Tradable Energy Quotas
Mount Pleasant Farmers' Market

This section of the website is designed to help people explore their questions, clear up some common misconceptions about TEQs, and bring readers up-to-date with the latest thinking and research on TEQs since the publication of the third edition of Energy and the Common Purpose.

Many of the answers here build on that text (freely downloadable here), and it is strongly recommended that you read either that or the first few chapters of the All Party Parliamentary Group report into TEQs first to gain an understanding of the TEQs model.

If there are further questions or topics you would like to see addressed here, please raise them in the TEQs Forum (hosted by PowerSwitch).


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What is the progress towards seeing TEQs implemented in the UK?

Although Dr. David Fleming first proposed the scheme in 1996, it has developed an increasingly high political profile over recent years, with expressions of interest from successive Labour Secretaries of State for the Environment, as well as from senior Conservative politicians. The Climate Change Act, which became law in November 2008, does grant powers allowing the Government to introduce TEQs at a later date without further primary legislation, but in practice further legislation would almost certainly be used due to the wide-ranging significance of the scheme for the national economy. Clearly public opinion and many political factors will influence the decision on such a move, which is why The Lean Economy Connection is working to spread understanding of the scheme as widely as possible. The Climate Change Act mandates 80% emissions cuts by 2050, but we see no way that those targets can actually be achieved without a framework like TEQs.

Responsibility for investigating TEQs has now passed from the UK Government’s Department for Environment, Food and Rural Affairs (DEFRA) to the Department for Energy and Climate Change (DECC), but DEFRA’s initial scoping study (published November 2006, and available from our TEQs links page), concluded that a personal carbon allowance and trading system has the potential to achieve emissions savings in a fairer way than carbon taxes, and would reward people for leading low-carbon lifestyles.

Accordingly, DEFRA went on to fund a number of research projects as part of a pre-feasibility study into the implementation of TEQs. This concluded in May 2008 and full details of their findings can be found on our TEQs links page. While we welcomed this additional research in the field, we believe that a number of important misunderstandings are contained in the study, and that DEFRA’s consequent decision to delay a full feasibility study into the TEQs scheme is ill-advised in the absence of other realistic and effective means for addressing climate change and fuel depletion. Our detailed critique can be viewed here (PDF format), and also sits alongside other critical responses from the UK Parliament’s Environmental Audit Committee, the Institute for Public Policy Research and the Centre for Sustainable Energy on our TEQs links page. An update on this can be found in Chapter Six of 2011's All Party Parliamentary Group on Peak Oil report into TEQs. A brief summary of the flaws in the pre-feasibility study can also be seen in the next answer below.

Meanwhile, influential supporters continue to get behind TEQs, with the Chairman of the Environment Agency, Lord Smith of Finsbury, stating in November 2009 that “rationing is the fairest and most effective way of meeting Britain’s legally binding targets for cutting greenhouse gas emissions”, and John Hemming MP stating in 2011 that “I believe TEQs provide the fairest and most productive way to deal with the oil crisis and to simultaneously guarantee reductions in fossil fuel use to meet climate change targets”.

A more detailed breakdown of developments regarding TEQs over the past few years, with links to additional information, can also be found on the website of our TEQs Development Director here.

We continue to participate in the ongoing academic and political discussions required to bring TEQs to fruition.

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Hasn't the Government already evaluated TEQs as part of its pre-feasibility study on Personal Carbon Trading?

The Government’s pre-feasibility study concluded in May 2008 and represented a useful addition to the body of research in the field, with positive findings on technical feasibility, public acceptability and distributional impacts. However, the Government decided not to continue its research programme at that time on the basis of the study’s unfavourable cost-benefit analysis. In personal communication we have been told that DEFRA (or now DECC, which has taken on the climate change brief) feels it has “thrown down the gauntlet” to the research community to show that costs would be lower, or benefits higher, than found in the pre-feasibility study. Both of these have now been amply demonstrated, and this evidence is laid out in our detailed critique of the study, and updated in Chapter Six of the All Party Parliamentary Group (APPGOPO) report into TEQs.

In short, while the brief for the pre-feasibility study was to examine TEQs, the cost-benefit analysis in question failed to do that, examining instead a scheme covering only the emissions of individuals, and which would not provide guaranteed entitlements to energy. It also put an unrealistically low value on emissions reductions, as well as explicitly ignoring TEQs’ benefits in terms of shifting perceived norms in acceptable behaviour, creating a sense of common purpose and spurring innovation through creating a predictable demand for low-carbon solutions.

