TEQs (Tradable Energy Quotas)

A framework designed to achieve deep reductions in dependence on fossil fuels at the national scale. It ensures fair access to energy as scarcities develop, guarantees emissions reductions in line with climate science and supports the active participation and cooperation of all energy users in the shared task.T7

The TEQs system is, in essence, a system of legally-tradable electronic rations. It applies lean thinking to stimulate the local discovery of particular energy solutions that make deep transformations in fossil fuel use possible, as part of a modular solution to almost-impossible global problems.

 

How TEQs works

At the heart of TEQs is the national Carbon Budget—set by an independent carbon policy committee informed by the latest climate science (in the UK this now exists, in the form of the Committee on Climate Change). The Budget (see diagram) states the quantity of carbon emissions that will be permitted each year, and so sets all energy-users in the nation a clear long-term time horizon in which to explore and implement ways of reducing their need for the critical resource of fossil fuels.T8

 

The TEQs system then shares out the rights to these emissions, by the Issue of TEQs units.  As per the diagram below, the Issue takes place in two ways.

First, an unconditional and equal weekly Entitlement to all adults, issued directly by electronic transfer into their TEQs accounts (around 40% of the available units would be issued in this way, reflecting the fact that roughly 40% of UK emissions currently come from individuals and households).

At the same time, the remainder are sold by Tender, as part of the weekly auction that already takes place for the sale of Treasury Bills and Government debt. Banks and brokers obtain a supply of units on instructions from their clients, and distribute them to all non-household energy-users in the economy—to industry and services of all kinds, and to the Government itself. Being an auction, the Tender provides revenue, which the Government uses to facilitate, in every way it can, the process of reducing dependence on fossil fuels (more on this later).

 

On the first day of the scheme, one year’s supply of TEQs units is issued into the national economy; it is then topped up each week, so that there is always a rolling year’s supply of units in participants’ accounts. Units are issued, and accounts maintained, by the Registrar.

When fuel or electrical energy is purchased anywhere in the national economy, the buyers pay for it as usual using money, but must also surrender a number of TEQs units corresponding to the carbon content of their purchase. Individuals who use less than their Entitlement of units can sell the surplus; those who need more can buy them. All such transactions take place at the prevailing national price—like topping up a mobile phone or travel smartcard, there is no haggling required.

The number of occasions on which individuals actually purchase energy is quite limited—perhaps eight times a year for utilities, although it could rise to some thirty times a year for individuals with cars—and most TEQs transactions are done by card and direct debit. Moreover, on each of these occasions, the surrender of TEQs units takes place along with the money payment, as part of the same transaction. If you have run out of units (or never had any—perhaps you are a foreign tourist) the energy retailer will simply add the cost of buying the units on your behalf to your bill. This is a system with low levels of hassle; it is ‘hands-free’, with no need for separate “carbon cards”. Energy-users do not have to spend time thinking about the mechanics of the scheme and calculating carbon emissions. The whole of their attention is focused on the principal task of creatively reducing their individual and collective use of fossil fuels—in line with the ambitious, transparent, long-term requirements of the Carbon Budget.

 

Background processes

Meanwhile, the Rating System evaluates fuels and electricity in terms of the carbon they contain and release. One TEQs unit is defined as one “carbon unit”—corresponding to the quantity of fuel or electrical energy that produces one kilogram of carbon dioxide over its life-cycle (not only from its final combustion, but also from the combustion of the other fuels used in bringing that fuel to market). The system ensures that all electricity and fuel carries a carbon rating, e.g., 0.2 units per kWh, or 2.3 units per litre. Low-carbon energy sources thus cost consumers less, providing them with a competitive advantage.

The TEQs units flow through the economy just as energy does (though in the opposite direction), as illustrated in the above diagram. Every time that energy changes hands, so do TEQs units, in exchange. So the units that an energy retailer receives from its customers when selling fuel or electricity are then surrendered to the wholesaler when the retailer buys its own fuel/electricity supplies. The wholesaler, in turn, surrenders them to the primary energy producer/importer. Finally, the primary provider surrenders the units back to the Registrar in exchange for the right to produce or import the fuel. Since the Registrar issued the units in the first place, this creates a closed-loop system.

