UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 900-iii

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

Environmental audit committee

 

 

personal carbon allowances

 

 

Tuesday 24 July 2007

MR MATT PRESCOTT, DR TINA FAWCETT and PROFESSOR PAUL EKINS

Evidence heard in Public Questions 161 - 221

 

 

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Oral Evidence

Taken before the Environmental Audit Committee

on Tuesday 24 July 2007

Members present

Mr Tim Yeo, in the Chair

Mr Mark Caton

Colin Challen

Mark Lazarowicz

Jo Swinson

Joan Walley

________________

Memorandum submitted by RSA CarbonLimited

 

Examination of Witness

Witness: Mr Matt Prescott, Project Director, RSA CarbonLimited, gave evidence.

Q161 Chairman: Good morning. Thank you for coming in. I understand you have just published your interim report for the CarbonLimited project. Would you like to say a little bit more about what the project involves and what your findings have been so far.

Mr Prescott: We have not quite published our interim report. It is due at the end of the month, but obviously much of that information is now pretty much prepared. The project has been running for 18 months and will run for another 18 months, specifically looking at personal carbon trading. During that first 18-month period we have focused on a number of the big academic questions behind the idea. We have focused on issues to do with economic efficiency and impact, et cetera. We have done some initial work on the technological infrastructure and some of the IT systems that we could use. We have looked at some of the privacy issues that have been popular in discussions. We have also had a preliminary set of conversations with a number of publics, moving forward with switching into more of a conversational mode with the population, to start to tease out some of the public acceptability issues in more detail, and also moving into a more practical phase where we are testing some of our ideas on the ground and visiting communities to explore how some of these can manifest themselves.

Q162 Mr Caton: Thank you, Chairman. In your submission, you are particularly enthusiastic about the role the private sector can play, both in administering the system and providing the impetus for keeping it running at a useful pace. What exactly do you envisage the private sector undertaking in a personal carbon trading scheme and why are they better suited to do it?

Mr Prescott: We are quite salient about which parts of the economy kick into action in order to support such a scheme and the private sector is one which has a lot of the existing infrastructures that one might need to support the kind of user interfaces that we would envisage. For example, if we were looking at the idea of carrying around a personal carbon credit card, then naturally some of the banks already have existing credit card infrastructure and local knowledge about how those could work and be set up and are very experienced at dealing with some of the issues around fraud and gaining of market-places. Certainly, if one were to take the banking sector as an example, there is a lot that is already in place that they might be able to do but the issue for us is to take a step back and look at what is required. For many people in the UK a bank style approach to a personal carbon trading scheme might not be all that appropriate, so we are also looking at what the public sector could do to support such a system as well. We very much see a mixed portfolio of options and we very much want to explore each of those. As I have mentioned, one of the things we have already done is that we have looked at the IT infrastructure which naturally does lead us into some of the banking sector organisations particularly.

Q163 Mr Caton: Could you expand a little bit on the balance between the role of the Government and the private sector? In doing so, do you think there could be a problem of credibility with the public if they felt that the scheme was actually owned by the private sector?

Mr Prescott: The most important message that we would wish to communicate about the idea of a personal carbon allocation and a tradeable one is that the ownership rests with the individual. That is the most important point about the whole idea because, with an ownership at the level of the individual, you are, if you like, reversing the hierarchy of responsibility. By taking responsibility for a share of the UK's emissions reduction target and having those emissions rights in their hand, the people of the UK could then choose how to move forward with those and appoint those credits to any of the systems that might be on offer, any of the traders or any of the organisations offering to operate the scheme or whatever. The first and most important thing is that it is owned by the individual. The second thing is that the types of organisations that would operate the scheme would be those best suited to do so, subject to the government guidelines, but the government guidelines we feel should be as light as possible so that the system is not seen as a government one but as a shared ownership scheme, if you like, between civil society, business and government. Therefore, as I mentioned, the types of organisations that might choose to act to offer services to individuals to operate their accounts could be in the private sector, such as banks, but they could also be in the public sector, such as, for example, a housing association, which might choose to gather credits together on behalf of their residents in order to invest those in longer term energy security gains, such as local renewable energy schemes, for example, which the residents would choose to sign up to in order to give them a longer term energy security signal, and then the market-place itself would be interacted with via the housing association rather than by the individuals, but at the choice of those individuals, who may, for obvious reasons, in many cases not necessarily have strong financial skills or a strong interest in playing into the market-based environment. The interface with the individual would be one of choice but the ownership would very much rest with themselves.

Q164 Colin Challen: I should start my questions by mentioning that I am a member of the RSA and have been slightly involved in the project, in its early days. You have touched on the technology side. Of course there has been the debate about whether or not everybody should be issued with a card. Some see that as the introduction of some sort of ID card, with civil liberty problems attached to it. Do you think it would be necessary for everybody to have a card, like an Oyster card, or could you manage the system and the transactions on the system without necessarily having to have a card of the credit card type?

Mr Prescott: I think the interface is very important. The ultimate purpose of the scheme is to bring about behavioural changes at individual and community scale, I think it would be fair to say, and, therefore, the visibility of the scheme needs to be high - and necessarily so, because, as we see it, we have upstream carbon instruments in play of which the public are not especially aware and which do view more as a tax, in feel. The purpose of the scheme is very much to give ownership down to the level of the individual and the community and enable them to control it, hence the interface would need to be something that was comprehensive for the scheme but also comprehensible from the point of view of individuals. The original suggestion of a stand-alone credit card, of sorts, which has been talked about for probably the last 12 months would give you that "in the wallet" visibility that you are involved in a scheme. However, we have looked into that particular approach and the retailers to whom we have spoken are not particularly keen, due to extra time at checkouts, extra staffing and educational requirements, and potential lost revenue under a voluntary scheme rather than a mandatory scheme. The alternative would be to piggyback on existing card technologies, if one were to follow that route. The main options that stand up for us are the loyalty cards and the pre-paid cards that are starting to emerge. It would be possible, depending on the coverage of the transactions, to gather much of the data that you need from one of those existing infrastructures, and those are popular with the retailers when one talks about this idea with them but also would mean there would be very little in the way of additional infrastructure cost to set up the scheme. It would entirely be done at the back end, behind the scenes, and nothing to do with point of sale, software changes, et cetera. That is the more popular route. Many people do have loyalty cards and the coverage of those is quite broad and the understanding of those is quite high. However, it is obvious to see that domestic household utility bills are not often paid using one of the existing card systems but more often either through a prepaid meter or direct debit and hence we would be looking at a mixture (a) of technologies and (b) of interfaces that we would want to tie in in an understandable way, such that the scheme looked neat and tidy to the public but actually properly did dovetail a number of different infrastructures in order to deliver that.

Q165 Colin Challen: Have you had discussions with credit card companies and are they in any way enthusiastic about it or do they have any objections to it?

Mr Prescott: Yes, we are talking to a range of organisations operating the system. They are generally reticent to talk about introducing new technologies which will cost time at the point of sale but they are generally very positive about reusing their existing infrastructure to support such a scheme because they can see that, once introduced, if introduced, there could be some business opportunities for them and some alternative uses for networks into which they have already put time and effort.

Q166 Jo Swinson: I should start off by saying I am signed up to the RSA website that tells you how much carbon you have been using. I heard about the project and thought it was quite interesting. It sends me an email every so often with what today's carbon price would be. It is a very interesting project you are involved in. I was interested to look at the variety of methods you have to try to assess the public acceptability of the scheme. In your memorandum, you mention citizens' forums, Carbon Limited Cities, and so on. What are the results so far of what you think the public reaction would be to personal carbon trading and where do you think more work is needed?

Mr Prescott: The citizens' forums which we are calling Carbon Limited Cities have not actually been launched yet, unfortunately. That will kick off around about September of this year and run for a while. We will be using market segmentation approaches to test quite accurately - this is probably the Energy Saving Trust's market segmentation that we use - and to look at some of the key questions about this idea in detail with the public and be able to put some very solid research forward with respect to public attitudes. For the moment, as I mention in my introduction, it is quite anecdotal the evidence that we would have because it is not based on any particular segmentation. We do find that people will naturally take the core idea for the personal carbon trading scheme (that you receive a personal carbon allocation that is tradeable, et cetera) and will apply it to themselves and will immediately respond if they feel they might be on the losing side, if you like. The issues that tend to get raised repeatedly are to do with the availability of public transport (which is generally a rural/urban issue, to put it crudely); to do with local climate (some people feel that parts of the UK, if one were to apply a UK-wide scheme, might be requiring additional units, carbon credits); and the other main area of interest is around children. All of these touch on the vital question of the equity or the perceived equity of the scheme. In their Domestic Tradeable Quota paper, the Tyndall Centre talks about an equal per capita allocation. Many people feel that is inherently fair and many others feel that is inherently unfair because of their circumstances. We feel it is very important indeed to separate between people who are able to make choices to reduce their carbon emissions from their lifestyle and those who are not. An obvious and good example of somebody with a lower carbon footprint would be somebody in a multi-occupancy household with a general low carbon lifestyle versus somebody in a single occupancy household, but the single occupancy household might be an individual who has chosen to live on their own and is able and has the means to, or it might be somebody who through no fault of their own finds themselves living alone, and we do feel it would be important to be able to distinguish between those two groups. That same example can ratchet out around other sections of society and hence we are doing work to look at specific case studies and to look at what kind of mechanisms you might need to use to support people who are disadvantaged by the scheme in such a way. The fuel poverty question, if I might touch on this, is a big one in this respect, in that those people who are fuel poor generally have high carbon emissions from their households. Obviously that is not a showstopper because, in essence, the scheme is redistributive. However, it does mean that we need to make a choice about which way to avoid that disadvantage. For us, there are three ways which we go into in more detail. One is to increase the allocations to those households, which would then mean we were moving away from the per capita allocation. Another would be to adjust other benefits to that household, perhaps through the social services network or wherever, in order to avoid the disadvantage using related schemes targeting household energy efficiency, like Warm Front. Thirdly, one could exempt those households from the scheme and adjust the cap accordingly. Once we look into the case studies of individuals under the scheme, we will find those at a disadvantage through no fault of their own, and we just need to explore how we can avoid that disadvantage.

