Reconciling climate policy and justice through domestic tradable carbon quotas

By Antoine Richet

This essay is one of the winners of the Fall 2021 Chair’s Essay Competition on the topic of: “What cause do you think Europe should mobilize around next?”

Introduction: 

The 21^st century opened an era of unprecedented risk due to climate change and biodiversity loss. To address these two issues, we need both scientific public policies and economic insight. The latest IPCC report is definite, climate change is due to anthropogenic emissions and it goes faster than the model predictions. 4 of the 9 planetary boundaries have been crossed, which means that the society has nearly reached half of the threshold after which human society is put at risk¹. To address these issues, Europe wants to be the first climate neutral continent as per the European Green Deal (EGD).  On the 11^th of December 2019, launching the EGD, Mme Von der Leyen highlighted in her speech the need for a just transition: 

“This transition will either be working for all and be just, or it will not work at all.”²

The intention to be the first carbon neutral continent is a huge statement. It means shifting our society completely at every level of the economy and society. Ursula Von der Leyen was right in spotlighting the need for a just transition: the “Yellow vest” movement was the evidence of the outcomes brought by an unfair climate policy. For the EGD to be a success, it has to make the planetary boundaries the invisible hand that guides the citizens’ lives. Thus, we will show that to overcome the climate challenge, Europe has to change its current policy paradigm and that a solution could be an innovative bottom-up policy: domestic tradable carbon quotas. 

The relative success of the EU top-down policies:

The EU has succeeded in various ways to build up a successful climate policy. By launching in 2005 the EU Emission trade system, the EU has succeeded in creating the biggest carbon market worldwide. It covers different industrial sectors and works under the system of cap and trade: a cap is set on the total amount of CO2eq emissions that the installation covers by the system. The cap is reduced over time so that the total emissions fall. Each year companies buy emission allowances through auctions or to low-emission firms³.

According to the European Commission’s impact assessment, installations covered by the ETS reduced emissions by about 35% between 2005 and 2019. Nonetheless, challenges remain for the ETS market, especially reducing irreducible emissions. For example, the production of cement is at least emitting 586 kg.t/clinker (clinker is the main component of cement). With a yearly European consumption of more than 150 Mt of cement^4, current cement consumption in the EU might emit around 87,6Mt of CO2 each year.

Furthermore, according to Illaria Parisi⁵, with a global CO2 decrease starting in 2030 to align with the 2°C pathway, the yearly carbon budget might be 0.0017 GtCO2eq/year in 2050 in Europe. This means that cement production alone will burn out 50 years of the EU’s carbon budget in a single year by 2050. The only sustainable option is to find a substitute for concrete and to find ways to reduce consumption.

However, the ETS has been designed to foster innovation that reduces carbon intensity of the industrial sector and not to reduce production and by extension profits. The EU has alternatives and can use other policy tools. In the following section we will look at some of these alternatives’ potential to address the climate issue. 

The deadlock of the currents top-down policies:

As mentioned, the EU has pledged to become the first climate neutral continent worldwide. Yet, according to the scientific scenario the ETS by itself will not be sufficient to curb industrial emissions, adding to the fact that almost a third of the EU’s CO2 emissions comes from transport,⁶   a sector that is not entirely covered. The transport sector is critical because domestic transport could burn the remaining European carbon budget on its own⁷. Therefore, other policy tools can address these issues. 

Strengthening rules is one of the tools policymakers can implement to mitigate emissions. Rules have to be ambitious and technically feasible. Nonetheless, industries can find ways around the rules. The Volkswagen emission scandal shows that rules can be cheated. Another issue is that most of the tests these companies undergo are made in unrealistic conditions (for example with nearly no road friction) that are not representing the user habits (such as optimal engine use…). Furthermore, interest groups influence the design of rules and in many cases try to reduce their range of action in order to “protect” their business interests. This in turn reduces the rules’ mitigation effectiveness⁸.

Carbon taxes are another tool policymakers use. It aims at creating a price incentive to reduce one’s carbon footprint. These taxes are likely to have an effect but they need to be accepted by citizens. The Yellow Vest movement has shed light on the repercussions of the carbon taxes. Poorly designed carbon taxes can be unfair: they can have a strong impact on the poorest income and a low impact on the richest income. Furthermore, it is clearly inappropriate when the richest income population consumes more of the carbon budget than the poorest. For example, in the US there is a 1/12 ratio between the carbon consumption of the poorest and the richest households⁹. Overall, inappropriate taxes can increase precarity upon poorest households. Another issue is that carbon taxes create revenue but there are no guarantees that this revenue will be used properly by States. 

