same level in Year 2 as in Year 1, the additional
amount they spend on energy and on other goods and services in
Year 2 is C*G*HA and I*M*HA. Thus, as under TEQs–EAR, they are better
off by EG*C*+KM*I*.
Under C&S, EFBA+KLBA represents both the allocation of rights to
individuals and the income they gain from selling those rights to fossil
fuel suppliers. Assuming the full cost of rights is passed on down
the supply chain, C*G*HA+I*M*HA represents the additional amount
spent on energy, other goods and services by below-allocation individuals
in Year 2. Thus, again, EG*C*+KM*I* represents the amount
by which they are better off.
This discussion illustrates the important point that a variety of instruments
can deliver a particular conception of equity, in this case
equity as equal shares. However, as the ﬁrst of the two simplifying assumptions
does not hold and the second may not, they may not be
able to deliver it with equal efﬁciency, an issue addressed in Part 2
of this survey.
5.3. TEQs (Fleming): The Proportional Scenario
Under TEQs, auction revenue is hypothecated rather than allocated
on an equal per capita basis as under TEQs–EAR. Under the proportional
scenario and before hypothecation, Individual N in Fig. 5 is
ﬁnancially no better or worse off under TEQs than prior to its implementation
as their surplus emissions rights (OP) are equal in value
to the additional cost of other goods and services purchased (NQ).
Thus, before hypothecation, a small minority of below-allocation individuals
(AN) are better off as their surplus emissions (NOP) are
worth more than the additional cost of other goods and services
(bNQ). However, the majority are worse off. Under TEQs–EAR all
below-allocation emission are better off (by EG*C*+KM*I). Whether,
after hypothecation, all below-allocation individuals under TEQs are
also better off (to the same degree as under TEQs–EAR) depends on
who beneﬁts from the hypothecation and by how much. However,
this issue is not one that Fleming addresses.
5.4. TEQs–EAR: The Real World
In the real world, energy emissions are not exactly proportional to
income. Whilst, on average, household energy emissions in the UK do
rise through the income deciles, they nevertheless vary widely within
deciles (Dresner and Ekins, 2004). For example, in the lowest two income
deciles, around 70% of households have energy emissions below
the national average whilst 30% or so have above-average emissions.
In the majority of instances, these above-average energy emissions
are due to high residential emissions resulting from occupation of a
dwelling with signiﬁcant heat loss and/or an electric heating sys-
tem.24
However, whilst Dresner and Ekins' research has established
that a signiﬁcant minority of low-income households have above-average
energy emissions,25
what determines whether a household is
better or worse off after the implementation of TEQs–EAR is whether
their total (i.e. energy+other) emissions are above or below average.
There is currently no detailed data on the relationship between UK
households' income and COGS emissions. However, in general, lowincome
households spend less on other goods and services and will
likely have below-average COGS emissions. And if a low-income
household has above-average energy emissions, it will be spending
a larger proportion of its income on energy and will, thus, have a
smaller proportion to spend on other goods and services. Hence, its
COGS emissions may be sufﬁciently below average that, when added
to its above-average energy emissions, the result is below-average
total emissions.26
This is illustrated in Fig. 6. Here household R has
above-average energy emissions, RS but, when combined with its
below-average other emissions, RT, its total emissions are below average
i.e. RS+RTbRU+RV. Thus, the percentage of low-income households
that have above-average total emissions and would, thus, be
worse off under TEQs–EAR is likely to be less than the 30% or so with
above-average energy emissions.
24
Their work has been usefully extended by Thumim and White (2008).
25
Dresner and Ekins' analysis is in terms of households. For simplicity, household
emissions are here assumed to be proportional to individual emissions.
26
INDIE emissions are assumed to be proportional to energy emissions. Thus, households
with above-average energy emissions will have above-average INDIE emissions.
Hence, the suggestion is that the sum of the household's below-average COGS emissions
and its above-average energy+INDIE emissions may result in below-average average
total emissions.
Emissions(rights)/
income/expenditure
C
G*
E
A H B
Below-allocation individuals Above-allocation individuals
D
F
Population
C*
G
Fig. 3. Below-allocation individuals and energy emissions under TEQs–EAR and the
proportional scenario.
