Are Personal Carbon Allowances the Missing Policy for Addressing Climate Change?

Zurich, Switzerland. Photo by Pascal Meier via Unsplash.

In recent decades, addressing climate change has gained increased attention as climate disasters have become more widespread.

However, the international community is not currently on a sufficiently ambitious carbon emissions reduction trajectory to avoid non-catastrophic global warming. As illustrated in Figure 1, there is a large gap between global emissions with current national policies and the emissions level needed to achieve the target 1.5⁰ temperature rise relative to pre-industrial levels.

Figure 1: Global Greenhouse Gas Emissions Under Alternative Scenarios

Source: Climate Action Tracker. Note: Emissions data include carbon dioxide and other greenhouse gases converted to carbon equivalents.

Given this, are there any innovative policy instruments that could be utilized to quicken the curbing of emissions?

A personal carbon allowance (PCA) is one such possibility with the potential to mitigate emissions and address climate change.

What are Personal Carbon Allowances (PCAs)?

A PCA issues all adults with an equal carbon allowance that reduces over time in line with national targets and international commitments. The allowances might initially only apply to domestic gas, electricity and personal travel, but over time a PCA scheme could potentially be expanded to cover most goods and services that have a significant carbon footprint. PCAs possess a level of flexibility that is not present in a simple rationing system, namely that additional carbon allowances can be purchased from those who are willing to part with excess credits. Tracking carbon allowances as well as trading them could be done relatively easily via a smartphone or similar device.

Substantial proposals for PCAs have already been made in a number of countries, though they vary in their details as well as in name. PCAs have been referred to as electronic tradable energy quotas (TEQs) in the United Kingdom (UK), cap and share certificates in Ireland, household carbon trading in California, centrally managed tradable transport carbon permits in France and European Union (EU) emissions trading for households and transport embedded within a larger EU emission trading scheme. Various voluntary schemes and small-scale schemes for PCAs have also been proposed.

How effective are PCAs in curbing emissions?

Like a carbon tax, PCAs put a price on carbon. However, PCAs are more equitable than carbon taxes in that everyone gets the same initial allocation–something that is conspicuously absent in most markets. By contrast, with a carbon tax, a wealthy person may be able to maintain profligate levels of carbon heavy consumption, whereas a poor person may struggle to cope with increased taxes on their consumption.

PCAs are also likely to have non-economic advantages. With a limit on carbon allowances, people must think carefully about their consumption choices. As a consequence, PCAs have good prospects to raise the level of cognitive awareness of carbon emissions, change prevailing social norms around emissions and help educate societies on pro-environmental choices and behavior.

Additionally, PCAs offer a way out of the classic collective action problem, wherein people may be demotivated to act against climate change if they are surrounded by others who are not making a similar or greater effort to address the problem. Because PCAs issue an equal carbon allowance to all citizens, individuals cannot free ride on the efforts of others. Preventing free riding is a central requirement to sustain any cooperative endeavor and climate change is no exception.

What issues need to be managed?

A country where PCAs have been seriously considered is in the UK. However, a 2008 report produced by the UK government concluded that PCAs were an idea ‘ahead of their time’ as low social acceptability, technological barriers and high implementation costs made moving to PCAs premature.

However, a lot has changed in 15 years. There is much greater awareness of the critical need to address climate change. There have also been considerable improvements in technology, such as automated decision making, and increased use of smartphones. A large proportion of goods and services are now paid for via electronic means, which also facilitates the implementation of PCAs. Furthermore, the COVID-19 pandemic demonstrated that the vast majority of individuals are entirely capable of acting for the common good when the stakes require it, notwithstanding some differences across cultures.

While there is reason to see PCAs as both a viable and desirable policy instrument, some countries may not have the administrative capability to implement PCAs, at least not in their most ambitious form. PCAs are probably then something that Global North countries will need to take the lead on. It is important to note that PCAs also need to be designed to fit local contexts. Specific attention will need to be given to societal groups that have special needs or face particular disadvantages. Privacy issues would also require careful consideration and safeguards.

How to move PCAs forward?

The next steps are for researchers, governments and NGOs to run more small-scale trials to inform large scale policy design and to better demonstrate proof of concept. There is also scope for large scale voluntary trials. For example, a government could invite citizens to participate in a voluntary scheme, whereby they are issued non-binding carbon allowances and are then periodically informed how they are tracking against that allowance. Participants could receive some monetary payment if they stayed under their allowance but would not be penalized if they went over—this would be a key incentive to encourage large-scale participation. These sorts of ‘dry runs’ are low stakes experiments that would not cause disruption if all did not quite run to plan. As such, they would allow the pieces of a large scale PCA to be put in place and honed. They would also provide reassurances that PCAs are not a risky leap into the unknown, but something for which the groundwork has already been laid.

PCAs need to be understood as an important ingredient in a larger policy mix, rather than as a single policy panacea. After all, most of the progress made in addressing the climate challenge over the last 30 years has come from various state interventions including, energy efficiency standards, pollution regulations, renewable energy mandates, conservation orders, product bans, green taxes, emissions trading schemes and research and development subsidies. Indeed, PCAs are an important example of such far-reaching interventions, but cannot alone solve the climate crisis.

Getting beyond the degrowth versus green growth debate

There has been a long-running and highly divisive debate between those advocating for a reduction in economic growth as being necessary for reducing emissions (degrowth) and those that argue that both economic growth and environmental sustainability (including emissions cuts) must be achieved together (green growth). Unpacking this complicated debate is beyond the scope of this blog, but it should be noted that PCAs could bring this debate to some sort of conclusion given that:

Both sides agree that emissions must be rapidly reduced.
Intelligently designed and implemented PCAs would guarantee emissions reductions.
PCAs would clearly determine who has the correct understanding of the relationship between economic growth and the required cuts in emissions.

It may become apparent that the relationship between economic growth and emissions reductions (and other environmental variables) is more complicated, unstable and contingent than most degrowth or green growth advocates currently recognize. Rather than any fixed relationship, much may depend on the technological, social and environmental facts on the ground in particular places and times, as well as the overall policy matrix. In any event, any degrowth or green growth proponent who is truly confident in their position should welcome PCAs as a test-case for their position.

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PCAs would appear fair, efficient and reasonably practical and thus a competitive option for countries that are genuinely serious about reducing emissions. Presumably, such countries could then form climate clubs to prevent or limit other countries free-riding on their efforts, as preventing free riding at the global level is just as important as preventing it at the individual level. While PCAs have remained marginal in policy discussions so far, it might be time to rethink the prospects and possibilities of using PCAs as an innovative solution to reduce emissions.