Q167 Jo Swinson: As well as creating a complex scheme that might be fair, it is also about it being perceived to be fair.

Mr Prescott: That is right.

Q168 Jo Swinson: This is surely where the whole thing can fall apart, if the public do not accept it. I am thinking of recent public reaction to alternate weekly collections or to road user charging. When radical changes are perceived to affect people, even if it is for the environmental good, very often there is not the support out there. The people who have been engaged in this so far have tended to be people who are quite interested in the issue, environmentally conscious people. How do we make it work for the vast majority of people out there? Some of the opposition will come from people who will lose out, disadvantaged groups, but some of the opposition will surely come from people who just want to keep a high carbon lifestyle and do not like the thought of being asked to change or pay for it. How would you propose that we can increase our public acceptability?

Mr Prescott: There are a number of issues in that question and it touches on different sections of society as well. Firstly, our philosophy in running this project is very much one of co-production - and I hesitate to use that word - in so far as we want to work with the population to explore the detailed issues and describe an instrument that will work for the maximum number of people, with public buy-in through that process so that we can demonstrate that we have consulted very much during design phase rather than at the end of the design phase. That is important for us in the way we are approaching the project. It is quite right to say that interested groups will always take part in a voluntary scheme first. We accept that. The introduction of the voluntary scheme which we are planning to bring about during the course of this project will naturally attract these types of groups initially, but we can nonetheless still achieve a certain level of learning from that, certainly in terms of infrastructure provision in ease of use and generating a big debate. That is a useful step. The next step beyond the voluntary scheme for us is what one might call an "incentivised voluntary scheme". This touches back on parts of the role of the private sector where one could imagine, for example through a CSR budget or through some other identified funds, that a private sector organisation wishing to operate the scheme could offer an incentive to voluntary participants in the form of financial reward or some other reward in kind, and hence you would then start to attract a slightly wider demographic of people. The private sector have shown an appetite for marketing environmental issues so far. If we can harness that appetite to market a cap and trade scheme, then one could see development of some very interesting project proposals from the private sector to individuals, with incentives, which might well attract a far greater body of the population. It is from that point that then the conversation about its acceptability at the mandatory stage could take place. There were more questions in there which I do not think I quite got to.

Q169 Jo Swinson: There is the issue of disadvantage, because they live in a cold climate or far away from public transport, which will create opposition. But, in relation to opposition from people who are just resistant to change in their lifestyle or paying more for their current lifestyle, how do we go about getting them aboard schemes like this?

Mr Prescott: Firstly, this debate is premised on the need to cut emissions rapidly, hence it is more a question of which tool or which mixture of tools we employ. Under a personal carbon trading scheme, if one were in receipt of one's personal carbon allocation but chose not to participate in the scheme, then, at the point at which they made the purchases relevant to the personal carbon allocation, they would be paying some form of surcharge in order to obtain those credits from the market and hence it would feel like a tax. That is the straight choice. You either take control of your personal carbon allocations and either employ somebody or choose to operate in the market yourself and use that process to enable you to make the relevant choices for you about how to live a lower carbon lifestyle or you accept that you will be taxed. I think it would not be a problem once there is a strong enough conversation and a strong enough participation to incentivise a voluntary scheme for that debate to be had in public.

Q170 Chairman: What makes you think that personal carbon trading will result in community action?

Mr Prescott: We do not assume that it will but we are looking at how it could. We have a particular programme of work that is initially taking the Cardiff South and Penarth constituency as a case study. We are looking at a variety of housing types and a variety of demographic groups within that constituency, first of all to explore what would be the most efficient carbon reductions at either household or community scale, and, secondly, what community based groups or community based organisations - and I mentioned housing associations but it could be the local government even - chooses or would be able to offer support to those households that wanted to do something on a larger scale and a community scale for reasons of common sense; that is, a greater carbon reduction can be achieved at the community scale, for example. That may be true in many cases, hence that population choose to invest in their carbon credits in that way to bring about, as I said, a longer term energy security gain for themselves. We do not know that is how people will behave but we want to establish what the options could be for individuals and play those out in communities around the UK to put some evidence on the back of that question which is whether or not people would choose to behave like that.

Q171 Chairman: Would you envisage people pooling their allowances if they were living in a block of flats?

Mr Prescott: It may very well be the best choice, if the household were paying a communal energy bill. I have worked on a housing estate where people, because they were having community energy tariff flat, chose to have both the heating turned up full and their windows open, because that was the atmosphere they most enjoyed in their flat. There was not any economically rational reason why they should not do that but also, because the flat was not one that they owned, they did not necessarily have any incentive, for example, to install insulation or whatever. One would extend that also to private sector managed accommodation. Again, any investment on the part of the tenant, the gains from that would not be felt by the tenant but by the landlords. There are some particular issues around housing that need to be explored and the idea of poling credits or personal carbon allowances to act at community scale might very well be, by some distance, the most obvious choice for somebody in that kind of accommodation.

Q172 Chairman: How big could the unit be for people working together? Have you thought about that?

Mr Prescott: It is a good question that we will explore in Cardiff. For argument's sake, a particular block of flats could be a community or a housing estate could be represented as a community. I would suspect that smaller sizes might work better - up to two or three houses in a street or of that kind of scale - but we shall see the output of our work in Cardiff.

Q173 Mr Caton: Your technical requirements working paper mentioned the possibility of including an expiry date for credits. Why would this be necessary? What sort of eligibility period are we talking about?

Mr Prescott: That paper was exploring some of the market based issues as well as those associated with the technical infrastructure. One of the suggestions came from one of our expert workshops. When we were discussing the Oyster card scheme as an analogy, we were concerned that if people felt that the value of carbon would rise rapidly over time then as carbon becomes scarcer they might choose to hoard their carbon credits, hold on to them, and hence you might see a market failure in respect of trading early on. That was where the suggestion for a time expiry came from. However, our thinking has probably moved a little bit further. We now see perhaps the regularity of the allocation as being the most important thing and with respect to the question of maintaining a fluid market-place. So we would be thinking more on a monthly basis for an allocation, which would chime with many people's monthly income. Many people budget over a monthly period of time financially, and hence budgeting over a monthly period in terms of the carbon would also be a logical time frame and may provide the fluidity required without the need for a time expiry. But if we look at a cap and trade market such as the EUTS, there are some interesting relationships between EUA credits, between years and tradeability. All of these issues would need to be set out, and we will do so in an interim report, in order to explore how best to maintain the fluid market. It would also be important not to allow the prices to vary, to fluctuate too rapidly, because I think that would cause people a lot of problems.

Q174 Mr Caton: I hear what you say about the danger of hoarding, and that being important, the expiry date, but I guess the counter danger is that if you have an expiry date people spend and therefore emit more just because they know that is going to happen. Is that part of your reason for moving to monthly accounting periods rather than an expiry date?

Mr Prescott: Possibly yes. The predicted price of carbon - and this is something again that we are exploring but unfortunately at the present time I cannot report it - would really determine whether that kind of behaviour would be likely. I certainly know of people - and I shall not name names - who are taking long-haul flights this year for summer holidays because they perceive that some kind of carbon reduction scheme is on the horizon and they want to get it in while they can. Yes, I am sure that kind of behaviour would be possible, and, again, it is all to do with detailed scheme design to avoid any unwanted repercussions of such a detail.

Q175 Jo Swinson: I wanted to ask how you see the personal carbon allowances fitting in with the rest of the equality tools that we have in this area, including the emissions trading scheme. Do you think they would interact well or would we have to start with a clean slate to introduce personal carbon trading?

Mr Prescott: It would be unfeasible to start with a clean slate because we do not have one: we have the Kyoto mechanism, the EUTS, the Renewables Obligation, Climate Change Agreement, etc. But we do see multiple carbon instruments on the same energy chain, so it is possible to suggest that it is not a problem at all for the idea of personal carbon trading that a number of these instruments exist and that they can overlap. Indeed, with the EEC 3 moving into a slightly more visible location, if you like, I think there is a certain level of recognition that upstream instruments are not able to bring about the climate behaviour changes downstream that are necessary and so a multiple number of instruments on that line would be entirely possible. Also, as I mentioned, the nature of the personal carbon allocation being something which is very much yours to own as an individual, it will feel different from a number of those other instruments that I mentioned which do come through in perceived terms as taxation. That would be my first point. The second would be that, so long as the carbon market that was set up to support a personal carbon trading scheme was a separate currency from the EUAs of the ETS and the EUTS, then the two schemes would be able to operate side by side. They may want to be connected but we would suggest that a personal carbon trading scheme should only apply to individuals in the population. It would need some kind of safety valve but it should not be able to be gained by other organisations, who would behave in different ways from individuals, and hence we very much see personal carbon trading as the personal element of what the Tyndall Centre described as the "domestic tradeable quota" and, indeed, it need not be part of a domestic tradeable quota. In fact, a domestic tradeable quota would imply a clean slate, but, because that is not possible, we have reached the conclusion that a domestic tradeable quota also is not possible. Therefore, from the personal carbon trading scheme we are looking at a percentage of the emissions reductions required by a nation being allocated to the individuals and those then forming, if you like, a shared responsibility with government and business for achieving the reduction. It would be possible to put that in place initially as an initiative (that is, as a voluntary scheme) and later as a mandatory market-place without running into problems with the other instruments that currently exist.