The flow of units round the loop can be accounted for in companies’ existing stock-control systems, so TEQs is self-monitoring, requiring no routine public sector intervention. Any retailer who failed to collect TEQs units at the point of sale would need to buy replacement units when purchasing their own supplies (just as with cash). And the fact that the carbon content is known when energy or fuel is sold avoids the need for direct measurement of emissions from exhaust pipes, factories or homes. It also makes unnecessary the impractical task of accurate, consistent carbon labelling for individual products and services within the economy. Instead, since carbon-intensive manufacturers will have to recoup the cost of the additional TEQs units necessary to run their businesses, consumers will simply find that lower-carbon options tend to cost less cash (and this also offers a competitive advantage to retailers of any product or service with a lower-carbon supply chain).

 

Key Benefits of TEQs

Any framework for collective action for deep reductions in dependence on fossil fuels must fulfil twelve criteria:

1. Guaranteed emissions reductions. TEQs is a guarantee that the trajectory of reductions set by the Budget will actually be achieved. The quantity of fuel is determined by the Budget; the price adjusts around it. Price in the TEQs model is the free variable, the expansion joint which adjusts to circumstances; it is the degree of freedom which enables the scheme to keep the Budget’s promises. It is in everyone’s interests that the price of TEQs units should be low—as low as possible.

What is more, the price takes the temperature of the energy transition: the lower it is, the more successfully are energy-users and the nation as a whole adjusting to the tough demands of the energy descent by discovering and inventing ways to reduce collective energy demand. The features detailed below are designed to facilitate this, and thereby mitigate the price pressures imposed on us by energy depletion and the need to mitigate climate change.

2. Equity. Although the per capita entitlement is equal, that does not necessarily make it adequate for the individual’s needs. Instead, it brings into each individual’s own life a direct encounter with the reality of diminishing access to energy. Where there are households and individuals whose energy needs are very high (because, for instance, their house is poorly insulated or because they have to drive a long way to work), the equal entitlement draws focus to the problem and provides a powerful incentive to deal with it. The TEQs entitlement engages with the inherently unjust consequences of climate change and fuel depletion, prompting urgent action where it is most intensely needed, in advance of the undiscriminating reductions in energy rations which—all too soon—will be imposed by nature.

3. Time to plan ahead. The guaranteed TEQs Budget gives a clear long-term warning of the scale of reduction in energy use which has to be achieved over a rolling 20-year time horizon: the trajectory of energy descent set by the Budget is held constant, with that constancy made possible because the price can adjust around it (see False Consistency). The long-term perspective is essential. Decisions will have to be made now, and action taken now, which will take twenty years or more to come to fruition. The long-term view must be present as a defining property of any scheme designed to reduce—and, eventually, to end—our dependency on fossil fuels (Time Fallacies).

4. Leaves the money with the consumer. The cost of achieving the energy descent will be high, requiring profound changes in lives and expectations, in the use of land and technology, and in the pattern of industry and transport. Moreover, the economy may be in deep depression due to the effects of the climacteric. Individuals and households will therefore need as much money as they can get in order to pay for the transformation. The free distribution of TEQs units to individuals ensures that the money stays where it is most needed. The revenue received by the Government from the Tender will also be used to create a fund to support the communication and training, expert guidance and capital costs required by a decisive and steep energy descent.

Consumers’ budgeting is also assisted by the price-balancing effect of TEQs. TEQs will tend to stabilise the price of energy in two ways.

First, it prevents scarce fuel (e.g., oil) being, in effect, ‘rationed by price’—with access being limited to the highest bidders (or the fastest movers).

Secondly, the price of energy and the price of TEQs units will tend to move in opposite directions—if, or when, world oil prices reach very high levels, this will reduce the demand for oil, thereby reducing the demand for TEQs units and thus their price. So the net price paid by consumers (oil+units) is more stable than the price of either oil or units alone.

