Tradable Energy Quotas or Tradable Emissions Quotas? – our discussion rages on

When you fill up with petrol you would surrender TEQ units.

We have now had three online meetings of those wanting to promote TEQs as described by Dr David Fleming and summarised by his colleague Shaun Chamberlin here.

The last discussion was very stimulating and it was hard to sleep that night. Five good brains agonised for an hour over whether to make the unit energy or emissions, but still no conclusion. It isn’t any good launching a campaign until we are clear in our minds of what it would be called, how it is designed and how, if at all, it would work alongside the ETS structure or replace it.

First let’s look at the history. TEQs were designed as applying to energy. Dr David Fleming wrote about managed energy descent and invented this tradable quota system to ensure a smooth descent rather than a chaotic one. But on the website the Parliamentary report of 2011 states on P47 that it could be designed for emissions. It’s just that we can’t see the second design and it is far from simple to figure out what it would be.

Fleming, who died in 2010, didn’t include non CO2 emissions in his Tradable Energy Quotas and I would imagine he didn’t envisage that a country like New Zealand would have half its emissions in agriculture in the form of methane and nitrous oxide.

Josh Floyd the Melbourne researcher from the Simplicity Institute had tentatively suggested to us in an email that we use TEQs for fossil fuels and use the ETS for other GHGs. But there would be different prices for the units coming from two different systems. Someone argued that is logical because they are different gases. I don’t know the answer.

We then asked where is the public now in their thinking? Will they want to reduce their fossil fuel energy? We think they will know they have to reduce their emissions yes. Would they be more on board if the unit was emissions? Probably.

Jack brought up the idea of what happens to a society during a big disruption as he had read that research shows altruism dominates the responses during big disruptions. (Think Christchurch earthquake and the 2020 lockdowns). Then someone asked if we could somehow use the pandemic issue to edge into the campaign.

Every time we talk to someone new about whether we want Tradable Energy Quotas or Tradable Emissions Quotas they answer the latter. But let’s think a bit more.

Ideally it seems people would like it to be Tradable Emissions Quotas (TEQs). As yet we not really sure whether the data is there for making this feasible. TEQs were originally designed to be Tradable Energy Quotas, but since in New Zealand half our emissions are from methane and nitrous oxide from agriculture, and we know we need to reduce all the greenhouse gases, we instinctively choose emissions as the unit. 

But let’s suppose the technology and the data is now available to make the unit for the quota “emissions” and see what happens.

There are two ways of measuring emissions – production based and consumer based.

The IPCC has asked countries to use the production-based as the way to  count our emissions. In the case of Aotearoa New Zealand we import manufactured goods with embedded carbon dioxide and we export food  with embedded methane and nitrous oxide emissions. Using the the IPCC method means we must measure all our emissions from agriculture and waste as well as from industry and transport. And that is why, when we try to invent a Tradable Emissions Quotas and plan to do it on consumption data it just doesn’t work.

And the design still has to be worked out. In the case of Tradable Energy Units the TEQ scheme only wants us to surrender units when we buy fossil fuels or energy. The units go up the chain to the producer or importer and then to the registrar. When we buy items of services with embedded emissions we don’t surrender units, as the price is already reflecting the embedded emissions. In the case of emissions being the unit, there is nothing comparable to fossil fuels.

Also you can think of it this way:-

If we bring down energy use, we will bring down emissions too.
But if we bring down emissions there is no guarantee we will bring down energy use and this will lead to ecological disaster. In fact Dr Rodney Carr in answer to a question on a Climate Commission webinar said our energy would be the same in 2050 as it is now. And our GDP would have increased by 73% with all the material throughput that implies.
I have been reading the chapter in Jason Hickel’s book Less is More called Can Technology Save Us? There was lots of data and science reported.  He eventually dismisses green growth as a fantasy.