Q176 Mr Caton: In this inquiry so far we have heard strongly varying opinions on the value of pilot schemes. What sort of pilots are going to be part of the carbon energy programme and what information are you going to get from them?

Mr Prescott: Primarily, two. The first is one on which we are currently working with a private sector organisation called ATOS Origin who are helping us to look at each of he infrastructural options for operating the scheme and to start testing those out. In terms of piloting the technology, if you like, that is entirely possible and we will initially be doing that with an unrepresentative sample, just to look at ironing out some of the details of what would most likely be a card, and then looking at getting a representative sample of the population to take part in that pilot scheme. That is a technology pilot that is entirely possible to do. However, that will not give firm evidence regarding the behavioural response in the round, and hence our programme for Carbon Limited Cities, using delivery to fora to look at behavioural response. Secondly, the development of our online Talk on CarbonDAQ, which we are currently revamping quite drastically to include a trading platform, possibly multiple trading platforms, would be set up both as a public engagement tool to come and learn about the idea but also as a research tool for us, and we will be using, again, segmentation techniques. We will enable people to set their own allocations and chose to trade in their own ways and form their own groups, et cetera, et cetera. There will be a lot of functionality but from that functionality we will be able to see which are the most popular methods that people are using and the kinds of behaviours different groups are displaying. In an online environment, even though some of those groups may well be geographically located in the UK and, indeed, overseas, as this will be an international tool, we will be able to learn a lot about behaviour in an online environment through that. Between the technical front end, if you like and the online back end, we will learn a lot, and then those two being linked together so that the carbon gap becomes the personal carbon account that supports the card that they have for part of the pilot scheme. It is that that will evolve into the voluntary scheme, so that we see a number of the elements coming together that enable a robust analysis of people's behaviour.

Q177 Mr Caton: You seem to agree with many of our other witnesses that the big question is attitudes and behaviour, and you are attempting to address that. However, it has led some of them to say that you cannot have a pilot project based on voluntary action in order to try to work out the details of a mandatory scheme, just because, as has already been mentioned, the people who get involved are already interested, whereas the majority of the public, sadly, at the moment perhaps are not. How do you respond to that?

Mr Prescott: Firstly, to reference my timeframe of moving from voluntary to incentivised voluntary to mandatory, this piloting work should at some point in the not too distant future contain an incentive part, and hence we move away from the usual suspects in environmental. However, there is a big danger that one could try to pilot something and never really uncover the key issues, which is why we are covering our bases and also doing some modelling work to support the deliverative fora. The main concern that was raised was really to do with piloting domestic tradable quotas and I think this is where the confusion arises. We are talking about a system of personal carbon allocations that go to the population and those are tradable. The environment in which those are tradable is not a whole economy scheme, because the personal tradable units are not tradable with business or industry. Indeed, that unit of currency is not necessarily also traded by business and industry; that is where EEC and the EUTS is operating. So we are talking about a separate scheme that is focused on the individual. That, for us, is what personal carbon trading is. The main problem with piloting the DTQ is that it would be impossible to set up a whole economy trading scheme in a microcosm but, if you forget about the rest of the economy and focus on the behaviour of individuals and communities, I think we can get a lot closer to an accurate piloting system than we would if we were talking about domestic tradable quota. That is the important distinction for us.

Q178 Colin Challen: Leaving aside the question of public acceptability for a moment, do you think that by the time of the next election, say in two years time, we would have enough information of a technical nature and practical nature to support the introduction of such a scheme? Do you think that by then we may have ironed out any of the practical questions which may be raised as objections?

Mr Prescott: There are the practicalities of operating the scheme. I believe we will, by the end of 2008, be able to report fully on the practicalities of operating the scheme. This is quite a pressing issue and we are looking also to minimise risk, hence looking at reusing existing infrastructure. My feeling is that it is very much in place. We are not talking about an ID card at all. The amount of information we would need is far less than that and so the existing infrastructure networks we have will be able to support the kind of scheme we are describing here. The outstanding questions, I suppose, are around political acceptability, which to some extent I believe we have just touched on by talking about the various instruments in play, and I think unnecessary concern about double counting. If we are talking about different currency, there cannot be double counting. So political acceptability, in terms of policies, I think will be there. It is the public acceptability which is really the outstanding one and that is why we want to put into play an incentivised voluntary scheme so that there is a strong enough conversation about the idea that, at the very least, people will have heard what it is and have a good idea of what it is and many of the public should have taken part in exploring it. I do not know if that answers your question.

Q179 Colin Challen: Do you think an incentivised voluntary scheme could be put in place at the next election.

Mr Prescott: Yes.

Q180 Colin Challen: If it is publicly acceptable it does address the question of public acceptability. Obviously, if people want to volunteer, that is a self-defining group, but what then happens? What is the process after that? Do you have to wait for another generation, five years time, before you can roll it out across the nation, so to speak?

Mr Prescott: I do not think we need to worry about the political cycle to introduce an incentivised voluntary scheme. That can be done in the institutional sector, such as by ourselves. The rules governing that scheme would emerge in time. If we are talking about making a mandatory scheme, if we are talking about when we get to that point, then I very much feel that the Carbon Committee that has been identified in the Climate Change Bill would be the group to create the rule book, if you like, that governs the operation of the mandatory scheme. The mandatory scheme could still be operated by public or private sector organisations - and that is when I talked about a very thin rule book to guide it - but we would need something like OfCarb or the Bank of England to control the price of carbon in the market but it could possibly be done through secondary legislation in the first instance. I am not sure that we are necessarily overly concerned about the political cycle. We would be if we were talking about a domestic tradable quota because we would need to clear away some of these instruments.

Q181 Colin Challen: Once again on public acceptability. Has any of your research shown whether the general public, accepting that there is an environmental challenge, would be happier to do this or to prefer environmental taxation or regulation or do they have that opinion in your assessment?

Mr Prescott: I believe there is evidence emerging on that issue, but not from ourselves at the current time. That is something we will be addressing through Carbon Limited Cities over the coming months.

Chairman: Thank you very much indeed. A very helpful session.


Memorandum submitted by Environmental Change Institute

Examination of Witness

 

Witness: Dr Tina Fawcett, Senior Researcher, Environmental Change Institute, gave evidence.

Q182 Chairman: Good morning. Welcome. Thank you for coming in. By way of introduction, would you like to tell us about the work you are doing at ECI and with the support of the UK Energy Research Centre on this topic.

Dr Fawcett: Over the past two and a half years in the UK Energy Research Centre we have followed essentially a general set of programmes of various aspects of personal carbon allowances. We do not look at the industrial and commercial side, if you like, the full DTQ, we just focus on household energy use and flexible transport, including aviation. We have held a debate with various academics and other interested parties about taxation options, upstream cap and trade as opposed to personal carbon allowances. We held a wider debate at PSI in relation to how, if we introduce personal carbon allowances, it would affect various sectors of the economy and the effect it would have on healthcare and things like that. We have also done specific pieces of research. We have done, at the moment, still a fairly small amount of research on the issue of children versus adults and allowances and we are hoping to continue with that. We have done a bit of work on the inclusion of public transport in the early stages. We are currently finalising a report about the prospects of having a pilot study or having some sort of trials on personal carbon allowances: Is that a researchable question? What would we find out? We are also just continuing to put the idea forward and generate debate about it.

Q183 Chairman: Clearly one of the merits of personal carbon trading is that it tends to be progressive in its effect on the public rather than regressive, which most green taxes are. On the other hand, various forms of carbon taxation are pretty simple to introduce compared with the inevitable complexity of a carbon trading scheme. How do you assess the relative merits of the alternatives?

Dr Fawcett: Obviously there is the effectiveness, there is the equity, there is transaction cost and you can look at those things. Then there is also the whole question of public and political acceptability and psychological effect of an allowance as opposed to a tax. They have been debated under all those different headings. One of the arguments between people who want to have a personal allowance and a cap is that then you have a strong cap which tells you how much the population as a whole is going to emit per year and you are going to meet that target every year, whereas with a tax you may not get the level of taxation quite right and that varies somewhat. Some people would say that is not that important, because you can move the tax around to make a bit more savings in the following year, but one of the arguments in favour of a personal carbon allowance is the certainty of the level of carbon emissions you are getting from that sector of the economy. The equity question about who is affected is very complicated. We do not have enough information at the moment to know all the answers to that. There was some initial work done by Paul Ekins and Simon Dresner - and Paul is talking to you later - which looked at the effects of personal carbon allowances and taxation on different income groups within the population and they showed that personal carbon allowances would be more progressive. in that the poorest people would be worse off than under a taxation system, even with recycling of money towards the disadvantaged, but that some people will still lose out under personal carbon allowance, some of the poorer people. But their research was necessarily based on using proxy data and did not include international air travel or any air travel because that data was not available. So, on those sorts of evidential questions of what the effect is going to be, we need some proper research. To answer the question properly, we need more data.

Q184 Colin Challen: You have already touched a little bit on the variance of the much talked about TEQs, DTQs, PCAs or whatever that the Environmental Change Institute is looking at. I am wondering how that will "interface" - a dreadful word - with organisations, commercial sector businesses and so on. Do you envisage that at some point the consumer becomes the only person who needs to trade in carbon, as it were? If you have all the embedded carbon revealed, then you could start excluding other sectors inside it one by one. Obviously that would be quite a long process and there would be quite a lot of work to be done there, but would that be your ultimate goal?