5. Government there to help. The Government, in a TEQs scheme, is in the same boat as everyone else (since it too is bound by the scheme). Its role is to do everything in its power to enable the economy to achieve the reduction set by the Carbon Budget with the least possible disruption. It will do so on the basis of call-and-response, providing services such as training, infrastructures, loans, and changes or relaxations in regulation which open the way to comprehensive transformation in the energy and material structures of the economy. It is not spending its time issuing instructions and regulations; it is working out how to cope intelligently with the transformation that is facing us all. The money to do so is generated by the Tender.

6. Specified in terms of energy. The problem is an energy problem, and it will call for imaginative and highly-motivated energy solutions. If the energy descent were seen by consumers as, in essence, a money problem, it would be just one more charge on the household budget. Although the most successful energy-savers in a TEQs system will be able to sell their excess units, financial incentives are peripheral to the scheme. Instead of relying on an (ultimately demotivating) system of extrinsic rewards and punishment, TEQs is built on making our shared intrinsic motivation explicit: no-one need pay us (or punish us) to make us want to avoid catastrophic climate change and retain access to essential energy services.

7. Ownership. The scheme belongs to the people who use it—that is, to all energy-users. Everyone is involved, and the design of the policy means that there is no possibility of free-riders. The rise or fall of the national price of units is feedback on our progress in reducing reliance on fossil fuels in pursuit of our goals. The purpose of TEQs is to maximise freedom of choice and empower households and businesses, within the constraint of not jeopardising those goals.

8. An assured entitlement. At times of scarcity, consumers will need to be sure that they can obtain their entitlement of fuel and energy. Without such an entitlement—or ration—those who are unsuccessful in bidding for the energy they need, or who are not quick enough to get hold of whatever fuel is available, will be left with none. This absolute requirement for a ration/entitlement applies whether the aim is to reduce carbon emissions, or to cope with fuel shortages, or both.

TEQs guarantees individuals the right to buy fuel in at least the quantity specified by the entitlement. That is not quite the same as a straight rationing scheme—which also stops people buying more than a given amount—since, in the case of TEQs, you can buy more units (as long as others are willing to sell theirs). TEQs rationing does not set an upper limit for individual energy-users, but it does meet the essential, life-or-death requirement of fair access to energy.

9. Both for fuel scarcity and the climate. Even in the unlikely event that the scheme were being used exclusively to reduce carbon emissions—without there being any question of fuel shortages—there would still be a scarcity problem which would make an entitlement scheme essential. As the Carbon Budget declines, high-carbon fuel will necessarily become less widely available, and if the distribution were left entirely to the market, it would exclude all but the highest bidders. That is, an imposed scarcity of carbon and an actual scarcity of fossil fuels would have the same effect, requiring the same guarantees. Since both climate change and fuel scarcity are upon us, any fuel-related scheme must be equipped to deal with either or both. TEQs is designed to do this.

10. International advantage. The first-mover nation will develop the advantage of reduced energy-costs and ahead-of-the-field technology. A nation with a TEQs scheme will be able to commit itself with confidence to deep reductions, breaking the inertia in international negotiations by showing the way for other nations to do the same.

11. Pull. TEQs is based on pull, which sets up a clear commitment to—and framework for—the energy descent, by whatever means energy-users can devise. Rather than dictating changes from the top down, TEQs is a framework for change to be pulled along by energy-users themselves. Households, neighbourhoods, communities, local authorities and industry will have a common frame of reference in which to cooperate in the ambitious reductions which are beyond the reach of individual consumers. The significance of pull is central: TEQs bring a sharp, intense focus to the aspects of energy use where action can be most effective; they provide the incentive to call on Government and other sources for assistance; they motivate action; they encourage people to work out what action to take if it is not immediately clear. They stimulate creative intelligence.

12. Common purpose. If the energy descent becomes a shared goal, then action taken by the individual in his or her own interest is the same as the action needed in the collective interest. The TEQs framework helps to achieve this common purpose. Confronting all participants will be major tasks such as developing the proximity principle (shorter travel and transport distances; goods and services being produced in proximity to the people who will be using them) and building local competence to meet local needs. The only way in which an individual can achieve major changes such as these is by cooperating with others at the level of households, streets, towns, the nation; TEQs clearly specifies the task as one of cooperating to achieve an energy revolution.

