Author: Susana Martín Belmonte – Economist – REVO Sustainable Prosperity
It is becoming increasingly clear that we cannot continue to dump CO2 and greenhouse gases into the atmosphere at the current rate, given we’re already at risk of a temperature increase of more than 1.5°C above the pre-industrial era, possibly leading to our own extinction. Clearly, we need to change the way we do things but, where do we start? Our proposal: a Citizen-led Carbon Budget Management would achieve this goal and it can do it using several models that are already defined, that we have carefully analysed at our organisation REVO Prosperidad Sostenible and we’ve summarised them below. Considering the 5 principles of the Wellbeing Economy, this change would represent an important step forward in four of these principles: Dignity and Fairness: a citizen-led management of the carbon budget would allow everyone to have the same right of access to the carbon emissions needed in our daily lives in order to make a gradual and orderly transition. Nature: it would also allow CO2 emissions to be limited on time to keep the temperature rise below 1.5°C, which would greatly increase our chances of keeping planet earth habitable for humans. Finally, Participation: this proposal would put in the hands of the citizens the capacity to decide the decarbonization roadmap: how to allocate the emissions required to sort out their present and future needs.
In this article, we explore the possibility of addressing the carbon budget with a budgetary approach, much as we would treat an economic budget.
Experts agree that the maximum amount of CO2 that humanity can dump into the atmosphere without exceeding the temperature limit mentioned above is 400 Gt (giga-tonnes) of CO2 and greenhouse gases. However, we dump 36 Gt of CO2 per year. According to the math, in 10 years, we will have finished the total carbon budget.
To manage the maximum CO2 emissions as a carbon budget, a first step would be to divide the emissions into quotas or permits that give the right to emit CO2; one permit unit could be required for 1 kg of CO2 emissions. The next step is to decide how we are going to distribute the total budget over time. It seems reasonable to start the first year at the current level of emissions and decrease year by year, so that we all have the opportunity to adapt gradually.
So far we have identified the common elements of the carbon budget management proposals listed below. All of them are characterised by setting a quantitative limit on carbon emissions and allocating the right to emit CO2 in the form of permits, but each of these proposals has a different way of allocating and managing these permits. Let’s take a look at the most prominent ones:
Cap & Dividend: require energy suppliers to buy emission quotas or permits (at auction), based on the emissions corresponding to the energy they sell and within the current year’s cap. At the same time, the revenues from the auctioning of quotas would be shared equally among the population (dividend). The energy suppliers pass on the cost increase to their prices. There would be a cash price incentive to move away from fossil fuels, because of the price increase of high-carbon products. At the same time, the dividend would at least partially offset the price increase.
TEQs (Tradable Energy Quotas): This consists of distributing part of the quotas free of charge and equally among all citizens. Citizens would need to surrender these permits to pay for their energy bills: gas, petrol or electricity. Energy retailers would collect these permits in addition to the price of energy from their customers (individuals and businesses) and in turn surrender them to their suppliers when purchasing their own energy. These permits would thus eventually end up with the primary energy suppliers/importers, who hand them over to the government in exchange for their licence to operate, thus ensuring that the carbon budget is respected. These permits are tradable because citizens can sell any surplus, which can be bought by other energy users. Another quota of permits would be sold to companies and the state, so that the consumption of high-energy goods and services would be disincentivised via price increases, as in the previous proposal.
EcoCore: is another system based in Energy quotas represented by tokens, in which not only the permits needed for energy bills are given for free to citizens, but all remaining permits as well, so citizens need to surrender permits to buy all goods and services, instead of assuming price increases in those goods and services in order to pay for the permits required by companies to buy to pay for their own energy.
- These systems are viable and probably the only way in which we can really curve consumption of fossil fuels across all sectors on time to avoid a mass extinction due to climate change. Other systems such as the EU’s Cap & Trade leave a significant part of emissions unchecked and carbon taxes are not even a direct quantitative limit on emissions.
- The systems introduce the egalitarian factor by distributing equally a monetary dividend, or emission permits, for a transition with no one left behind. Carbon taxes, instead, reduce people’s economic capacity to deal with the investments needed to carry out the transition, hence their unpopularity.
- Most importantly, all three systems give a clear roadmap to citizens and companies alike. Governments are not wired to think long term, but people and most companies are. Having a clear information of the real availability of fossil fuels to burn in the next 20 years per person, will translate into immediate decisions regarding what to buy, where to live, how to enjoy the free time and also help shape demands to be made to governments in order to make life better within these constraints.
- Furthermore, public demand for more efficient and inexpensive technology is likely to result in a more agile and effective regulatory control of energy consumption limitations on goods such as cars, boilers, etc. For the same reason, planned obsolescence will be likely to be phased out, pursuing a lower consumption of fossil fuels.
What will happen to the financial system in the likely case that economic growth fails? Although hard to predict, applying one of the above schemes would give us the perfect set of circumstances to finally transition to a more sustainable monetary system and a Wellbeing Economy. For many, the economic question is how we deal with the scarcity of resources; however, it’s time to stop treating money as if it were a scarce resource, since banks create it out of thin air through lending. The economy needs to deal with the actual scarcity of resources that really affect us, and right now it is in the amount of fossil fuels that we can burn. A Citizen-led Carbon Budget Management system would allow us to stay within the earth’s carrying capacity and ensure a sustainable future for all.
Join us for an introductory presentation of this concept on the 18th of April 2023 at 3pm UTC. Register here.
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