Dr Fawcett: No, I do not think you would. A possible way of going down is that you try to get the embedded product listed on every single product. Certainly a lot of the supermarkets are starting to look into this issue at the moment. For example, Walkers have a carbon label on their crisp packets and so on. In terms of practicality, that is a very long and difficult road, if you can even do it. I would see personal carbon allowance just being about direct energy use by individuals, and clearly we have to have a parallel system, DTQs or whatever, on the other side of the economy to reduce emissions from organisations and businesses at the same time. It just so happens we are focusing our research on the personal half of the equation because, in a sense, our research background is household energy use and personal transport. That is the scheme we are looking into, but we recognise there has to be a parallel scheme for the other side of the economy.

Q185 Colin Challen: How would this fit in with, say, the European ETS, where you are dealing with the same commodity, if you like, or the same unit of energy, it depends where it is sold and where it is bought. How do you avoid double counting?

Dr Fawcett: At the moment, if you were to bring in personal carbon allowances, there would be an element of double counting because electricity use is included under EU ETS. In personal transport, obviously aviation is not included, and gas supply is not included. So you would have a small amount of double counting at the moment. I am not entirely clear in my own mind how important that is. I certainly do not think it should be a barrier to us trying to further develop the idea of personal carbon allowances, particularly as we know EU ETS, although it might have a great deal of potential, is not actually effective in reducing carbon emissions at the moment. I recognise it is an issue. I do not think it is a reason to say this idea cannot go forward.

Q186 Colin Challen: It moves into the territory of where the price of carbon is set. We have seen a great deal of volatility in the European market for carbon, which we may not want to see. We certainly would not want to see that, I guess, in the personal market. There has to be a relationship between the credits in both markets for it to work effectively.

Dr Fawcett: That is right. The strength of researching DTQs is one thing, because you are very clear that across the whole economy there would be one price of carbon. I must admit it is not something on which we have done a lot of research. We have more tried to focus on the effect of PCAs on householders and the businesses that provide them with energy services. I cannot give you a good answer at the moment about how you would integrate the two market prices but, you are right, you would not want two very different carbon markets operating, because that would give you a lot of unnecessary complication.

Q187 Jo Swinson: You have mentioned public transport. In your memorandum you said that it should be included but there were a lot of difficulties in doing so at the initial stages of the scheme. Can you envisage public transport being included as a feasible component of the scheme? If so, when?

Dr Fawcett: Yes, I think we could. We would say, for simplicity, that you might leave it out initially, simply because it massively increases the number of transactions. If you have to have some sort of transaction each time you get on a bus, that is a lot more complicated. Most people pay for their energy use monthly and perhaps fill up their car once a week or whatever, so it is a very small number of transactions, essentially, that you have to manage in one system. Obviously in London now things have gone electronic, with the Oyster card and so on, so clearly there is a capability for having sophisticated systems on buses. We have just gone thorough chip-and-pin going into the tiniest retailers, so it is possible to roll out these technologies to a local level. I would imagine, if you wanted to start to include public transport, that it is going to be easiest to start with long-distance rail travel, the higher carbon trips essentially, and gradually move it down to small, local, low carbon trips. You may decide, in the end, that those are one per cent of people's personal carbon emissions and frankly it is just not worth the cost of trying to include those in the scheme.

Q188 Jo Swinson: Could the problem be got around by involving the bus and rail companies in the scheme, so that the cost of the carbon credit was effectively built into the price of the ticket and then the companies themselves have to purchase ----

Dr Fawcett: If you imagine the whole economy-wide scheme and you are not including public transport within people's personal carbon allowance, then, somehow, those businesses which were running the buses or whatever would have to buy their carbon on the carbon market or be allocated it - however you run that side of the economy - so that, effectively, whatever price they are paying for carbon will trickle down to the customer. It is indirect carbon taxation, in a way, by the time if hits the passenger.

Q189 Mr Caton: We have already touched on how personal carbon trading schemes might interact with ETS. What about other policy initiatives, like the Renewables Obligation, Energy Efficiency Commitment, Life Change Levy. Could they fit with PCAs, or would we need to wipe the slate clean and rely on PCAs?

Dr Fawcett: We very much see PCAs as simply an umbrella policy within which all the other policies we already have and more would work. Our research background comes out of energy efficiency, particularly household energy use. We know that people have been using energy a lot more efficiently within their homes for the past 30 years and yet energy consumption has gone up - because there has been no cap, because we have warmer homes, because we all have more tellies, because we live in smaller household groups. It is for all those reasons. It is not that energy efficiency cannot deliver some things, but without some form of cap on demand there are always going to be more energy services out there that you can buy. We became interested in the idea of a personal carbon allowance as a sort of capping scheme because we know about efficiency, which is a very powerful policy, that even it cannot deliver the savings that we need. It is not working. If you look particularly at personal transport or aviation, the situation is even worse in terms of massively increasing demand despite new technologies that are making things more efficient in low carbon fuels. We see very much see this as the top level policy, beneath which you continue doing all the things you are doing now but more, because we are trying to move quickly to a lower carbon society and you need to give people and institutions and organisations every possible help to get there, to make it publicly acceptable. Unless you have policies supporting A++ efficiency-rated fridges in the shops, so people can buy the low carbon option, unless you have policies making cars the less favoured transport option and supporting public transport and low travel lifestyles, the personal carbon allowance policy is not going to work. It has to be within a landscape of policies that are helping the whole of society, infrastructure and individuals, move towards lower carbon options.

Q190 Colin Challen: The level of public acceptability for the scheme was introduced and might be measured by the number of people simply passive in the market who do not want to do anything with it. The system could, I take it, survive with quite a large degree of passivity, but at what point would that become damaging to the scheme?

Dr Fawcett: Do you mean if people did not trade.

Q191 Colin Challen: Did not pay attention to the scheme and just ignored it.

Dr Fawcett: The only people who could do that would be people who were below their allowance level. If you have gone above your allowance level, you are going to have to buy some additional carbon. To pay your energy bill you are going to need to buy some extra carbon, whoever sells it to you, whether it is an energy company, the bank or whatever.

Q192 Colin Challen: They would see that simply as a tax, would they not?

Dr Fawcett: Possibly they would. It is a charge reflecting the impact you are having on the environment. That is right. From what we know so far, under personal carbon allowances there are going to be more winners than losers. In other words, there are going to be quite a lot more people under allowance than there are going to be people over allowance. Particularly in transport, there are a lot of emissions concentrated in the top ten or 20 per cent of the population. The people who are doing the most travelling are responsible for a lot more emissions than the bottom ten per cent of the population. All those people who are under the emissions allowance - maybe it is 60 per cent of the population, we do not know what that number is - have something they could sell, they have these spare allowances. Maybe some people are not bothered about that but most people are reasonably switched on about money and values, and this is, if you like, another kind of currency. Those people have a strong incentive to do something - to sell it, if it is easy for them, or to save it - and the people who are above allowance, if they want to continue with their high carbon lifestyles simply have to buy extra carbon - so they had better hope somebody is selling - otherwise they will not be allowed to fill up their car at the pump.

Q193 Colin Challen: Do you think there is a danger point, as it were, if most people tend to ignore it and dispute it as yet another cost and so on? In terms of the practical management of the scheme, are there any tipping points where you have to say, "Look it has not operated properly" where it was a bit complicated technically, perhaps, and you might just want to say, "We tried and we failed."

Dr Fawcett: I suppose if it was brought in and people were really against it, you might have some campaign of civil disobedience or whatever. It might all fall apart but the same thing would be true of direct carbon taxation. That has been extremely politically unpopular and that is the main competitor idea to personal carbon allowances. This idea of society not going along with the process of getting to a lower carbon world means there is the danger that whichever policy mechanism you try to use people will reject it. One of our jobs is to help people understand that this is what we have to do as a society. However we get there, we have to make these big changes.

Q194 Mark Lazarowicz: Is there not a danger for example in terms of people wanting to fill up their cars and use up all their carbon allowances sampling the black market. 20 to the guy in the petrol station and you will top up without points taken on your carbon card. To avoid that kind of situation you will have to have a complicated system of controls and regulations to ensure that a black market does not develop by the side of the official market.

Dr Fawcett: Of course in any system you would expect to get a bit of fraud and people getting round the rules, however you do it. Controls on fossil fuels are fairly tight and very well known in the economy. The government statistics are about how many billion litres of oil are sold a year and which companies are doing what. The chances of a big black market emerging are very small because these are commodities that are extremely tightly controlled and there are very good information systems about them. I do not see that as a major problem. I do not see how a petrol company would get away with it.

Mark Lazarowicz: There is quite a problem in the agricultural sector, but I will leave it there.

Q195 Jo Swinson: Most of the proposals for personal carbon trading suggest an equal per capita allocation amongst adults but obviously there are different circumstances, those based in the country, the number of your house and you mentioned whether or not children are included as well. What do you think is the best way to do this? Do you think there is a case for varying the allocation or should it be equal for every adult?

Dr Fawcett: I think it should be equal for every adult. I do not see practically how you can do it any other way. It delivers equity in a certain way. It is one definition of equity that everybody gets the same. It is not the definition of equity that says everybody has to make the same changes to their lifestyle. Everybody getting the same allowance, even with trading, is not going to hit some people differently from others. That is fairly inevitable. There might be some very minor exceptions with disabled people or people with particular medical conditions who have specific energy needs. I cannot see how on earth you would try to compensate people for all the different factors. From our initial research, we know that in a room like this we might have a factor of ten difference between us as individuals about what our personal allowances are. If you go round saying that a person who has ten times higher emission than me is allowed a lot more because there are all these factors that are problematic for them, like they have a big house and they live in the country or they simply have to drive 100 miles a day or whatever, how am I as a low emitter going to feel about that? Pretty irritated, I would think. There are more low emitters than there are high emitters. There are moral reasons for not varying the allowance, except perhaps in a small number of cases. The practical reasons completely dwarf the argument and principle about why you simply could not run a system like that.