In summary, the TEQs model is constructed on the foundations of the key concepts described in Lean Logic, including lean thinking, common purpose, presence, intrinsic incentives and resilience. It makes a decisive break with the presumption that citizens will do nothing to transform their dependence on fossil fuels unless they are goaded into doing so by green authoritarianism and its carrots and sticks. By contrast, TEQs is based on the recognition that the only way we will have a prayer of a chance of achieving that transformation will be by recruiting the whole-hearted commitment and whole-brained intelligence of citizens to that task. TEQs provides a framework for that collective motivation and local inventiveness, and the grid below sketches out some of the forms of cooperation it could support.

 

Households Households cooperate in conservation, renewable energy systems, repairs and local food.
Communities Communities and households cooperate in skills, cultivation, schools, services, materials recovery and jobs. There is cooperation between communities in developing the potential for local self-reliance and resilience.
Companies Households and companies cooperate in closed-loop systems and household production. Communities and companies cooperate in local sourcing, and the supply of specialist skills in the building of local energy systems. Companies cooperate to sustain a flow of goods and services and promote best standards, even if at the cost of competitive advantage.
Loc/Nat Gov Government assists households with training, funds and regulatory support for the energy descent. Government provides assistance of all kinds on a call-and-response basis. Communities develop self-regulation. Companies cooperate with Government in technical innovation, building local infrastructures and reducing transport needs. Local Governments sustain joint training courses on energy descent solutions and share information.
Households
Communities
Companies
Loc/Nat Gov

 

Why a Carbon Tax Would Be Less Effective Than TEQs

None of these desirable characteristics apply to a carbon tax. The unsuitability of taxation for the task of reducing carbon emissions needs to be recognised:

1. If taxation were high enough to influence the behaviour of the better-off, it would price the poor out of the energy market.

2. The focus of the scheme must be on the long-term energy descent, sustained over many years. There needs to be a framework to guide it, but this is not a job which taxation can do. It is impossible for tax to give a steady long-term signal: if it remains constant, it will be inappropriate at certain periods of the economic cycle; if it fluctuates, it does not provide the steady signal.

3. Taxation would take money from people just at the time they need it most: to achieve the needed reductions, they will need to spend on a whole range of structural changes and technologies, and—especially in the likely event of deep recession during some periods of the scheme’s life—it is essential that they should have as much discretionary income as possible to enable them to do this.

4. Taxation is based on the assumptions that the authorities know what people need to do, and that they won’t do it unless pushed—in effect fined for not getting on with it. The energy descent, by contrast, requires a clearly-defined framework whose difficulties can only be solved by the application of local ingenuity. Tax may, at best, establish an extrinsic incentive to achieve compliance with a stated goal; effective motivation can establish a far stronger intrinsic incentive to achieve well beyond such a goal, and to cooperate with others to do the same (Incentives Fallacy).

5. Taxation has no role whatsoever in the distribution of fair entitlements to energy at a time of scarcity. If oil prices have gone through the roof and most people can’t, for love or money, track down petrol for their cars, it would scarcely help to increase the rate of fuel tax. If a tax regime did exist to phase down carbon emissions, it would still be necessary to have in place an additional rationing scheme specified in terms of entitlements to energy.

There is an argument for aligning tax with recognised values—being set at higher rates for bad things (such as tobacco) than for good things. But even here its effectiveness as a motivator and a deterrent is limited. It should concentrate on what it is good at—raising money. Where the task is the application of creative imagination on a scale unequalled in modern times to transform the energy foundations of our society, deeper reasons are needed.

