Could Cap and Share solve the oil-price crisis?

A week or so back, when I interviewed George Soros for The Sunday Times, he suggested that the global economy requires systemic changes.

In addition to calling for a new currency for international trade, to avoid the structural problems associated with reliance on the dollar, he said that tackling climate change requires some form of Cap and Trade.

In essence, this idea involves capping the emissions and then trading the permits issued under the cap. The emissions tonnage would be reduced each year by tightening the cap, thus reducing the number of permits. The result is lower emissions and steadily rising costs, not just of energy but all products which use energy - ie, basically everything.

The key question is: who gets the permits before they are traded? Under the emissions trading system operated by the EU, only businesses are awarded permits. They get them free of cost under National Allocation Plans, although a very small proportion are auctioned by governments and there are plans to increase the proportion from 2013 onwards. But there is another way.

Just after talking to Soros, I was contacted by the brilliantly creative people at the Foundation for the Economics of Sustainability, who wanted to send me their own ideas, in a new paper on what they call Cap and Share. Additionally, they sent a highly positive independent assessment of their report by the Oxford-based AEA Technology PLC, undertaken on behalf of the Irish governmemnt's sustainable development council, Comhar.

Cap and Share works by distributing the permits to individuals - after all, an unpolluted atmosphere is a common resource belonging to everybody. (So are fossil fuels, some might argue.) Thus, money raised through the sale of the permits would be be distributed to us all - and since most people use less than the average amount of energy, most people would be financially compensated for the higher prices.

This contrasts handsomely with previous efforts to reduce emissions, for instance by raising taxes on fuel - which have penalised the people least able to pay. Better still, the greater the cut in emissions, under Cap and Share, the more financial compensation will be paid to most people.

The AEA report indicated that Cap and Share is "not inherently inequitable" - a horribly dry commendation but one that should bring joy to us all at a time when high oil prices are making basic goods including food unaffordable, and the UN is warning of mass starvation.

"Drastic cuts in the world's greenhouse gas emissions are required to avoid a climate catastrophe," Feasta writes. "A worldwide agreement to secure such cuts will be impossible to negotiate unless both the pain and the benefits are shared equitably around the world. Moreover, the sharing system must be robust enough to ensure that the cuts agreed actually happen. Cap & Share is both robust and equitable. It has the additional advantage that, until it is adopted globally, it can be used by individual countries to make sure their emissions take a downward path."

I really like this idea. If you want to find out more, and download the reports, see the Feasta website. But don't forget to spread the word - because this won't happen, not even with Soros's billions behind it, unless there's widespread popular support.

For similar, but slightly different takes on the same basic concept, see Oliver Tickell's Kyoto2, and from the US, Cap and Dividend.

Comments

[Brian Davey]

If one accepts the idea of oil and gas peak, it seems that over the next decades oil, gas and then coal will be getting more expensive all the time. Since one must also use a large portion of the ever scarcer fossil energy to create a renewable energy infrastructure - and to resource the restructuring of the economy around energy efficiency and more localised economic arrangements - incentives like Cap and Share need to drive this transformation asap. If it is left too late there will be too little energy left and the economy will be caught in a permanent "low energy availability trap". The fact that Cap and Share also directs the scarcity rent for using the earth's atmosphere to the base of the economy, to ordinary people, is vital - ordinary people will need these resources to change their homes and communities - perhaps supported through movements like Transition Initiatives. If the scarcity rent for using using the eath's atmosphere goes to the big companies or governments it is entirely predictable that, if they do spend it on climate initiatives at all, they will spend the money on mega initiatives like carbon carpture and storage for new coal power stations - which will arrive on stream far too late to avert the climate catastrophe. Better to make sure that a per capita allocation goes to ordinary people who are encouraged to invest it in energy and carbon saving around house, home and community.