Emissions(rights)/
income/expenditure
C
E
A H B
Below-allocation individuals Above-allocation individuals
K
I
J
L
D
F
Population
C*
I*
M*
G*
G
M
Fig. 4. Below-allocation individuals and other emissions under TEQs–EAR and the proportional
scenario.
12 R. Starkey / Ecological Economics 73 (2012) 7–18
6. Is an Equal Allocation Fair?
The four instruments discussed in Section 5.2 all allocate emissions
rights or auction/tax revenue (henceforth “rights or revenue”)
on an equal per capita basis and this section explores whether such
an allocation is fair. Two arguments for the allocation are set out
and assessed from the perspective of the philosophical literature on
justice.
6.1. The Commons Argument
The atmosphere acts as a holding bay for greenhouse gases released
through human activity prior to their removal by emissions
sinks. According to Barnes (2001), this atmospheric holding bay is a
“commons”, by which he means that it is jointly and equally owned
by humanity.
Barnes argues that, because everyone is its equal owner, everyone
is entitled to emit equally into it, and because everyone is entitled to
emit equally into it, everyone is entitled to an equal share of auction
revenue. Barnes' argument for equal revenue is henceforth referred
to as the “Commons Argument”.27
As “everyone” includes children, the Commons Argument implies
that, along with adults, children are entitled to equal shares of revenue.
Thus, a child born at midnight on 31 December is entitled to an
equal share of the revenue allocated the following year. In short,
equal ownership of the atmosphere entails ownership of equal quantities
of revenue.
Suppose this child's uncle gives her £10,000 on the occasion of her
birth. As the child is its rightful owner, the money will be held in trust
until she is of an age at which she is deemed competent to use it. Similarly,
it can be argued that, as she is the rightful owner of the auction
revenue, it too should be held in trust for her. Henceforth, an allocation
under which children's revenue is held in trust is referred to as
the Trust Fund allocation (Table 1).
Although the Commons Argument implies that children should be
allocated revenue, Barnes' two proposed C&D allocations are adultonly.
Under the Equal Adult allocation, adults receive an equal share
of auction revenue and, under the Parental allocation, all adults receive
an equal share with parents receiving the same allocation
again for each child (Table 1). But note that, as our child is the rightful
owner of the £10,000, the state cannot simply allocate this money to
her parents. Similarly, as children are in principle the rightful owners
of auction revenue, there must in practice be sufﬁciently weighty reasons
for the state to abandon the Trust Fund allocation for an adultonly
allocation. However, Barnes makes no suggestion as to what
these reasons might be.
But there is a more fundamental problem with the Commons Argument.
For Barnes, an entitlement to equal revenue follows from
the fact that the atmosphere is today equally owned. It is today equally
owned because, at the outset of humanity, it was equally owned
and has remained so ever since. And, following Locke ([1689] 1986),
Barnes argues that it was originally equally owned because it was
gifted to humanity by God. Unsurprisingly, contemporary philosophers
(e.g. Narveson, 1999; Otsuka, 2003) reject theological justiﬁcations
for original world ownership, and most (e.g. Mack, 2002;
Nozick, 1974; Schmidtz, 1997; Steiner, 1994) reject non-theological
justiﬁcations, holding instead that, in the beginning, the world was
originally unowned. Thus, there is little support amongst contemporary
philosophers for the Commons Argument (Starkey, 2010).
6.1.1. Cap and Share
The Cap and Share website (Cap and Share, 2008) asserts that everyone
has an equal right to the “sky commons” whilst Feasta (2008, p. 3)
asserts that “everyone on earth” has an equal right to “the limited capacity
of the sky to act as an emissions dump”. However, unlike Barnes,
they offer no explanation as to from where this equal right derives. But
Feasta (2008, p. 15) does set out reasons why, in practice, rights should
be allocated to adults only, namely that it
avoids a lot of administrative difﬁculties, removes opportunities
for fraud…and safeguards C&S from the charge that it would encourage
people to have more children just to collect the income
from the entitlements each birth would bring.28
However, Feasta offers no explanation of why these reasons are
sufﬁciently weighty to overturn children's in-principle entitlements
to emissions rights.