Q196 Jo Swinson: Do you think there is a danger that it exacerbates the problem of fuel poverty in that those that are already being hit hardest have more of a difficult time?

Dr Fawcett: Until we do a proper national survey of personal carbon allowances that takes a sample of several thousand and looks at their social, demographic and housing and travel needs, we will not know the proper answer to that question. We need that kind of serious research into what are people's carbon emission profiles and who are those people before we can answer that with proper confidence. What we do know is that lower income people on average have lower carbon emissions than higher income people, largely because of travel patterns. They do not travel as much and they certainly do not fly as much. Their household emissions per capita may not be lower because they may be living in smaller household groups, generally speaking. They have less good infrastructure. There are various reasons. In general you would expect most poorer people to be better off but not everybody will be. People in fuel poverty are a particular group. Not all of them are the same people who are in poverty, but there is a fair degree of overlap. Clearly, fuel poverty is still an important problem in this country, given that some of it is dealt with through income compensation, giving these additional allowances to people which could be like giving extra personal carbon allowances, but there are also things like the Warm Homes Scheme, which is improving infrastructure for people's houses which has to be the way to go long term because it enables people to live using less energy and less carbon.

Q197 Jo Swinson: You mentioned you had started doing a little bit of research about whether or not to include children in the scheme. Could you touch on the findings so far?

Dr Fawcett: Essentially with children and adults there are three options. You can either give children no allowance and you might give adults some additional payment or you might not to try and compensate them for the additional carbon cost for their children. You could give children a partial allowance or you could give them a full allowance. We do not have good enough data on how much but we do know that having a child in the house in general increases carbon emissions in household energy use and increases some of the personal travel patterns as well. Again, we do not have good enough data to say it is 23 per cent of the child at this age or whatever. You can talk about children's rights and therefore whether they should have some allowance on that basis but the real thing most people look at is what are the distributional impacts. We know already that there are more children in poverty than there are adults in poverty. The last thing you would want to do, in a scheme like this which is saying we are trying to be fair; we are trying to not disadvantage people who are already disadvantaged in society, is to say that children get no allowance. Too bad, parents; you just have to deal with it. The people who will be hit hardest by that are single parents, low income parents, anybody who has more than one child. That does not seem an equitable way of doing things. You could either not give children an allowance and compensate parents financially through the child benefit system or you could say, "Okay, we have done the research and we think a child on average adds 30 per cent to a household carbon budget and therefore we are going to allocate those allowances to the children in the care of parents until they are 16 or 18." In our initial research, we have done some workshops with teenagers debating with them what they think. They pretty much went down the partial allowance route, having had a debate on all the different options. This is early stage research but that would be our feeling at the moment. That might be the way to try to do it. We feel it is more equitable and more clearly fits with the aims of the scheme.

Q198 Mr Caton: This also was an issue that we raised with Mr Prescott on the usefulness of pilot schemes. In your memorandum, you refer to the contribution of carbon rationing action groups to our understanding of how personal carbon trading could work. Many of our witnesses have argued that the information you can get from any type of voluntary scheme is very limited because inevitably it is unrepresentative of the wider population. How do you respond to that? Do you think it would be feasible or indeed desirable to run a mandatory pilot scheme?

Dr Fawcett: To answer the second question first, we do not think it would be feasible to run a mandatory pilot scheme. This piece of research that we are doing at the moment, partly funded by the Esme Fairburn Foundation, we started off with this optimistic view: what if we could run a mandatory pilot scheme? How would we do it? We have consulted very widely. We have people on our steering group including Richard Starkey and the Centre for Sustainable Energy in Bristol. We fairly quickly realised this was not a runner. We are not going to be able to have a mandatory pilot scheme. We know that. Nevertheless, is there value in trying to run some sort of pilot scheme? Over the past few months, we have held workshops and talked to a lot of other academics. Our contribution is going to be yes, it is worthwhile but it is a difficult research task and you are going to have to be quite careful about the way you interpret the results. What we want to do is involve people in running the best mock-up we can of personal carbon allowances for a year and to give the participants essentially a year's experience of living with a version of personal carbon allowances, find out what they do, monitor their attitudes, interview them, look at their before and after carbon emissions, talk to them about how the scheme went, what they felt about it, what worked well, what did not work; what was easy, what was difficult. Through their living experience of trying to do it we can learn a lot more on quite a deep level about people's behaviours, responses, attitudes and what they do. There are all sorts of reasons why it is not the same as running a mandatory scheme. We are very well aware of that. Nevertheless, it seems to me it is a good way of getting some quiet important data on how people really feel and react to a version of the scheme. You can go far with asking people about attitudes in focus groups. You ca try and do trading type exercises that Matt was talking about using Internet only. Those all give you part of the jigsaw but we think this kind of research trial gives you a chance to go into a lot more depth and gives people real experience, so that they really know what they are talking about when they tell you what they thought about it at the end. You find out what they have done and how they have reacted. You find out was this idea of personal carbon allowances psychologically important. It can be more powerful than a tax. We can try and find that out because we can have people we would give a dummy carbon taxation scheme to or there is a different kind of research thread or whatever. We can try and get a lot further with the human side of what this scheme would be but we cannot answer all the questions through trials because they are not the same as the real thing. We know that.

Q199 Colin Challen: What is the next thing the government should do?

Dr Fawcett: Defra are currently setting out their research budget to do particular pieces of research on personal carbon allowances. Either through the Research Councils or through the government, there needs to be a lot more research effort going into this. At the moment in terms of full time people doing research on this subject in the UK, there are maybe three to five full time people equivalents. This is an idea that has had a relatively small amount of research on it. It has come very high up the policy agenda which is great but the questions people are asking are well in advance of what the researchers can answer at the moment. If we want proper answers to these questions, there is no substitute for getting the evidence. There are two key, fairly big bits of research that I think the government needs to do. First, we need a large scale survey on personal carbon emission profiles at the moment, some combination of the English house condition, an energy survey and a passenger transport survey and include international air travel. If we get everything that we need to know about these people, then we can answer all these questions about distributional effects, who is emitting what, where and why; what are their opportunities for reduction. Even if you are not interested in personal carbon allowances, you need that research done to say anything about indirect taxation, extending the EU ETS. Whatever you want to do in terms of moving people wards lower carbon lifestyles, you need to know who is living what kind of carbon lifestyle at the moment and we just do not know. That is absolutely vital and it is a traditional, government type task: go out there and collect the data. You have the protocols in place. It should not be vastly expensive or difficult to do; it just needs to be done. That is my number one task. The number two task - possibly this is for a Research Council rather than the government - is to do funding for these kinds of trial schemes into personal carbon allowances to start getting the in depth information about people's psychology, behaviour, interactions with the scheme that we really need, and then continue with the smaller, individual bits of research. We also need to do the technology research, the economics research, the legal questions, the interfacing with the EU ETS. There is a broad sweep of research that needs to be done but I would highlight those two tasks as things that we really need to push forward. They are quite big tasks. They cannot be done just by the existing four or five of us who are active in this field. It needs more people and more expertise to come in.

Q200 Colin Challen: Are you aware if any other countries' research establishments, universities or whatever are looking at the suggestion of PCAs?

Dr Fawcett: There is a minor amount of work in a few other European countries. I went to a European energy conference this summer which runs every couple of years. I met all the other researchers and held a session about this. I asked them what they were doing. There has been a small amount of work in France looking at transport aspects of PCAs. Finland are starting to look at a bit of research on this. There has been some research in Holland but that has not been made publicly available. It was done by consultants for the government. I am getting a PhD student coming over from Belgium to do some research with me, so it is just starting but they are looking to the UK to see what we have done because it is faltering. It is just starting to get going in some other European countries but we are way ahead, even though I have said our research effort has been relatively low.

Chairman: Thank you very much indeed.

 


Memorandum submitted by Professor Paul Ekins

Examination of Witness

 

Witness: Professor Paul Ekins gave evidence.

Q201 Chairman: Good morning and welcome back. What potential do you think there is for personal carbon trading?

Professor Ekins: It depends what you mean by "potential". Clearly in theory it can limit the carbon emissions from the household sector in those areas of activity that you define it. We have some experience now with cap and trade systems. This is a cap and trade system for that particular sector in the personal carbon allowance sense of the term rather than the DGQ one. Therefore, the theoretical potential is established. There is the feasibility potential about whether you could do it and that seems to me also to be well established. It is clearly something we could do if we wanted to. The interesting question which you have already been exploring in some detail is: is it a formulation of the problem that the public would be likely to accept? Might there be other, better ways of trying to achieve the same objectives?

Q202 Chairman: I guess most, if not all, of us on this Committee think that the issue of reducing emissions is far more urgent than any of the current policy instruments is anywhere near achieving. We are facing a global crisis of momentous proportions and therefore urgent progress in cutting emissions is the overriding need. Comparing PCT with much higher green taxation, where are the merits in the short term? Which is going to be likely to be most effective?