 

TEQs as response to outright fuel/energy shortage

The above discussion has focused on a TEQs scheme implemented primarily in response to the urgent challenges of dramatic reductions in emissions. However, the depletion of oil and gas—and the scarcities and outages that will follow—will make it necessary for governments around the world to install rationing systems, to provide every energy-user with fair access to energy, and to pre-empt the intense competition for energy that would otherwise develop. Such systems need to be installed and tested well in advance of the start of energy shortages. If substantial shortages were to develop before a rationing system were in place, a breakdown in the orderly distribution of energy would follow.

TEQs could be implemented in response to either imperative, and is designed to be capable of switching between carbon entitlements and energy entitlements at short notice. All accounts and systems will already be in place, and the changeover from reducing carbon emissions to sustaining fair access to the scarce fuel—while continuing the reduction in carbon emissions from fuels unaffected by the scarcity—will require only the activation of the following prepared settings in the system’s programming:

 

THE RATING SYSTEM

At a time of fuel scarcity—and assuming that a TEQs system is in place—the first step will be to estimate the available quantity of the fuel in question. That quantity is measured in units. If the scarce fuel is oil, petrol could be taken as the standard unit, with 1 unit equal to 1 litre. Other fuels derived from crude oil require differing amounts of energy to produce as compared with petrol, and their unit ratings would be adjusted to allow for this—so that highly-refined kerosene might have a rating of (say) 1.1 units, while other fuels might have a rating of less than 1. This allows the energy market the flexibility it needs to keep its production of fuels in balance with demand.

When an energy-user purchases petrol, he or she (or it—it may be a company) surrenders units corresponding to the amount purchased, so that, for a purchase of 10 units of petrol, he or she surrenders 10 units, alongside the usual money payment. Those units (in the same way as the ordinary money payment for the fuel) are then pulled along the chain of supply, back to the refiner, the primary producer/importer, and the Registrar. Each stage in the production and distribution uses energy, and those energy purchases, too, are covered by the surrender of units, which also find their way back to the primary producers and the Registrar.

This mechanism is identical to that used for controlling carbon emissions, with the single exception that fuels are rated in terms of the actual quantity of fuel they represent, rather than in terms of their carbon content. No procedures would have to change. When the system switches from a Carbon Budget to a Budget (or Budgets) covering specific fuel(s), a new Issue of units will be made, with a new Entitlement and Tender and a switchover to different settings in the software.

In the case where a second fuel, such as gas, is in short supply, rations (e.g., Tradable Gas Units—one unit per kWh) could be issued in addition to the Tradable Oil Units and the carbon units already in circulation.

 

THE ENTITLEMENT

The distribution of tradable oil units—or tradable gas units—to individuals will be the same in terms of design and implementation as the distribution of tradable carbon units. They will be issued by weekly top-ups into individuals’ accounts. A likely scenario is that one fuel (say, oil) is in short supply, while the consumption of other fuels (say, gas and coal) has to be reduced as part of the continuing descent in carbon emissions. That is to say, concurrent budgets will be needed for, respectively, fuel and carbon emissions. The TEQs model is explicitly designed to sustain two (or more) budgets in this way.

It is possible that—in the case of shortages that are expected to be volatile or short-lived—the rolling period of issue will be shorter than the one-year’s supply appropriate to the case of carbon units. It could, for instance, be as short as two months, backed by good information on the circumstances of the shortage and its expected duration.

 

THE TENDER

When TEQs is used for rationing carbon, the distribution of units to organisations is based on the auction of units at the Tender, where organisations receive their units at the settlement price—the price at which supply and demand are in balance.

However, at a time of actual—and perhaps sudden and profound—fuel shortage, the terms of the Tender may need to be revised. In this situation, the settlement price may prove to be so high that some participants do not succeed in obtaining any units—or not enough to enable them to continue services which are essential to the economy—so that some intervention may be needed to guarantee users’ minimum access to energy. For example, food producers could make a case for such a guarantee.