Emissions(rights)/
income/expenditure
E
A H B
Below-allocation individuals Above-allocation individuals
F
Population
C*
I*
M*
G*
P
Q
O
N
Fig. 5. Below-allocation individuals under TEQs and the proportional scenario. Adapted
from Fig. 4 with CD and IJ removed for clarity.
Emissions(rights)/
income/expenditure
E
A H B
Belo-allocation individualsw Above-allocation individuals
K L
F
Population
C*
I*
M*
G*U
T
S
V
R
Fig. 6. Example of a low-income household with above-average energy emissions but
below-average total emissions.
27
The Commons Argument can equally be regarded as an argument for equal emissions
rights (Starkey, 2010).
28
Such income would go little way toward offsetting the substantial cost of raising a
child. In 2009, raising a child to 21 in the UK cost an average of just over £200,000
(Smithers, 2010).
13R. Starkey / Ecological Economics 73 (2012) 7–18
Table 1
Summary of economy-wide schemes.
Name Actor(s)
allocated rights
Allocation
method
Free allocation to adults Rights
auctioned (%)
Actor(s) surrendering rights Emissions covered by surrendered
rights
Allocation of auction revenue
TEQs Adults Free allocation Equal adult1
: ER40/A Adults Energy emissions
Market 60 Hypothecated
Organizations Market Organizations Energy emissions
PCAs Adults Free allocation Hillman1
:
Adults: N[ER42/(A+C)]
Parents:b[ER42/(A+C)] per child
Adults Energy emissions + COGS (public
transport) emissions
Market 58 Not stated
Organizations Market Organizations (other than
public transport)
Energy emissions
Ayres Adults Free allocation
Market
Equal adult: ER100/A Adults Energy emissions No revenue
Organizations Energy emissions
C&D Fuel suppliers Auction 100 Fuel suppliers Total emissions from fuel combustion Trust fund:
Adults+children: AR/(A+C): children's revenue held in trust
Equal Adult:
Adults: AR/A
Parental:
Adults: AR/(A+C)
Parents: AR/(A+C) per child
C&S Adults Free allocation Equal adult: ER100/A
Fuel suppliers Total emissions from fuel combustion No revenue
Abbreviations
ER40 = 40% of emissions rights AR = auction revenue A = number of adults in population C = number of children in population
Notes
1
Based on current UK percentages used (Section 3).
14R.Starkey/EcologicalEconomics73(2012)7–18
6.2. The Equal Energy Argument
Given the limited philosophical support for the Commons Argument,
consider an alternative argument for an equal allocation of
rights or revenue relating to adults' energy emissions, namely the
“equal” form of the following “Energy Argument”.29
1. In a just society, adults would be entitled to an (un)equal quantity
of energy
2. Energy emissions are proportional to energy consumption
∴ 3. In a just society, adults would be entitled to release an (un)equal
quantity of energy emissions
4. In today's less-than-just society, a fair allocation of rights or revenue
relating to individual energy emissions is an allocation to
adults that reﬂects the quantity of energy emissions they would
be entitled to release in a just society
∴ 5. In today's society, adults are entitled to an (un)equal quantity of
rights or revenue relating to their energy emissions (from 3 and 4)
In this Energy Argument and the following discussion, eligible individuals
(Section 1) are, for brevity, referred to as adults. Section 7
discusses why eligible individuals will be largely, but perhaps not exclusively,
adults.
6.2.1. Premise 2
Imagine a nation in which half the population has an entirely renewable
energy supply whilst the energy supplied to the other half
is entirely (derived from) fossil fuel. Here it would seem unfair for a
PCT scheme to allocate rights equally to all adults for, as renewable
energy use produces zero emissions, the ﬁrst half of the population
would not require emissions rights to access energy. Thus, Premise
2 must hold for the “Equal Energy Argument” to be valid. Clearly, it
does not hold in the real world but, even assuming it did, some
would reject the argument as, based on considerations of welfare,
they would reject its ﬁrst premise.