Professor Ekins: I do not think either of them are politically acceptable at the moment. It is not politically acceptable to impose policies that will cause people to reduce their emissions. That is the baseline where we unfortunately are. With you, Chairman, I agree that that is not where I would like to be. I would like to be somewhere else. We know that environmental taxes are not popular. On the other hand, carbon allowances are rationing and it would not be long before it was being referred to in the popular press as rationing carbon and therefore energy use. I suspect that is not likely to be popular either. Once it starts being talked about in those terms, especially politically, if it is tied to the very large, redistributional effects that equal per capita allowances of carbon emissions would entail. You introduce the concept of rationing. Everyone looks back with horror at the experience of the Second World War and says, "Oh dear, back there". You also introduce very large redistribution from those people engaged in activities that are iconic activities of our time, driving cars and flying round in aeroplanes et cetera. I suspect you have a political problem. I am not a politician but it looks to me as if you probably have.

Q203 Chairman: We would love to have your help because we are politicians. Is there any way of making either of these alternatives remotely popular?

Professor Ekins: The message that to me has never been properly marketed, if we are looking at the two instruments of taxation and personal carbon allowances, is that if one was to charge very much more through taxation for environmental goods one would be able to reduce taxes elsewhere. That connection has never been properly made in the political discourse. We have had large scale increases in environmental taxes in the past, most notably during the nineties with the fuel duty escalator, which undoubtedly fiscally enabled some of the income tax reductions which we saw during that period if one looks at the number, but the connection was never made politically. The income tax reductions were presented as give aways from a generous Chancellor, whereas the fuel duty escalator was perceived as a stealth tax from an ungenerous Chancellor. The connection between the two in the fiscal system was never made. It may be, and I hope that might be one way of making this shift in relative prices much more attractive. The benefit of the personal carbon allowance approach and indeed of all trading approaches in the long term - I draw a distinction between short term and long term - is that it does enable you to get a pretty clear handle on the quantities. In the long term it is clearly the quantities that are important. I am enough of a brainwashed economist to believe that if you raise the price by a significant amount you will in fact reduce the quantity. We know what elasticities have been in the past when prices have gone up. They are often said to be very low but in fact they are not that low. They might be between 0.3 and 0.5 on a long term basis, which would result in very significant energy and carbon demand reductions if you were to increase energy prices significantly. You could probably increase those elasticities through information, through awareness and through generally instilling in the public a will to reduce carbon emissions. Unless one manages to instil in the public a will to reduce carbon emissions, one is not going to get personal carbon allowances through politically either. That seems to me to be a sine qua non of creating that discourse whereby not just you, me and the other Members of this Committee and probably most of the people sitting behind me think it is essential to reduce carbon emissions, but that becomes an absolutely clear public objective among people at large. I think we have made progress in the 10 or 15 years that I have been working intensively on this issue, but it is nothing like as much progress as the science has made showing that global warming will overwhelm us if we do not do things on a much faster timescale. That is the challenge.

Q204 Mr Caton: Would there be any problem in fitting personal carbon trading into the wider environmental policy landscape? In particular I am thinking of the EU ETS.

Professor Ekins: There are two possibilities. You could design it so that it did not overlap at all with the EU ETS. In other words, you only designate those emissions to come under the PCA rubric that were not in the EU ETS. That is interesting because, as you know, there are talks about bringing road transport for example in the EU ETS. As far as I am aware, we have not had detailed proposals as to how that might work. It is clear to me that it would have to work rather differently from the current EU ETS unless you were simply to give all the allowances to the oil companies. At the moment in the EU ETS, you give the allowances to large enterprises, large businesses. Road transport is not generally carried out by large businesses, certainly not in the personal sector. You would have to find some other way of distributing the allowances. As far as I am aware that has not been properly investigated. I guess this is most likely to arise now with personal carbon allowances if and when aviation goes into the EU ETS, because many of the proposals for personal carbon allowances suggest that aviation should be included in the personal carbon allowances. In principle, it does not seem to me that there is a problem if there is overlap. I do not at all agree with the analysis in the document done by the Centre for Sustainable Energy which suggested that there might be an increase in emissions because in any cap and trade scheme the total number of emissions is set by the cap. If you do not change the cap, you will not change the total number of emissions. If under the personal carbon allowances aviation was included there and in the EU ETS and people reduced their aviation because that was the way the cap was going, what effectively that would mean would be to loosen the cap in the other sector, but you would still have the same number of emission permits. That would reduce the price in the other sector. It would take the pressure off the price because effectively you would have had reductions there that had not been done in that sector. I am not sure that that is a problem, though obviously you would need to account for it carefully and make sure that each sector's emissions were being reduced in the terms in which they were accounted.

Q205 Colin Challen: We would all probably agree that it would be best to have a very steep curve in the reduction of emissions. Using this scheme or perhaps other mechanisms for achieving that, do you think we would have the capacity to change our behaviour? We have our systems geared up to a high carbon consumption rate. How fast do you think we could get that cap introduced, reducing steeply our emissions?

Professor Ekins: In terms of personal lifestyles, the potential is very great. Some people live rather low carbon lifestyles at the moment without being obviously disadvantaged. For fun, I did my own personal carbon lifestyle on the recent government calculator that has been released. My emissions are about 30 per cent of the per capita average across this, according to this and according to the graphs that I was shown. It leaves a certain amount to be desired in the transparency and knowledge of how these graphs are being constructed but I am not normally regarded as a particularly deprived person. I found it possible over a number of years to reduce my carbon emissions in an absolutely systematic and determined way, while still participating as a full member of society. I am sure lots of people could do that if they wished to but it obviously does have implications for the kind of life you lead. Most of the ways in which one does that are discretionary things that one can perfectly well learn to do without and still lead a full and participatory life in other ways. That sector of emissions is potentially very discretionary. Were people to be apprised and to feel the urgency of the situation, we could get large reductions from that sector relatively quickly, as undoubtedly we would have to if we went into something like a war situation. All sorts of things that people take for granted simply would not be possible. I am not sure how climate change could be presented in those lights, although I am quite certain the damage it will inflict in the long term will be fully equal to war time damage. It is not a totally inept analogy but clearly public perceptions of climate change are going to be very different to the kind of public perceptions of external threat that come about in war time. Part of the political discourse has to be to try to get across the seriousness of the situation without invoking analogies that can be shot down because they clearly do not recreate people's perceptions of these situations.

Q206 Colin Challen: To make anything like this work, surely we are going to have to go beyond the individual. We are going to have to look at the way society tells us we ought to lead our lives. When people like Mark Dirkin produced that programme, The Great Global Warming Swindle, he accused his detractors of being anti-globalist, anti-capitalist, anti-consumerist and that is the real agenda. If you take the possibility that that is the real agenda, for a lot of people who want to buy their BMW 7 series and live preferably a bit higher than on the flood plane in a detached house with a good garden, it is a very intuitive thing to get across. Would we have to introduce parallel legislation to control what the marketing industry feeds us every day in terms of the message? It is going to be very difficult for people to make individual choices, as many people in this room have done very laudably, when out there this great torrent of information is coming at them every day which tells them that it is okay to buy a Lexus.

Professor Ekins: There is a fundamental inconsistency in having a recognition of the need for a ration, which is what the PCA is, and a marketing industry that tells you to go on consuming more and more of those particular commodities that are particularly intensive in respect of that rationing. I throw it back to politicians in that it is unlikely that we will get political acceptance of the need for the rationing while the message from the very powerful marketing industry is that we can go on consuming more and more of all the things that would breach this rationing. If we want acceptance of the rationing, we will have to sort out something in terms of the consistency of the messages which people are getting so that at every moment when you are encouraged to emit more carbon, whether through patio heaters, plasma TVs or motor cars of a non-efficient kind, you do get the message that this is going to hit the ration at some point in the future. We therefore need to weigh this up and balance it against reductions elsewhere.

Q207 Colin Challen: Would it need a statutory code, as has been suggested with advertising fatty foods to children or whatever?

Professor Ekins: It seems to me that the climate change issue is every bit as important as the nutritional issue. Therefore, yes, information, persuasion and understanding of what is at stake are absolutely critical. Part of the problem is that we have heard quite a lot over the last few years about climate change being just about the most important issue on the domestic agenda from scientists and politicians without anything resembling the policy mechanisms being put in place or developed that would cause people to believe that. Until we start having a very great range of policy mechanisms put in place so that people can say, "They really do look as if they are serious about this," they may reject it which is the political danger, that the people who put those policy mechanisms in place will not win the support of the people. That is clearly a problem in a democratic context. At the moment I do not think people believe the politicians who say that this is the greatest threat facing us. They look at things that politicians clearly do take seriously like terrorism and obesity and they see a whole raft of policy instruments being wheeled out that do impact quite significantly on people's lifestyles and convenience and they say, "We know when politicians and government take this kind of stuff seriously. They do this sort of thing" and then they believe it.

Q208 Jo Swinson: Turning to the issue of how you would divvy up the allowances, we have heard already this morning the case for an equal per capita basis but your memorandum suggests that it does not need to be that way. Given the complexities involved, what would you propose would be an alternative model that would be workable and also perceived to be fair?

Professor Ekins: No one model is going to be perceived by everybody to be fair. Fairness is something that is fought out in the political process day by day. This will have to be too. The EU ETS is interesting because that was allocated not on the basis of equal per capita, whatever that might mean in company - you could have given it on the basis of turnover for example - but effectively on the basis of historical use, which is grandfathering on historical use, and that would be another way of doing it with perhaps some version of the contraction and convergence principle such that those people who were using most would be expected to reduce most quickly, so that one came down and narrowed the differences between various uses. Another option would be to give what you might describe as a basic allowance to everybody free which might cover 60 per cent of emissions from the sector. Then you might want to sell the rest. That would be a kind of hybrid between what is being proposed for the EU ETS, in that you auction some proportion of the emission allowances, and that would become a kind of hybrid between a tax and an allowance scheme which would raise revenue which would allow other taxes to be reduced or you could spend in other ways. There are lots of possibilities for this allocation mechanism and I suspect the equal per capita one is unlikely to help its political acceptability. Quite a lot of people, as soon as they realise what equal per capita emissions meant in terms of redistribution and reallocation, would demand that while they might accept that that was a possible, long term objective, they would certainly demand an adjustment and a transition period. One would have to think quite carefully about the whole trajectory of allocation of these allowances.