 

 

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9 thoughts on “Tradable Energy Quotas or Tradable Emissions Quotas? – our discussion rages on”

  1. I remain in the camp of strongly preferring emissions as the denomination of the unit, for the following reasons:

    1. It is emissions that we need to control

    2. Encouraging the switch to lower emissions in our energy mix will be an easier societal adaptation than simply reducing gross energy consumption, at least in the short to medium term (eg 2050 targets). Energy demand can be managed downward as we develop better infrastructure (which in itself will require an investment of energy and create emissions), and electrification of transport (both private and public) is both an emissions win as well as a consumption one because of the efficiency gains.

    3. Placing quotas on the maximum allowable quantity of emissions, and then attributing those to either production sources (such as agriculture, conservation and LULUCF, municipal sewage and waste) or consumption endpoints (fossil fuels, unattributed source emissions in the case of imported goods) will serve to internalise the “bads” and put the pricing alongside the product

    4. Using two systems and keeping the ETS in play for everything that is not fossil-fuel based does not solve the problem of the ETS itself being demonstrably unfit for purpose. After listening to Geoff Bertram last night, I am more than ever steadfastly convinced that the ETS cannot be made to work without a number of unattainable conditions all being satisfied. It has been captured by vested interests, has far too many exemptions, no hard cap on emissions, and demands an international market and oversight framework which does not exist if it is to send meaningful signals which guide capital investment and consumer choice.

  2. thanks Deirdre for a great summary. Some comments:

    1. a single system that captures all GHGs is clearly the simplest and most desirable system. Still not clear to me just how it might work. If total quotas were allocated on a 47 – 53% basis ( fossil vs biogenic), its pretty clear how the fossil quotas would be allocated to households and organizations ( with every purchase of oil, gas and coal). But how would the biogenic quotas be allocated? Could these be auctioned at the producer (or processor level) as these are fewer than consumers? But how would that work? If a processor (e.g. Fonterra) has inputs from farms with different levels of biogenic emissions, it would have to exchange different emissions for different farms. Is that feasible? It would mean each farm would have to have reliable means of measuring their emissions for each of their products ( milk, meat from different stock). And the system would need to be sensitive to changes over time as changes are made. How close are we to actually being able to do this?
    2. re the ETS. The CCC indicates it is not fit for purpose and this is good news. But at the same time they seem to go along with it. Bertram’s suggestion seems to be a “carbon” tax ( would need to be a GHG tax). Again, not clear to me how that would actually work. I would think much too complicated to give quotas to consumers as there are so many items involved. And if processors or producers have to buy them at auction, how would they know how much they need? Can biogenic emissions be measured at the individual farm level? How would they be measured at the processor level?
    3. Bertram also provided a reference to an economist who was traditionally endorsing a quantity based approach vs a price approach but who now supports the price approach. I will circulate the references via email for us to review and consider.
    4. I agree with Deirdre that having a complete position is desirable before promoting anything. I also wonder if there is some merit in getting the idea of TEQs out into public discourse, as these ideas generally take a long time for people to understand and see how they might be applied. To that end I have organized a webinar on TEQ on 3 March – will send the announcement via email.
    4. Bertram also made the point that serious mitigation will not occur as long as the current electricity system’s structure remains in place. His data indicate some pretty serious problems. His slides will be on the OCD website.

    1. The thing is, if someone is going to advocate for emissions being the unit, then they are going to have to explain how the system works. Fossil fuels result in carbon dioxide. What is the equivalent of fossil fuels for methane? For nitrous oxide?

      I certainly don’t know how such a system could be designed.

  3. Hi all, and thanks Deidre for bringing my attention to this conversation.

    I’m the Managing Director of the Fleming Policy Centre and was David Fleming’s closest collaborator in finessing and pushing for TEQs, so firstly let me say that I’m glad to hear of these meetings. I’m afraid that I’m currently in an overwhelmingly busy period, but can see that a little clarification right now might save you all a great deal of hassle, so this is my Saturday night!

    Regarding “energy or emissions” I hope that I can offer a fairly swift resolution to your dilemma in clearing up that, contrary to the above, TEQs were designed to address climate change (including non-CO2 emissions) from the outset, with the primary aim of providing a means for a nation to implement its emissions budget.