As this one-page extract from the APPGOPO report clearly shows, taking even a few of these factors into account in the calculation produces a favourable verdict on TEQs. It should also be noted that while the cost-benefit analysis in question assumed the benefits of a scheme covering only individuals, it used the (already inflated) cost estimates given in Accenture’s analysis of a full TEQs scheme designed to cover the whole economy.

As the House of Commons Environmental Audit Committee concluded in their response to the pre-feasibility study:

“Personal carbon trading could be essential in helping to reduce our national carbon footprint. Further work is needed before personal carbon trading can be a viable policy option and this must be started urgently, and in earnest. In the meantime there is no barrier to the Government developing and deploying the policies that will not only prepare the ground for personal carbon trading, but which will ensure its effectiveness and acceptance once implemented.

…Although we commend the Government for its intention to maintain engagement in academic work on the topic, we urge it to undertake a stronger role, leading and shaping debate and coordinating research. We acknowledge the many difficulties that will have to be overcome in the development and implementation of a personal carbon trading scheme, not least work to bring about acceptance of such a concept and considerable further research on many aspects of personal carbon trading. However, we believe that, through designing and implementing a sensitive and moderate scheme, these obstacles could be overcome.”

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What's the difference between TEQs and PCAs (Personal Carbon Allowances)?

The most significant difference is that PCAs (described in Mayer Hillman’s 2004 book, How We Can Save the Planet) would only apply to individuals, while TEQs are designed to include all energy users within the economy, including individuals as well as all organisations from small businesses to the Government. Somewhat confusingly, the term “Personal Carbon Trading” (PCT) is widely used as a catch-all to refer to both schemes.

There are several problems with a design that applies only to individuals. Firstly, it would undermine the sense that as a society “we’re all in it together” and that everyone is pulling their weight – the energy descent requires cooperation between businesses, households, local government etc, and this will only be achieved if there is a sense of common purpose.

Also, if only some of the participants in the economy were required to surrender PCAs when they purchase fuel and energy, fuel would effectively carry two different prices, depending on who the buyer was. If you were to turn up at a garage in your car to buy petrol, you would be paying a different price for it than someone who showed up in a commercial vehicle, and whose energy- consumption was not covered (or was covered by another scheme). Different prices for the same fuel would immediately lead to black market brokerage, and the scheme would either break down or require very expensive enforcement and anti-fraud measures.

Finally, a PCAs scheme would also necessarily lack the self-monitoring elegance of TEQs. This characteristic is a product of the fact that the TEQs units surrendered by individuals at, say, a petrol station are then surrendered to the fuel supplier when the petrol station buys its fuel, and then surrendered on back to the agency that the TEQs units originated from when the fuel supplier applies to produce or import fuel. This cycle means that individual transactions can go on in a beaucracy-free, surveillance-free fashion, just as individual cash transactions are able to. It is in no-one’s interest to ‘let someone off’ surrendering their units, just as it is in no-one’s interest to ‘let someone off’ paying them for goods or services.

Shaun Chamberlin, our TEQs Development Director, has written a piece on his own website exploring the true significance of the distinction between TEQs and the generic term ‘Personal Carbon Trading’.

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Isn't TEQs just rationing by another name?

Yes and no. The word rationing contains two intertwined meanings. The first is guaranteed minimum shares for all, the second is limits to what people are allowed to consume. Many of us resent the second, but in times of shortage we cry out for the first.

TEQs are rationing in the first sense as they guarantee minimum shares for all, but they are not rationing in the second sense as they allow individuals to exceed their basic Entitlement (if they are willing to pay those who do not for the privilege).

And of course, rationing is in any case a response to shortage, not the cause of it. It may not deserve its bad name. The purpose of TEQs is not to limit the consumption of individuals per se, but rather to share out fairly the shrinking energy consumption required by our national carbon budget, and to allow maximum freedom of choice within that.

Without a TEQs system these resources would simply go to the richest (“rationing by price”), leaving less well-off individuals and groups without any ability to secure the energy needed for life. With TEQs everyone is guaranteed a basic Entitlement, and those who use a below-average amount of energy could also gain an income by selling unneeded TEQs units to higher consumers.

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I see the need for something like energy/carbon rationing, but why make it tradable?

The reasons for making TEQs units tradable are twofold.

Firstly, prohibiting the exchange of rations in the past has always led to substantial black market activity, unnecessarily criminalising otherwise law-abiding individuals.

Secondly, energy demand differs from food demand; while we all require comparable amounts of food, certain vocations intrinsically require more energy. For this reason a non-tradable equal entitlement to energy would simply destroy many professions.

With tradable rations those who live within their TEQs entitlement can sell their surplus onto the market, rewarding their energy-thrift and increasing the supply for those who need to purchase additional units. Since the poor use less energy than the rich, the scheme would also be redistributive.