6.2.2. Premise 1
Starkey (2008) discusses ﬁve categories of adults that require additional
energy to achieve a given level of welfare: those who
▪ feel the cold and require additional heating to achieve a given
level of bodily comfort
▪ live alone and use more than half the energy used by couples living
together
▪ live in a cold region of a country and require more energy for
heating
▪ live rurally, have less access to public transport and have to travel
further to live their lives
▪ have children in their household and use more energy than those
who don't
However, whilst these adults require additional energy to achieve
a given level of welfare, theories of justice differ as to whether they
are entitled to the additional energy. For example, Starkey argues
that, whilst libertarians would hold that they are not, egalitarian liberals
would, to varying degrees, hold that they are.30
A useful starting
point in providing a ﬂavor of egalitarian liberal thinking is the distinction
drawn by Dworkin (2000, p. 286) between
a person's personality, understood in a broad sense to include his
character, convictions, preferences, motives, tastes and ambitions,
on the one hand, and his personal resources of health,
strength and talent on the other (emphasis added).
Feeling the cold is an aspect of personal resources, and Starkey argues
that both Dworkin and Cohen (1989) would hold that a person
who feels the cold should be entitled to additional energy. Conversely,
a taste for living rurally is an aspect of personality. With regard to
energy, this is a type of taste Dworkin describes as “expensive” i.e.
one requiring additional resources to achieve a given level of welfare.
And over expensive tastes, Dworkin and Cohen famously differ. Consider
the following example from Cohen (1989, p. 923).
Paul loves photography, whilst Fred loves ﬁshing…Prices are
such the Fred pursues his pastime with ease while Paul cannot
afford to. Paul's life is a lot less pleasant as a result: it might
even be true that it has less meaning than Fred's does. I think
the egalitarian thing to do is to subsidize Paul's photography…Paul
can afford to go ﬁshing as readily as Fred can. Paul's
problem is that he hates ﬁshing and, so I am permissibly assuming,
could not have helped hating it — it does not suit his
natural inclinations. He has a genuinely involuntary expensive
taste and I think a commitment to equality implies that he
should be helped in the way that people like Paul are helped
by subsidized leisure facilities.
Starkey argues that, on this basis, Cohen would support an entitlement
to additional energy to those who live rurally as the result of an
involuntary taste — which, surely, many do. Likewise, he would support
an entitlement to additional energy for those who, on the basis of
involuntary tastes, live in cold regions, live alone or have children.31
However, Dworkin (2004, p. 347) would not, as he holds that
people should bear the consequences of their choices even when
these choices are made out of tastes they have in no way chosen
or cultivated.
But whilst their views differ, Cohen and Dworkin would, based on
considerations of welfare, endorse an “unequal” version of Premise 1.
6.2.3. Premise 4
Starkey (2008) argues that, for egalitarian liberals, considerations
of welfare mean that, in a just society, adults would not only have an
entitlement to unequal quantities of energy and energy emissions
(Premises 1 and 3) but also to unequal quantities other goods and
services and COGS emissions. If, in today's society, a fair allocation
of rights or revenue relating to energy emissions and COGS emis-
sions32
should reﬂect the entitlement in a just society to energy emissions
(Premise 4) and to COGS emissions (call this Premise 4*), then
the fair allocation of total rights or revenue is an unequal one.33
Under “reﬂective” Premises 4+4*, the allocation of rights or revenue
relating to energy and other emissions might look like, respectively
E´F´BA and K´L´BA (Fig. 7). Under this “reﬂective” allocation
and the proportional scenario, below-allocation adults are better off
by E´G*C*+K´M*I*, compared to EG*C*+KM*I* under TEQs–EAR
(Fig. 8). However, if the allocation of rights or revenue was inversely
proportional to income (the “inverse” allocation), they would be better
off still, by E^G*C*+K^M*I* (Fig. 9). With those on low income
better off still, the distribution of wealth in society would, from an
egalitarian liberal perspective, be closer to that which would obtain
in a just society. But does this make the inverse allocation fairer
than the reﬂective allocation? If an allocation is deemed fairer, the
closer it moves distribution of wealth to that which would obtain in
29
Adapted from Starkey (2010).
30
Egalitarian liberalism is discussed here as it is the foremost approach to justice
within the literature.
31
For a discussion of “Kids as expensive tastes”, see Burley (1998, p. 137–141).
32
If the notion of allocating rights or revenue relating to COGS emissions seems peculiar,
note that under, for example, C&D (or C&S), the revenue (or rights) allocated ultimately
represent(s) individuals' energy+COGS+INDIE emissions.
33
It is assumed that the allocation of rights or revenue relating to INDIE emissions is
proportion to that relating to energy emissions.