    If you want to call the system ‘Tradable Emissions Quotas’ then by all means do so, but there is no need for a redesign. That’s already what they are 🙂

    To read a straightforward explanation of the design to this end, see David’s classic 2005 booklet ‘Energy and the Common Purpose’ (https://www.flemingpolicycentre.org.uk/EnergyAndTheCommonPurpose.pdf – see pp 9-10 and 21-23 for non CO2 emissions)

    They were nonetheless called Tradable *Energy* Quotas. Why? Because David’s great insight – probably the key insight behind his brilliant design – was to realise that if energy can be defined as ‘the ability to do stuff’ then by regulating energy flows in the economy you can *regulate emissions in the economy*. Which was always the aim. It’s good to see the link to our FAQs page above and this one (http://teqs.net/faqs/#WhyOnlyFuel) addresses why the best way to cap emissions is to cap (carbon-rated) energy.

    What appears to have caused confusion is that later the UK’s All Party Parliamentary Group on Peak Oil and Gas asked us to produce the 2011 report that Deidre references above, in part to explore whether TEQs could also/instead be used to ration energy in times of energy shortage. In other words, could the system also help if the immediate problem was a shortage of fossil fuels in the country rather than a need to reduce the amount of carbon emitted?

    pp. 12-18 of that report (https://www.flemingpolicycentre.org.uk/APPGOPO_TEQs.pdf) outlined the ‘classic TEQs’ system, addressing emissions, and pp 19-21 of that report then explored how it might be turned to implementing a classic rationing system for any energy/fuels in short supply. The answer to their question was yes – once adopted the system can easily be adapted to address whichever is the more pressing issue – but it is incorrect to assert that this was the original focus of TEQS. The system was designed for its inception with the aim of addressing emissions, through the mechanism of capping carbon-rated energy use.

    Incidentally, pp 26-30 of the same report addresses how TEQs could address the prior existence of the ETS here in Europe, so may also be worth a read (I should note at this point that we took care that it should be not nearly as dense as most reports on such topics! Do take a look). As will be evident, the utter failure of the ETS to reduce emissions over the subsequent decade has come as no surprise to me. This popular peer-reviewed paper that I lead-authored in 2015 explains in detail why TEQs is preferable to the ETS approach:
    https://flemingpolicycentre.org.uk/Reconciling%20scientific%20reality%20with%20realpolitik.pdf#page=2

    Regarding the comments on public opinion, let me be clear again that TEQs are designed specifically to harness people’s willingness to reduce emissions. The unit of TEQs *is* emissions. That *is* what is capped, and what the quotas are placed on. They make it transparent to people that low carbon options are more desirable, and offer a competitive advantage to companies that offer such options, just as Phil calls for. That is one reason why all the research into TEQs has found it to have higher public acceptability than carbon taxation. I draw your attention to the public acceptability section of the above peer-reviewed paper, which summarises the extensive research conducted in this area.

    The other genius in Fleming’s design is that it removes the need for measuring emissions. Just as Deirdre says, in practice such measurement just isn’t feasible. The answer is here: http://flemingpolicycentre.org.uk/faqs/#WhyOnlyFuel

    Deirdre then raises the question of “in the case of emissions being the unit, there is nothing comparable to fossil fuels”. That is where the rating system comes in. All fuels and energy are carbon-rated, and hence the lower-carbon energy sources require fewer units at the point of purchase. The very readable Energy and the Common Purpose booklet above will make all this much clearer.

    Now, turning to Jason’s point about Green Growth, he is absolutely right. It is a fantasy. And, getting down to the nitty gritty, this is the real political challenge that we face in getting TEQs implemented, anywhere.

    The ultimate reason that the system was rejected by the UK Treasury (despite its successful government-funded feasibility study) was that it called the government’s bluff. They were happy to sign up to emissions targets decades hence and sell lies about green growth as how we would get there, but TEQs would have locked them in to actually *achieving* those targets. And someone at the Treasury recognised that in reality that meant the end of growth.