In these circumstances, the terms of the Tender will be modified to deliver units guaranteeing a minimum entitlement for non-household participants with a valid claim, while the remainder would be auctioned as usual. This hybrid Tender would have the benefits of meeting unconditional needs—insofar as the total quantity of available energy allows—and sustaining the market for units. However, the existence of the market element is essential. Some rationed assets (e.g., food) may have less need of a market in entitlements, because differences between individual needs are relatively minor, or at least predictable. But in the case of the distribution of energy entitlements, the wide diversity of energy needs makes the flexibility of the market a central asset, as the means of sustaining an efficient allocation. The strict fixed cap on national emissions is the essential constraint on the market which defines the intention of the scheme, but a strict fixed cap on personal emissions would simply destroy those professions which inherently require more energy (and thus destroy the national economy).

The use of the hybrid Tender may also be required in the context of a market designed purely for carbon emissions, especially if action is delayed (Denial). If an extremely steeply-declining Carbon Budget is necessary, this could potentially make carbon units unavailable to some service providers in the quantity needed to function, in the same way as a sudden decline in fuel availability. The use of guaranteed minimum allocations should be avoided wherever possible, however, because it impairs the efficient distribution of units—which is contrary to the interests of all participants in the economy. Nonetheless, it is an option for fine-tuning the market—requiring no modification to the scheme beyond adjustments to programme settings in the light of current circumstances—and it may be necessary as a means of sustaining supplies of the energy needed by essential services.

 

Such adjustments to the functioning of TEQs fall easily within the flexibility of the system. The key condition for them to be feasible is preparation time, but once a TEQs system is in place, the adaptations needed to respond to energy scarcities could be made promptly.

If energy scarcity were to develop before tried and tested rationing systems were in place, profound hardship would follow—that is, actual energy-famine for the losers in the competition for fuel. All too clearly, this would be unjust. Indeed, the distribution of scarce fuel would involve some form of auction or contest which, in the case of severe scarcity, could be violent. TEQs is designed to sustain orderly access to energy in these conditions. And the instrument is designed, too, to prevent an even greater injustice, in that it represents an effective and realistic response to climate change, which has the potential to expose populations to impacts whose consequences would be unjust by any standards.

It is reasonable to conclude that we are running into danger. Energy shortages will occur. We do not know when, but the event is undoubted and it is not far distant (Energy Prospects). There is a real possibility that this will happen before a rationing system is in place. The combination of energy scarcity and the absence of rationing provision has lethal potential and it needs to be corrected without delay.

 

A whole-economy, nationwide scheme

TEQs is designed to include all energy-users in a national economy. Since the model was first published in 1996, several variants have been devised and debated under the general heading of “personal carbon trading” (PCT). In some of these variants the scope of the scheme is limited to individual consumers, leaving out other energy-users such as business and the public sector which would be covered by some other scheme, such as the European Union Emissions Trading Scheme (EU ETS). In support of this format, it is argued that the EU ETS already exists and is immoveable, so that an economy-wide scheme is out of the question:

The core economic instruments for managing emissions for the foreseeable future are the EU Emissions Trading Scheme (EU ETS) [and the domestic supplier obligations]. Analysis of any PCT system that does not operate in tandem with these instruments will be purely academic: this suggests that TEQs and similar designs of personal carbon trading schemes that assume organisations and individuals operating together in an economy-wide scheme are non-starters.T9

But there are two ways of seeing the scale and format of a carbon/energy rationing scheme:

First, there is the Layered Format, in which different participants in the same national economy belong to different schemes, so that businesses would belong to one scheme, operating in its own market and governed by its own Carbon Budget, and individuals would belong in a different scheme, working to a different Carbon Budget, in a different market, and at different prices. The presumption is that the Layered Format would cross national boundaries, as does the EU ETS, which includes some thirty nations; and that other national groupings, such as the North American Free Trade Area (NAFTA), or a global scheme, would use the same format.

Secondly, there is the Integrated Format. It is integrated in that all participants in the national energy market—companies, public sector bodies and individuals—operate in the same scheme. The scale of this market is critical—it is sufficiently small and self-contained to enable a strongly developed sense of common purpose and shared ownership. There is acceptance of the Budget as a just representation of national circumstances, and of the authorities responsible for it as qualified to represent the collective interest. Each nation designs and manages the scheme in response to consultation, and to the particular circumstances and energy usage that exist within its boundaries.