Overall, policy tools can prove efficient, but they will not address the real issue: a systemic change and re-understanding of the planetary boundaries. The following section proposes an alternative to the current EU policy trend. 

Adopting a European Domestic Tradable Carbon Quota Framework

The following policy framework proposal reconciles climate policy with social justice and citizen acceptance. 

Following the works of James K. Boyce¹⁰, another policy option would be to implement a domestic tradable carbon quota system. How would it work? First, the policy assumes that there are no carbon taxes but recognizes that there is a price to every kilogram of carbon that each citizen is consuming.   Every individual receives an allowance of CO2 emissions based on an equal repartition of the country’s sustainable carbon budget. Citizens are granted a carbon card (similar to a credit card) which they use to discount the daily carbon they have consumed in their everyday consumption. At the end of a crediting period, those who have consumed more than their carbon credits allow have to pay extra bills and those who have consumed less receive compensation for their ecological behavior.  Part of the money raised would go in a fund. The resources of the fund are then allocated and used at the local level by the citizens themselves. One way forward would be for a sample of the population from a region to be randomly chosen, then they collectively choose a project which will be funded by the fund to help them reduce their own community carbon footprint. 

This policy has various advantages. Firstly, it partly redistributes the carbon dividend and encourages ecological behavior, it thus has a less impact on the poorest households because they consume less carbon. Consequently, it assures social justice between poor and rich households. Secondly, the revenue earned by the framework is used by the community. Thus, it reduces the risk of misused revenue by States (for purposes different to climate actions). It also increases the acceptance of the policy because locals are empowered. Thirdly, the policy is likely to be more effective as the locals will select projects that suit best to their reality and their daily habits: for example, they can choose to increase their energy resilience by financing citizenship energy. Finally, it has a psychological impact on the long run: the use of a carbon card embodies the footprints of individuals and personifies planetary boundaries. Overall, this policy alternative succeeds in materializing a complex concept in personalized carbon budgets for each individual. 

References

¹IPCC, « IPCC, 2021: Summary for Policymakers. In: Climate Change 2021: The Physical Science Basis.  Contribution of Working Group I to the Sixth Assessment Report of the Intergovernmental Panel on Climate  Change [MassonDelmotte, V., P. Zhai, A. Pirani, S.L. Connors, C. Péan, S. Berger, N. Caud, Y. Chen, L.  Goldfarb, M.I. Gomis, M. Huang, K. Leitzell, E. Lonnoy, J.B.R. Matthews, T.K. Maycock, T. Waterfield, O.  Yelekçi, R. Yu, and B. Zhou (eds.)]. », consulté le 28 octobre 2021, 

https://www.ipcc.ch/report/ar6/wg1/downloads/report/IPCC_AR6_WGI_SPM.pdf.

² « President von Der Leyen on the European Green Deal », Text, European Commission – European  Commission, consulté le 28 octobre 2021, 

https://ec.europa.eu/commission/presscorner/detail/en/speech_19_6749.

³ « EU Emissions Trading System (EU ETS) », consulté le 29 octobre 2021, https://ec.europa.eu/clima/eu action/eu-emissions-trading-system-eu-ets_en.

⁴ CEMBUREAU, the European Cement association, « 2020 activity report », consulté le 4 novembre 2021, https://www.cembureau.eu/media/m2ugw54y/cembureau-2020-activity-report.pdf.

⁵Ilaria Perissi et al., « Potential European Emissions Trajectories within the Global Carbon Budget »,  Sustainability 10, n^o 11 (15 novembre 2018): 4225, https://doi.org/10.3390/su10114225.

⁶ « Greenhouse Gas Emissions from Transport in Europe — European Environment Agency », Indicator  Assessment, consulté le 5 novembre 2021, https://www.eea.europa.eu/data-and-maps/indicators/transport emissions-of-greenhouse-gases-7/assessment-2.

⁷ Claire Buysse et Josh Miller, « Transport Could Burn up the EU’s Entire Carbon Budget », s. d., 4.

⁸ Gert Tinggaard Svendsen, « Evaluating and Regulating the Impacts of Lobbying in the EU? The Case Study of  Green Industries », Environmental Policy and Governance 21, n^o 2 (2011): 131‑42, 

https://doi.org/10.1002/eet.567.

⁹ Andrew K. Jorgenson et al., « Income Inequality and Residential Carbon Emissions in the United States: A  Preliminary Analysis », Human Ecology Review 22, n^o 1 (21 décembre 2015), 

https://doi.org/10.22459/HER.22.01.2015.06.

¹⁰ James K. Boyce, The Case for Carbon Dividends (John Wiley & Sons, 2019).