    Bluntly, TEQs means limiting our economic growth unless it can be achieved while retaining a beneficent climate. And since it apparently can’t, TEQs means ending economic growth rather than ending our beneficent climate. And that is not something our politics is ready to embrace. They would rather destroy our future.

    Nonetheless, for those of us for whom capping emissions is truly the aim, TEQs is just the job!

    The political campaign necessary must surely stress this blunt choice. Cap the economy or cap humanity’s lifespan. TEQs is what it would look like if we chose the former, as Josh Floyd’s truly outstanding recent paper makes clear.

    In warm solidarity,
    Shaun

  4. Hi all,
    apologies for lateness to comment.
    I’m happy to go with “emissions” rather than energy in line with Phil’s first point. I also believe that more people will relate to the need to reduce emissions. If it is emissions then I do believe that it would be possible to implement across the range of GHG (at some stage) by taking into account emission factors for whatever GHG it is being applied to. If “energy”is used, I am assuming that there will be different emission factors used for the different forms of energy purchased as a litre of diesel and litre of petrol release different amounts of CO2

  5. If I am understanding Shaun’s comments about energy vs emissions what he seems to be saying is that because ffs drive the economy, if we reduce ffs via TEQs (call it energy or call it emissions), then this approach will directly impact ffs emissions, and indirectly impact biogenic emissions (because of the diminished economic activity). He is not talking about directly measuring biogenic emissions or trading quotas for biogenic emissions at any point in the process (farm to processor to consumer).
    Is this how others understand Shaun’s comments?

    1. I am not sure that I interpret Shaun’s comments quite that way.

      But I have been thinking more about two things.
      1. The paragraph about the Treasury’s response should be taken very seriously as it is sure to happen here as well that Treasury puts the kibosh on the scheme. I guess they will be thinking about the sharemarket and how dependent the Super Fund is on it, as well as many other funds that give income to the over 65s.
      2. The inputs into methane emissions and nitrous emissions should also interest us. It is not just fossil fuels, although they do contribute in a major way to the production of urea fertiliser and of course diesel and petrol are involved in tractors, harvesters, motorbikes and probably much more. But there is water. A lactating dairy cow drinks 70 litres of water a day and a beef cow about 45 litres. We have too many cows. Water is obviously a significant input into the production of methane through cow burps and into the production of nitrous oxide in cow puddles.

      A man I respect and spoke to about TEQs replied that he believed that we should have tradable quotas for energy and tradable quotas for water.

      Would tradable water quotas (hopefully campaigned for by another group)solve our problems of including all GHGs in our TEQs scheme? I am not sure, but this I do know. If we think the political struggle for TEQs will be hard, it is sure going to be a challenge to get Tradable Water Quotas as well, since water is a tāonga under Te Tiriti O Waitangi.

      1. I have thought about he application of a mechanism similar to TEQs in allocating the right to pollute into our waterways rather than water allocation as such. There is much work being done in catchment management, but still little consensus on who gets to pollute within a catchment.

  6. Just wanted to raise the issue of what percentage of quota is allocated to individuals. I see that 40% has been used in discussions to date. This I presume is based of the UK split of CO2 emissions between households and businesses/government.

    The figures that I have seen suggest that in NZ approx 22-25% of CO2 emissions come from the household sector, leaving 75% to be purchased by business/government through the auction system. (I assume that the revenue from the auction is returned to the government).

    Two questions about the split allocated to individuals:
    1) why does the allocation need to based on the current split of CO2 emissions?
    2) What would happen if if all the CO2 budget was allocated to individuals? Allowing them to sell to business/government whatever they didn’t use. In effect returning all the value of what is traded to individuals rather than the government. Presumably the price of CO2 will still be determined by the market (supply and demand) but each individual in effect receives an ongoing (though decreasing) dividend from an equal share of a a scarce resource (the right to emit CO2).

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