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The rich would be able to buy more TEQs units than the poor

This is true. The essence of being rich is that you can afford to buy more than the poor. And at present the rich can buy all of a scarce resource, leaving none for anyone else. Under TEQs, however, we would all be guaranteed an entitlement.

If we chose to sell this entitlement, then we would be paid directly by the person who used more than their share. This is clearly fairer than the current setup. It also means that the scheme would be redistributive - the poor use less energy/carbon on average than the rich, so they would benefit financially from the scheme.

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What would happen to someone who ran out of TEQs units before the end of the year?

The scheme is designed to ensure that this could never happen. On day one of the scheme a year’s supply of TEQs units is issued. From then on, units are issued into the economy week by week, ensuring that the initial year’s supply always remains in the system, acting as a ‘float’. For more detail, see pp.20-21 of Energy and the Common Purpose or Chapter One of the All Party Parliamentary Group on Peak Oil’s report into TEQs (both available as free downloads).

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Wouldn't TEQs require that everyone becomes a proficient trader in TEQs units - and isn't that unrealistic?

That might well be unrealistic, but the TEQs scheme requires nothing of the sort.

TEQs is designed as a 'hands free' scheme, with the majority of transactions automated and requiring no extra time and effort at all. Since TEQs units are only required for direct purchases of energy, utility bills and fuel purchases are likely to be most people's main direct engagement with the scheme. Utility bills are already easily paid by direct debit, and the TEQs cost of fuel purchases could either be paid together with the cash cost via a credit card linked to an individual's TEQs account, or a separate TEQs card could be carried and swiped alongside the money transaction. If an individual needed to buy additional TEQs units the cost of these would simply be added to their bill at the point of energy purchase.

So while people would be aware of the limits set on the national economy and the need for energy thrift, the practicalities of the TEQs scheme itself would not trouble them at all.

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Would TEQs mean that the Government would know about everything we buy?

No. You would only need to surrender TEQs units when buying fuel and electricity (and this is often done by direct debit anyway). There are far greater privacy issues around the use of credit/debit cards than there are around TEQs.

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Isn't it simpler to limit carbon emissions 'upstream' (via the energy suppliers) rather than 'downstream' (via the energy consumers)? That way you would only have to regulate and involve a relatively small number of companies, rather than every individual in the country. You also wouldn't have to calculate embodied emissions for every product.

At first sight this seems a convincing argument. However, ‘upstream’ regulation fails in one important regard – it does not engage the general populace in the changes required. While this might seem a benefit in terms of simplicity it means that the fundamental changes required in society are not going to happen. Energy suppliers alone are not going to be able to implement the Lean Energy transformation needed (see pp. 23-24 of Energy and the Common Purpose), we need every citizen to see the need to change the way we live, work and play.

Shaun Chamberlin, our TEQs Development Director, has written a detailed piece on this on his own website here, including discussion of the Cap and Dividend scheme that is the most widely-discussed potential form of upstream regulation.

TEQs actually provide the best of both worlds – they do encourage the entire population to ‘own’ the problem and respond to it accordingly, but without creating a complicated system for those individuals to grapple with. The carbon-ratings applied to fuel and energy sources are indeed calculated upstream, as is only sensible, making all the endless complexities of ‘carbon labelling’ products and calculating ‘embodied energy’ unnecessary (for more detail on this see pp. 21-24 of Energy and the Common Purpose or Chapter One of the All Party Parliamentary Group on Peak Oil’s report into TEQs).

And since the companies that produce consumer goods have to buy TEQs units to cover the (carbon-rated) energy they use in producing them, the costs for more energy/carbon intensive products will be higher. Individuals and companies are then faced only with simply-priced choices for their everyday purchases, which happen to be more expensive the more carbon-intensive they are.

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If TEQs were implemented in one country, wouldn't there be a problem with the embedded energy/emissions in goods imported to that country? If these aren't accounted for wouldn't this give an advantage to unregulated foreign producers?

Ideally there would be a TEQs scheme in each nation, which would mean that embodied emissions would always be accounted for within a robust national budget. However, given that TEQs will almost certainly be implemented by some nations before others, import tariffs will be necessary to ensure that domestic producers are not disadvantaged. This was once regarded as politically unthinkable, but as the President of the European Commission shows in this article, that is no longer the case.

He argues that there are only two alternatives to simply ignoring the problem of climate change:

i) global agreement

or

ii) tariffs on those who do not do their part

There is of course a third option – allowing domestic industries to suffer in those countries that act responsibly, but that is even more unthinkable than tariffs.