Q209 Mark Lazarowicz: Surely there is the danger that the more complicated we become the more politics comes into it to decide what is equitable, in terms of how you make the adjustments to the per capita allocation and then you take away from the whole attractiveness of the scheme as being one which has a long term consistency taken away from the approach. My Liberal Democrat friend here will no doubt want to have higher allowances to allow people to fly to the Highlands and Islands of Scotland more easily. Other people will want to do something for health and all the rest of it. The more you allow that kind of variability, are you not going to detract from the simplicity behind the concept of a PCA?

Professor Ekins: Yes, one is. On the other hand, the whole purpose of doing it would be to make it more politically acceptable because generally, just as taxation is often regarded as politically unacceptable unless it is related to ability to pay. This concept of equal burden of adjustment as opposed to equal allowance is one that has a certain currency. It certainly has a currency in the trading scheme. It is the way in which for example the Kyoto Protocol was divided up among the nations of the European Union and the reductions there, on the basis of how easy the countries thought it was going to be for them to meet the overall target that Europe was allocated in that process. Because I am not in favour of lengthy bureaucratic processes by and large, I certainly would not be wanting to argue for particular exemptions on the grounds of particular kinds of travel. The point Dr Fawcett made about the possibility that there may be some medical conditions that could, on a doctor's prescription, get you an extra allowance might have some weight, because otherwise you will certainly get very high profile opposition to a scheme from people who by and large are very good at generating column inches in the tabloids about unfairnesses to do with people with certain medical conditions who are not given special dispensation. I would certainly want to keep those to a minimum. It would seem to me that some scheme that combined a basic allowance for everybody with certain well thought out, broad distinctions such as perhaps based on medical conditions, perhaps even based on age given that very often older people are less mobile, spend more time at home and need and use more energy, where some extra part of that basic allowance gets allocated on that basis and then perhaps selling some portion of the rest. That would still be a very simple scheme compare to something like the Climate Change Levy that took armies of bureaucrats to negotiate these climate change agreements with very large numbers of energy intensive sectors. I like the simplicity of the idea but I do not think it is likely to be politically acceptable straight off like that.

Q210 Jo Swinson: On the politically acceptable point, the Energy Saving Trust has described personal carbon trading as overwhelmingly unpopular amongst people. You said earlier on that any form of significant carbon reduction is not likely to be popular but clearly we, as politicians, need to find a way of encouraging people to take that seriously. First of all, how confident are you that the public can be convinced? Secondly, what do we need to do to make that happen?

Professor Ekins: Looking at the evidence of the way in which social change has happened over the last 15 years, it is quite clear to me that the public can be convinced. We have moved a very long way down the track of people being aware of this issue and being vaguely perturbed about it. The problem is that the length of time that this trend if projecting before we would do anything serious about reducing emissions is simply at variance with what the science is telling us. As you will know, a particular characteristic of the climate change issue is that there is no smoking gun. There is no single event that you can ever point to definitively and say, "That is the result of climate change. Therefore we must do something about it." There are people swimming about in the Midlands after an event which is the kind of event which, 15 years ago, we were told was likely to become more frequent and worse. It entirely fits with what the climate scientists were telling us was more likely. I cannot say, you cannot say, no one with any credibility can say that it is definitively because of climate change that these guys are swimming around in Tewkesbury. It is one of these probabilistic events that our political system finds it very difficult to deal with. We need to have a much more sophisticated discourse, I am afraid, than that television programme that Colin Challen referred to earlier.

Q211 Mark Lazarowicz: I think you were here for the question from Colin Challen about whether the public were engaged in a system of actively trading allowances and take advantage of the market. What are your views on that issue?

Professor Ekins: I think it depends on the extent to which the public understands what a really radical innovation it can be. One would be setting up I think for the first time in history a projected, second currency to run alongside the first currency. It is a very peculiar kind of currency because it is both a commodity, a thing that you can buy and sell, and it is a money, a means of exchange. We have moved away from money being a kind of commodity in anything except the most esoteric, financial markets so most people do not think of money as a commodity any more, although of course it used to be. We are reintroducing that idea in an absolutely explicit way. If people understood that carbon was money, they would take it very seriously. They would participate in any scheme that was set up. They would find that they would need carbon bank accounts. In my memo, I suggest I cannot envisage how you would implement the scheme except through a whole parallel bank accounting system in which all adults had their account and carbon fell into their account monthly or whatever and they had their smart cards and they could use it in the same kind of way that they use any other kind of money. As soon as people recognise that that is what it is all about, they would participate in it. They need not necessarily understand it any more than most people understand the financial system at the moment which is not very much if the survey evidence that I have come across is anything to go by. The challenge will be to really connect that very abstract, transactional environment which will resemble the money environment with people's energy use and perceptions of energy use and a recognition that, when they turn the central heating up, that will mean that this parallel money as well as their normal money is going to be hit. The big difference about the parallel money is that it is rationed. There is a fixed amount out there in the nation and they will need to buy in a market that is fixed. That is quite a different kind of market to the one people are used to.

Q212 Mark Lazarowicz: You are right to say that it is radical and probably arguably revolutionary. It is not only a second currency; it is also one that wipes out the savings in relation to that particular part of the market covered by the scheme because you would not be able to rely upon your savings to buy your travel. You would have to rely on your allocations of carbon allowances.

Professor Ekins: You would be able to rely on your savings provided your savings were large enough to purchase carbon allowances from somebody else. The difference would be that that total fixed number of carbon allowances, especially if we are going out to 2030 and one can see that one is on a declining trajectory by 35 or 40 per cent on the carbon emission reductions envisaged in the Climate Change Bill by that date, one would be talking about very large sums of money needing to change hands in order to buy discretionary carbon allowances. This would be a serious commodity and would require a revolution in the way that we view these activities. I am a little doubtful that that kind of revolution and perception will happen very fast in the absence of some really fundamental event that causes us to re-evaluate this issue.

Q213 Mark Lazarowicz: You are assuming people would not turn down free carbon allowances but there have been plenty of examples where members of the public do not appear to take advantage of free money. For example, there are areas to do with energy efficiency where we all know people do not make rational choices in terms of insulating lofts and so on when it would save energy. We have the example of the Child Trust Fund where a substantial number of people do not take any active steps to try and get hold of free money. Can we really be sure that we would have sufficient liquidity in the market?

Professor Ekins: The key is, firstly, information and, secondly, public perception. There are different reasons why people do not take up energy efficiency options, partly due to transaction costs, hassle factors, all those other things that people like the Environmental Change Institute have written lots about and so have many other people. People have to do quite a lot. As soon as you go into your house and think, "What do I have to do to take advantage of all these free energy efficiency options?" it immediately gets extremely boring and rather tedious. You have to make lots of telephone calls to people you do not really trust. They come and wander about your house and suggest to you all sorts of things which you think will not make it look very nice. There are serious problems in that sector. On the non-take up of benefits, I believe that there is still a stigma factor which people have worked hard to try to overcome. There are some people, perhaps quite laudably, who feel they do not want to take advantage of benefits. This scheme will be different in the sense that you would have a bank account. There are not many people who have a bank account who do not draw on it. Under this kind of scheme, you would have to have a bank account. People would have to have a carbon allowance bank account which received these things on a regular basis. They would be sent statements about how much they had. I do not think there is any evidence that people who have bank accounts do not draw on them. That is the correct analogy. If people understood that this was money and they knew that they had an account in which this money resided, they would spend that money on a regular basis as they consumed energy and as they emitted carbon; but they would know if they had money at the end of the year they would know that they could sell it. There would be any number of brokers, marketers, people sending them flyers and e-mails saying, "If you have carbon, come to us. We will reduce the transaction costs. We will offer you however much real money you want." There might even be a problem that people would participate too freely in the carbon market to start with. They might sell all their allowance because they did not really know what it meant. They would then find that they have to buy further allowance back at a later date when they started consuming and they recognised that they needed this secondary kind of money in order to cover their energy consumption. I think people would cope with that after a while but the introduction of the scheme would have to be very carefully prepared and people would really need to understand what was going on which is why I am a little sceptical about the value of a pilot. I do not think that with something as fundamental as people's perceptions of money - and that is what we are talking about - there is any substitute for the real thing. We know in many instances when people are asked hypothetical questions about money it is quite different to what happens when the real thing comes along and it affects their behaviour in an absolutely concrete way.

Q214 Mark Lazarowicz: It is money but it is not money as we know it. Are you confident that we can operate a system of personal carbon allowances through the banking system? There have been examples where IT systems have not always worked quite as wonderfully as they ought to have.

Professor Ekins: I am not confident because I am not an expert in this. We have a very sophisticated banking system which seems to work. To me, this scheme would probably be best operated through that banking system. I do not see that the kinds of transactions people would be making through their carbon accounts would be far less frequent and far less complicated than the kinds of transactions that they make through their normal money accounts. I would be very confident that the banking system could handle it. Some of those who are doing detailed work on this issue might be coming up with other schemes which they think could work even better. I do not know about those. When I look at the way in which the banking system works and the way in which it enables people to engage in this very wide range of transactions in hugely different contexts, in many different ways, from cash to cheques, to Internet trading, to electronic accounts, to credit cards, to debit cards, I think some adaptation of some small subset of those possibilities would enable a carbon market to work pretty well.