Under the Integrated Format, TEQs would be the means by which nations implement the energy/emissions targets they have agreed at the international level.10 Wider multinational (e.g., EU) targets would become realistic as each nation committed itself to a single Carbon Budget corresponding to its own situation and endorsed by consultation with its energy-using public. In the case of small nations, there would be the option of joining forces in a “national” group on a scale equivalent to the larger nations.

It is useful to compare the merits of these two models against three criteria:

1. The Carbon Budget

2. Fuel Pricing

3. Rationing

 

THE CARBON BUDGET

The Carbon Budget—which defines the quantity of permitted emissions and their rate of decline—sets the intention of the system. If the Budget were too steep, then the geographical area to which it belonged would find itself plunged directly into an energy problem: with too many buyers of units and too few sellers, the price would rise sharply, so that some participants would be plainly unable to afford to meet their needs for energy. Conversely, if the Budget was too unambitious, there would be no incentive to reduce energy demand, the price of units would decline towards zero, and the scheme would in effect cease to operate.

Even within a nation, of course, there are wide divergences of energy use, so that some users will find it harder than others to stay within the Budget or to buy the additional units they need—but it is for such adjustments that the flexibility of the market exists. Within a multinational TEQs scheme, the problem arises where a whole nation has energy needs substantially above or below the average for the other nations (as might be expected). This would lead to large-scale transfers of units from the nation with the lower demand to the nation with the higher demand, together with a large-scale transfer of funds the other way, which could reduce the scheme to simple international money-politics—an unproductive mix of opportunism and resentments. The system would offer the nation receiving the windfall revenue little incentive to reduce its energy demand yet further, and the nation that bore the cost would pay less attention to driving down its energy demand than to challenging the scheme. If the imbalance were severe, the scheme would be short-lived.

A central condition of success, therefore, is that the Budget should be pitched at a scale which is seen to be just and realistic, at which participants in the system can reasonably cooperate, and on which they can feel a sense of shared ownership and identity. The implication is that the scheme should be based on relatively small areas—roughly on the scale of the nation—as specified in the Integrated Format.

 

FUEL PRICING

In the case of the Integrated Format (the TEQs model) a central principle is that the unit in which emissions are measured and traded is expressed in terms of energy (that which people actually want to buy), not in terms of emissions themselves. As explained at the start of this entry, carbon emissions are translated into energy units—that is, the amount of any given fuel needed to produce a kilogram of carbon dioxide. In other words, all fuels and electricity supplies are “carbon rated”. This use of easily-measured units is a necessary condition of a feasible carbon-rationing scheme involving individuals. There is no need to measure the carbon emissions of your car or house: they are already accounted for in the fuel you buy. The significance of this is not merely that it keeps things simple; it is the only realistic design for a scheme: people buy fuel exactly as they did before, except that they automatically surrender units at the time of purchase in accordance with its published carbon rating.

But it follows that any TEQs scheme must include all energy users. If it included only some, then fuel would carry two (or more) 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 (whose energy consumption would be covered by another scheme). Different prices for the same fuel would immediately lead to black market brokerage, and the scheme would break down.

It would be possible, no doubt, to remain aloof from such detail and to devise a very highly-regulated scheme in which people were required at the time of purchase to show the seller evidence of whether they were purchasing fuel for business or private use; people who used their cars (or homes) for both private and work-related purposes could perhaps pay two different prices for their energy (filling their tanks with, say, 13 litres at one price and 21 litres at another). The scheme would also have to do without pull, where units are brought within the standard accounting systems of companies and then flow through to the primary suppliers and the Registrar. But without this elegance, the enforcement and anti-fraud costs would be prohibitively high: routine closed-loop carbon accounting from oil well to petrol pump would not work if some of the final product (the petrol) were exempt from the system. The theoretical possibility that a misspecified scheme (the Layered Format) can be made to work if enough money and regulation is thrown at it invariably disappoints when it is put into practice.T11

By contrast, the TEQs scheme is self-monitoring—requiring no enforcement costs apart from the routine auditing needed for any significant initiative—but this property depends on it being a coherent, economy-wide model.