15R. Starkey / Ecological Economics 73 (2012) 7–18
a just society, then fair allocation becomes simply a roundabout
means of egalitarian liberal wealth redistribution. Starkey suggests
that egalitarian liberals would not regard such redistribution as the
proper aim of rights or revenue allocation but would, instead, regard
a fair allocation as one that reﬂects entitlements to emissions in a fair
society. In this case, a fair egalitarian liberal allocation would be the
reﬂective allocation.34
This discussion around considerations of welfare shows that, from
an egalitarian liberal perspective, fairness demands the allocation to
adults of 100% of rights or revenue (as under TEQ–EAR) rather than
a smaller percentage (as under TEQs). However (in contrast to
TEQs–EAR) fairness demands that this allocation of 100% of rights or
revenue is an unequal one.
6.3. Survey Data on Fairness
Support for an unequal allocation is also found in survey work
conducted on PCT. For example, an online survey of over 1000 members
of the public conducted by the Institute for Public Policy Research
(IPPR) found that 70% (strongly) supported the proposition
that the equal per capita allocation under PCT “would be unfair because
some people need more carbon credits than others” (Bird
and Lockwood, 2009, p. 36). According to Bird and Lockwood (2009,
p. 8), this reﬂects the fact that “most people recognise that people
in different situations have different needs for energy use”.
6.4. Welfare and Trading Schemes
Section 6 concludes by brieﬂy noting how considerations of welfare
can be detected in the thinking of proponents of C&S, PCAs and
TEQs.
6.4.1. C&S
Although proponents of C&S argue for the Equal Adult allocation, at
times they suggest that considerations of welfare make an equal allocation
less than completely fair. However, they argue that any lack of
fairness should be addressed by measures other than amending the
equal allocation. For example, the Cap and Share (2011a) website
notes
Rural populations are more dependent on cars and can say they
are a special case. Various groups can argue for special treatment,
but this is best done by separate, transparent arrangements, keeping
C&S itself simple and easy to understand.
6.4.2. PCAs
Like proponents of C&S, Hillman appears ambivalent about the
basis on which to allocate rights. At times he argues that all have
equal rights to use the atmosphere and states that allocating equal
rights to all is the “most morally defensible option” and “equitable
in theory” (Hillman and Fawcett, 2004, p. 118, 126).35
However,
this does not lead him to the Trust Fund or, indeed, the Equal Adult allocation.
Instead, he proposes that all rights should go to adults and
that all adults should receive an equal initial allocation, but that parents
should receive for each child an additional allocation “somewhat
less than that allocated to an adult” in recognition of the additional
energy used in households with children (Hillman and Fawcett,
2004, p. 153). This Hillman allocation thus differs from the Parental allocation
under C&D (Table 1).
Considerations of welfare appear to lie behind Hillman's allocation
of additional rights to parents and his point that, given their greater
energy use, individuals living alone should, in theory, be entitled to
a greater quantity of emissions rights. However, Hillman rejects
such an allocation in practice on the grounds of keeping the PCA
scheme “as simple…as possible” (Hillman and Fawcett, 2004, p. 127).
6.4.3. TEQs
Fleming (2007, p. 31–32) acknowledges that, from a welfare perspective,
the Equal Adult allocation is not entirely fair but advocates
it because he regards is as being fair enough for practical purposes if
supplemented with an increase in child beneﬁt.
7. Deﬁning Eligible Individuals
Eligible individuals are those entitled to an allocation of rights or
revenue. Whilst the Commons Argument supports an allocation to
Emissions(rights)/
income/expenditure
E
A H B
Below-allocation individuals Above-allocation individuals
K L
F
Population
C*
I*
M*
G*
Fig. 8. Amount by which below-allocation individuals are better off under the “reﬂective”
allocation and the proportional scenario.
34
Starkey (2008) argues that egalitarian liberals would hold that, at a minimum, the
implementation of an emissions reduction instrument should leave no low-income individual
worse off. Thus, if the reﬂective allocation alone would leave some such individuals
worse off, it should be implemented in conjunction with other measures to
avoid this happening. 35
However, Hillman does not state why he thinks all have this equal right.