Q215 Joan Walley: Can I press you a little more on what you said about pilot schemes? You said that you did not see much point at this stage in pilot schemes because you would be dealing with not having real money or it would all be not properly worked out. Is there anything else that we should be doing in preparation for getting some kind of public readiness to accept this kind of a proposal? Do you rule out pilot schemes completely?

Professor Ekins: What I am sceptical about is that a pilot scheme would tell you very much about how such a scheme would work in the real world when it was for real. Quite apart from anything else, anyone engaging in a pilot scheme would know it was going to finish in 12 months. All the strategies and perceptions they might have would have this very time limited variety whereas obviously, if a PCA scheme were to be introduced, it would be for real and for ever. Just as no one suggested having a pilot scheme for decimalisation that I remember and I do not think any country had a pilot scheme for the introduction of the euro, they just had to set it up, prepare it really carefully, ensure that people really understood what was involved. Of course you did get your glitches in the transitions with people being fraudulent and all that kind of stuff. One would just have to try to prepare against that. That seems to me to be the correct analogy of the sort of thing that is being introduced. If however you wanted to play games in schools in order to get across the idea that energy is linked to carbon and carbon will need to be rationed and this is a game in schools which kind of enables you to do that, you might link that in some way to carbon calculators. I think carbon calculators are a very interesting innovation. They are interesting as an educational tool, trying to make palpable and real to people this very abstract idea that energy contains this stuff, when we use it, of carbon dioxide which we cannot smell or see and it is changing the climate. This is pretty difficult stuff for people to grasp in their every day life. You do not find very often any more people thinking it but I remember 10 or 15 years ago members of this august House who did not know that climate change was not the result of depletion of stratospheric ozone. These are difficult issues to get across. There may be all sorts of ways in public education processes that would help. That is fine. You can call those pilots and I would entirely think that they could be very useful because clearly there is lots of public education that is required in the field. I am doubtful as to how much useful information they would give about how such a scheme would work in practice.

Q216 Joan Walley: Presumably the difficulty is how do we bridge that gap and prepare a public who are not ready to understand the issue and the urgency of it, who are not as informed as they could be even despite the floods that we have just had over the last few days, where we do not have as much education for sustainability in schools being taught and at every professional level? How do we get people to prepare to be ready with some kind of readiness to accept this when it comes in? If pilot schemes are out, are you saying that we should be relying upon academic work behind the scenes in preparation for when there would be some public acceptability that doing nothing is not an option? It has to be done quickly.

Professor Ekins: The kind of work that Tina Fawcett was talking about, about trying to understand better the distribution implications, is very important. The work that Simon Dresdner and I did on the distributional consumption of energy, the data is rotten. It is very poor indeed and I think we will need to get a handle on what the detailed distributional impacts of these different allocation mechanisms are likely to be. That seems to me to be a very important area where we need to understand it but again we need to understand that for all sorts of reasons, not just because of PCAs. We need to understand that because if we were serious about climate change in the domestic sector we would already have a complete characterisation for domestic housing stock. We would already know through a GIS system what every single house was in terms of its U value and the kinds of energy efficiency measures that you could put in place in order to bring it up to scratch. Then we would have proper incentives to get people to do that. In a sense, we need to do all that stuff just to show that we are serious about the issue and for people to perceive that politicians are serious about the issue. It is very damaging when what to me is an extremely important innovation - the home information pack, which would start to give people detailed information about the carbon performance of their building - fell apart because we could not train 3,000 or 4,000 people in time. When that sort of thing happens, it is not surprising that the public thinks, "These guys do not take this issue seriously" because they would have ensured that we have enough surveyors out there in time, given that this Directive has not exactly been sprung on us. This has been in preparation through the European Commission for at least ten years so this is not something that just hit us between the eyes without us knowing about it. Those are the kinds of things we need to do in order to raise the acceptance among the population that politicians of all parties - it will not be possible to vote for a party that says, "This issue does not matter" and that is not serious about putting in place policies that would cause people to believe that. Once we are there I think we are in a much better position to start having a sophisticated discussion about the kinds of policy instruments that we want, the balance between taxation, regulation and trading and all those other things which policy wallahs like me spend their lives thinking about. At the moment frankly it is not something that most people are ready to engage with at that level because we are not even at the basic level of being able to characterise the issue.

Q217 Joan Walley: In the evidence that you have given to us, you are suggesting that there is not so far a political acceptable state of affairs where intervention of this kind is necessary. What is it going to take for a government to be in a situation where it would be able to go along with proposals of this kind and take the population with it, without which it would not be in a position to do it in the first place?

Professor Ekins: If I knew a definitive answer to that question, I would be a very successful politician.

Q218 Joan Walley: You cannot just be an academic, can you?

Professor Ekins: I absolutely agree. Political acceptability is a dynamic phenomenon. It is something that can change quite quickly and things that would not have been politically acceptable become politically acceptable. Clearly it is the work of the whole climate change action community, of whom I am certainly one in an academic and research sense, to try to work for that. The Climate Change Bill is a very important political innovation because that will make it more difficult for politicians to opt out of the agenda altogether. I think it will mean that politicians, given these targets, if they do not like one set of policies for carbon reduction, they will have to put forward another set of policies for carbon reduction instead of just saying, "We do not like that." That is potentially an important discipline. We might then start having a proper debate about the right tools for carbon reduction. At the moment if we look at aviation for example, there is practically no recognition in the mainstream political world that the rises in aviation that are currently being facilitated through government permissions are simply inconsistent with any sort of carbon target that we may be anticipating is likely to have purchase on the problem. For as long as that is the case, the public will not believe that politicians are serious. That is a very difficult place for politicians to be because, on the one hand, they say things that are so unpopular they get de-elected and, on the other hand, they do not say things and yet they have an important message that has to be articulated but they are not believed because they have not put in place the means to implement the necessary actions. We all have a role in trying to ameliorate the situation. There is still quite a lot of scope for adventurous political and policy activity which is not being taken and where we do need further leadership on all sides.

Q219 Joan Walley: In terms of the evidence that you have given, you have very much one foot in the academic world but obviously you interact with politicians or through the UN in different ways. I take what you say about it being the sum total of what we each do and what we each do acting together that really makes a difference. You talked just now about leadership. Just thinking about the academic community, is there more leadership that the academic community could be giving in order to be able to provide the information, the education, the research, to make it much more likely for there to be political action on this?

Professor Ekins: The academic community is in many parts. The natural scientific community over the last five years particularly has become far more vocal and perturbed about this issue, with all this talk of tipping points and potential catastrophe and this kind of stuff, which was ruled out as more or less not polite conversation back in the late eighties/early nineties. That aspect of the debate has changed and it has definitely had an impact on public perception. The academic policy community, of which obviously I am part, yes, we are driven as much as anybody by Research Council funding. The increase in Research Council funding for things like the UK Energy Research Centre which has a very large policy component enables us to do much more work and therefore we can come along and talk about it much more. We are able to be much more solidly grounded in the evidence base. That is very useful and helpful. The kind of work on behaviour change that has been funded and is going on has so far been very inconclusive, which is not terribly surprising to me because this is a really difficult systemic problem about not knowing where to push a system and what is going to happen at the other end. I am doubtful that we will ever get any magic bullets on that and I suspect that quite a lot of that will come about through the suck it and see actions of politicians. You are the group of people whose profession is to feel where public opinion is in certain ways and be able to articulate things in ways that will send the public off to where you perceive to be a good direction. When all the major political parties feel that this is a real priority and they do articulate it in those ways, I think we will make much more progress. That would be a quite different place to where we were five years ago with things like the fuel duty protests. The whole role of the fuel duty escalator in curbing car fuel demand and the environmental benefits of that almost went completely by default from practically all the parties, with some honourable exceptions. We are moving and we need to intensify and accelerate these processes by factors of ten or 100 if we are going to make the 15 year Stern window.

Q220 Joan Walley: You are not going to be doing impromptu seminars in Gloucester in the floods?

Professor Ekins: Perhaps. When the first question was asked: "Can you categorically say that these floods are due to climate change?" and the answer was a very academically proper, "Well, on the one hand, we were warning this 15 years ago and it would be a greater probability", you have lost people. That is a big difficulty and one that we have to get across because it will not do anyone any good if we start over-blowing the science and exaggerating where that is not justified.

Q221 Chairman: We are all at one in the recognition of the urgency of the problem and the challenge of introducing what will be quite controversial and unpopular solutions. You quite rightly in an earlier answer said that the tax system could be used much more effectively than it has been. We have not seen enough carrot alongside the stick and therefore people do not see the benefits. It would be fairly easy to have benefits for low carbon choices but we have not done that sufficiently. This Committee has been consistently recommending that we should have more carrot than stick. In terms of the possible pilot for a PCT system, I take entirely your points about artificial one year experiments. However flawed that is, would not one of the benefits be that those people, many of whom are poorer people who inevitably lead a lower carbon lifestyle, would see immediate financial benefit? Would not that be one way of trying to make this quite dramatic potential solution acceptable?

Professor Ekins: It would all depend how it was set up. I tend to be of the "no free lunch" school of thought. Therefore, if these people were to see a financial benefit, there would need to be a financial cost somewhere, unless the government were to subsidise it of course, unless the government were to say, "We will buy your carbon permits from you rather than someone else having to buy them" or whatever. You could introduce incentive schemes of that kind which might indeed have educational and political value. In those terms, I think a pilot could well be useful because it would enable people to get a bit of a handle on what is a very difficult and radical idea. What I do not think it would do is enable you to judge very much about how people would behave under those circumstances if this was for real. That is not to say that the other objectives might not be very worthwhile.

Chairman: Thank you very much indeed for a very interesting session.