Some have argued that the World Trade Organisation (WTO) would never allow such tariffs, but interestingly the New Economics Foundation extracted an admission from Pascal Lamy (then at the European Commission, now Director-General of the WTO) that the EU would be within its rights to pursue that course of action. This was as part of the work producing their report Free Riding on the Climate: The possibility of legal, economic and trade restrictive measures to tackle inaction on global warming.

Also, as this article highlights, the central piece of global warming legislation considered by the US Congress would “levy punitive tariffs on greenhouse-gas-intensive products imported from countries that lack ‘comparable action’ to that of the US, starting in 2020″. Industrial lobbies and labor unions are pushing hard for these sanctions to take effect more quickly.

With the President of the European Commission, the French President and industrial chambers of commerce all strongly advocating a similar tariff system, many analysts predict that the EU will adopt some form of green tariff system in the coming years.

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I am a firm believer in technology, and the exciting improvements in efficiency/solar/wind/nuclear fusion/tidal/biomass etc will overcome both climate change and energy resource depletion anyway, so TEQs solves a non-existent problem!

If so then no-one would be more delighted than us. But there is no contradiction here - if there are energy sources or improvements in efficiency so potent that they will solve all our problems then the social framework and incentive structure provided by TEQs will help push the development and implementation of such ingenious solutions to happen even more quickly.

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Isn't this just another way for the Government to interfere with our personal choices and personal lives? After taxes on air flights and rubbish bins that watch what I put in them this really is the last straw.

Quite the opposite. TEQs allows individuals and organisations to make their own choices about what is important to them. You can still choose to be profligate in your energy use, but you will have to pay those who do not for the privilege. On the other hand, if you reduce (or have already reduced) your energy usage, you will be rewarded in line with the wider benefits your actions bring. The TEQs scheme also ensures that as a nation we are dealing with the greater issues of climate change and resource depletion, and so ensures that more draconian measures - which could well severely constrain personal freedoms - are not required.

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Why is TEQs an improvement over the straightforward carbon tax?

Pages 17 & 18 of the All Party Parliamentary Group report on TEQs outline the significant benefits of TEQs over taxation.

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Why do you believe that TEQs would motivate and empower communities in an energy transition better than alternative approaches?

Behavioural studies have consistently shown that intrinsic motivation (that is, desiring the actual consequences of undertaking a task) drives us more effectively than extrinsic motivation (being rewarded for doing something, or penalised for not doing it). For Daniel Pink's entertaining presentations on this research see his TED talk or RSA animation. The important Common Cause report (Sept 2010) considered motivation with regard to environmental issues in particular, and reinforced this conclusion. But this understanding has largely failed to penetrate climate policy, which is generally based on classic 'carrot and stick' ideas about motivation.

TEQs are designed to harness our developing understanding of human drives and passions, and are built around the principle of common purpose - aligning individual and collective aims, so that the actions which benefit the individual are also of benefit to the wider community, and vice versa.

There is already an intrinsic motivation in reducing energy demand once the reality of our energy/climate challenge is understood - TEQs would bring that reality home to people in a clear and unambiguous way, encouraging them to plan ahead, to cooperate with others and to take the risk on inventive solutions.

Importantly, the national TEQs Budget is set in terms of the scarce goods themselves - carbon, energy, and specific named fuels. These assets have money values, of course - all assets do - but TEQs units are not defined in terms of money: they are energy units. The Budget clarifies the existing necessity for all energy-users, collectively and individually, to get by on a diminishing supply of high-carbon energy.

And, day-to-day, the national price of TEQs units will provide a readily understood and widely publicised measure of how well the nation is progressing towards a low-carbon energy future - the lower the price, the better. If the price of TEQs units starts rising, this will provide a clear signal that we collectively need to do more to achieve our aims. It also makes it transparently in people's interests not just to find ways to reduce their own energy use, but also to pressure and assist the local Council, supermarket etc to reduce theirs. Motivations are aligned and it is clear that we are all in this together.

This topic is examined in more depth in Chapter Three of the All Party Parliamentary Group on Peak Oil's report into TEQs, released January 18th 2011.

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Why do I sometimes see TEQs referred to as DTQs (Domestic Tradable Quotas)?

When David Fleming first published an outline of the scheme in 1996 he used the name DTQs (Domestic Tradable Quotas). This was later changed to TEQs (Tradable Energy Quotas) due to confusion caused by the word "domestic" in the original title. While intended to distinguish the scheme from international trading schemes, it was often misinterpreted to imply that the scheme covered only household emissions, rather than the entire national economy.

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If there are further questions or topics you would like to see addressed in this section, please raise them in the TEQs Forum (hosted by PowerSwitch).