Emissions(rights)/
income/expenditure
E´
A H B
Below-allocation individuals Above-allocation individuals
K´ L´
F´
Population
C*
I*
M*
G*
Fig. 7. Amount by which below-allocation individuals are better off under TEQs–EAR
and the proportional scenario.
16 R. Starkey / Ecological Economics 73 (2012) 7–18
children, it has little philosophical support. Furthermore, authors
such as Raux (2010) and Wadud (2011) who consider allocating to
children offer no justiﬁcation for doing so. But, conversely, proponents
of C&D, TEQs and PCAs offer no justiﬁcation for allocating
only to adults. Whilst Feasta's argument for allocating emissions
rights only to adults is that doing so avoids administrative difﬁculties,
removes opportunities for fraud and discourages people from having
children simply to gain revenue (Section 6.1.1), a different argument
is made here. It has been argued (Section 6.2.3) that fairness demands
that 100% of rights or revenue – that is, rights or revenue relating to
emissions from individuals' consumption of fuel, electricity, other
goods and services - are allocated to individuals. And as, roughly
speaking, it is adult individuals who purchase these goods and services,
it is they, so the argument goes, who should be allocated rights
or revenue.
However, to specify eligible individuals more precisely, consider
the UK where individuals legally become adults at 18. Nevertheless,
at 16, children can legally marry, live independently of their parents,
work full-time, enter into contracts to purchase gas and electricity,
drive a moped and buy motor fuel. And at 17, children can legally
drive a car. Furthermore, children have limited rights to work prior
to the age of 16 and so can earn money and purchase a wide range
of other goods and services.
Allocating 100% of rights or revenue only to adults would therefore
disadvantage (1) those 16 and 17 year-old children who purchase
residential energy and/or motor fuel and/or other goods and
services and (2) those under-16 who purchase other goods and
services. However, given that all energy and almost all other goods
and services are purchased by persons of 16 and over, it seems
reasonable, for practical purposes, to conﬁne eligibility to this
group. But allocating rights or revenue to all 16 and 17 year-olds
would provide a windfall for the large number who live with their
parents and neither purchase residential energy nor motor fuel.
Thus, an alternative would be to allocate rights or revenue only to
those 16 and 17 year-olds who met certain criteria such as living
independently. However, this would increase administrative costs.
Another factor relevant to eligibility is the type of right an individual
has to be in a country. Clearly, UK citizens resident in the UK and individuals
who have indeﬁnite leave to remain should be eligible for rights or
revenue whilst individuals visiting the UK on a six-month visa should
not. However, a decision would need to be taken on the eligibility of individuals
who fall between these extremes, for example the spouse of a
British citizen who has entered the UK on a two-year probationary visa.
A further factor is whether an individual's eligibility is absolute. For example,
it might be argued that if an individual becomes a long-term resident
in an institution (for example a care home or prison), then rights and revenue
should no longer go to that individual but to the institution in which
they reside.
8. Conclusion
This paper argues that a fair approach to the allocation is one that allocates
100% of rights or revenue and shows that an allocation of around
40% under TEQs and PCAs may, in fact, leave those on low income worse
off than prior to their implementation. Under a 100% allocation, arguments
have been presented as to why a fair allocation is not an equal
per capita allocation. And ﬁnally, whatever a fair or equitable allocation
might be, it has been noted that the four trading schemes and a carbon
tax are all equally capable of delivering it. However, as this paper (and
Part 2) also note, this is a fact not fully appreciated by some proponents
of (and researchers into) the various schemes. But given this fact, equity
cannot be a suitable criterion for “picking a winner” from amongst the
schemes and so it is necessary to see if they can be differentiated in
terms of their efﬁciency and/or effectiveness. This is the subject of
Part 2.
Acknowledgements
Stephen Elderkin assisted greatly in clarifying the issues discussed
in Section 5.1. Dan Calverley provided helpful comments on an earlier
draft of the paper. The comments of three anonymous referees have
signiﬁcantly improved the quality of the paper.
I was ﬁrst introduced to TEQs by its originator, David Fleming
(1940-2010) and I am very grateful to David for generously giving
over a considerable amount of his time to discussing TEQs with me.
Although our views did not always coincide, I beneﬁtted greatly
from our discussions, and his inﬂuence on my thinking has been
considerable.
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