 

RATIONING

The use of the Layered Format as a means of rationing fuel, then, is highly problematic: the existence of separate schemes for businesses and households violates fundamental principles of the design of a rationing scheme.

A rationing scheme has to be a fair distribution of a scarce resource including all the users of that resource; it must distribute the limited quantity according to a single set of criteria which is transparent and widely understood; and the Government must be fully accountable for it. To deal with the distribution of fuel rations to households and businesses on different criteria—yielding two availabilities and two sets of prices, covering differently-defined and overlapping geographical areas, and over which the national Government has no control—would forfeit any confidence in the scheme. And it would sharply reduce any prospects for the trust and alignment of interests that are required for joint, cooperative effort to flourish.T12

Furthermore, in the real world of rationing under conditions of scarcity, it cannot be predicted how nations will obtain their supplies of the scarce oil and/or gas. It seems probable that nations that are well placed—those which, for instance, own large reserves—will feel justified in taking full advantage of this, rather than sharing out fuel stocks equally to other nations which lack that advantage. And governments will undoubtedly negotiate for supplies of fuel in order to get the best deal they can for their populations. In these circumstances, an EU-wide trading scheme which provided an EU-wide budget without regard to the differences in energy stocks and sources available to the participating nations would be hard to reconcile with a feasible system of rationing.

 

There is at present intense concern to develop a system with a global reach, capable of—and committed to—an ambitious phase-down of carbon emissions, and able to guarantee fair access to energy for all energy-users. These three requirements can be provided by economy-wide national systems within an overarching coordinating framework. That framework derives its effectiveness from the commitments made by governments acting on behalf of their national economies. The actual delivery of those commitments is achieved by national systems on the model of TEQs.

International and national schemes are complementary if, and only if, there is a well-defined and explicit distinction between their respective areas of activity. Solutions to the energy problem will not be delivered by ‘upstream systems’, nor by ‘downstream systems’. They will be delivered by full-stream integration of all participants in a system explicitly designed for cooperative, complementary programmes. If suppliers, consumers and public bodies have reason to trust each other and to talk to each other—if they are all in the same scheme and they realise they will not solve the problem without each other’s help—then there will be a chance of achieving a fast, fair and effective energy transition.

Once the principle of electronic entitlements has been understood, a range of options opens up, allowing it to be designed and adapted to the priorities and prospects of the place and time. It could be designed for carbon emissions, or for oil and/or gas and/or electricity. It could be adapted to short term or long term scarcity; the Tender could be issued by auction or by allocation, or by a combination of the two. This is a generic instrument, permitting a high degree of flexibility. But there is clarity, too: the intention is set, and there is no doubt that a form of rationing—using the established electronic technology of the day—is needed.

TEQs could be the game-changer, both allowing national leaders to promise substantial reductions in fossil fuel dependency with confidence that they will actually happen, and emboldening them to throw down the powerful challenge to other nations: “We are acting, so must you.”

It is now intensely urgent that nations should have an instrument, available and proven, which is capable of both dramatically reducing carbon emissions and rationing scarce fuel. The system capable of delivering that is TEQs.T13

 

Related entries:

Climate Change, Energy Prospects, Incentives Fallacy, Modularity, Subsidiarity, Common Purpose, Commons, Exhilaration.

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David Fleming
Dr David Fleming (2 January 1940 – 29 November 2010) was an economist, historian and writer, based in London. He was among the first to reveal the possibility of peak oil's approach and invented the influential TEQs scheme, designed to address this and climate change. He was also a significant figure in the development of the UK Green Party, the Transition Towns movement and the New Economics Foundation, as well as a Chairman of the Soil Association. His wide-ranging independent analysis culminated in two critically acclaimed books, Lean Logic and Surviving the Future. A film about his perspective and legacy - The Sequel: What Will Follow Our Troubled Civilisation? - was released in 2019, directed by BAFTA-winning director Peter Armstrong. For more information, including on Lean Logic, click the little globe below!

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