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The Relative Acceptability of Tradable Carbon Permits and Fuel Price Increases As Means to Reduce CO2 Emissions from Road Transp

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The Relative Acceptability of Tradable Carbon Permits and Fuel Price Increases As Means to Reduce CO2 Emissions from Road Transp Reducing carbon emissions from personal road transport through the application of a Tradable Carbon Permit scheme: Empirical findings and policy implications from the UK Helen Harwatt Institute for Transport Studies, University of Leeds, 36-40 University Road, Leeds LS2 9JT, UK [email protected] 1. Introduction Climate change is an urgent issue rapidly reaching the top of the political agenda. Greenhouse gases (GHG) are an essential component of the atmosphere as without them the earth would be uninhabitable. However, anthropogenic (human produced) GHG emissions are contributing to warming of the climate beyond what would be naturally expected. Carbon Dioxide (CO2) is classified as the most significant GHG due to the quantity of release and quantity present in the atmosphere (IPCC, 2007). Based on the evidence available, the IPCC (2007) conclude with high confidence that anthropogenic warming over the last three decades has had a significant influence on many physical and biological systems. In addition, the IPCC (2007) have medium confidence regarding the anthropogenic influence on human systems. At its 33rd G8 summit in June 2007, the G8 agreed to aim to at least halve global CO2 emissions by 2050 from current levels. However, binding figures were not set as the USA would only agree to such reductions if China and India were also included in the commitment (Elliot and Wintour, 2007). Whilst the G8 agreement is a major step forward in terms of climate change policy, recent scientific evidence suggests that in order to avoid going beyond a 2 °C increase in global temperature and thus avoid the most severe and irreversible climatic change, it would be necessary to reduce CO2 emissions by 70% - 90% by 2050 (Bows et al., 2006; Stern, 2006). The UK contributes 2% to global GHG emissions, of which the transport sector is responsible for 28% of CO2 emissions and is forecast to increase in comparison to declines in other sectors (DEFRA, 2006a). Hence, whilst transportation is an intrinsic part of society and current lifestyles (Lyons et al., 2002; Anable, 2005), the transport sector makes a significant contribution to GHG emissions. For example, in the UK, road transport alone currently accounts for 26% of UK CO2 emissions, the majority resulting from personal use (DfT, 2006a). The UK government set out aims in the Energy White Paper (DTI, 2003) to achieve a 60% reduction of UK CO2 emissions by 2050. This target is proposed to become legally binding, with a draft climate change bill outlining the necessary legislation (DEFRA, 2007). The UK government currently have a range of transport policies set out in the Climate Change Programme that are expected to deliver a reduction of CO2 emissions from transport by 13% by 2010 from growth trends (in comparison to taking no action) (DEFRA, 2006b). Hence, whilst the measures are likely to have an impact on CO2 emissions they will not deliver the significant reduction necessary in order for the UK to achieve a legally binding 60% reduction by 2050. Whilst it is possible that it may be more cost effective to reduce CO2 emissions in other sectors, in consideration of the possible need to achieve a 90% reduction of UK carbon emissions (Bows et al., 2006), significant reductions from the transport sector are unavoidable. Thus, a new policy direction is essential. In recognition of the potential to deliver substantial carbon reductions with a high degree of confidence (DEFRA, 2006b; Roberts and Thumin, 2006), the 1 government have begun to explore the concept of personal carbon trading as a key climate change policy tool. This paper provides the first set of empirical data regarding the public response to a personal carbon trading scheme applied to personal road transport in the UK. With the aim of contributing to the growing debate regarding the application of pricing or trading measures to achieve emissions reductions (Keay-Bright and Fawcett, 2005; Raux and Marlot, 2005), a system of fuel price increases designed to achieve the same emissions target was also explored. This paper provides unique empirical data focusing on the behavioral response, impacts, fairness, perceived effectiveness and acceptability of both measures and provides a range of policy implications intended to steer policy direction in this highly important and largely undiscovered research area. Section 2 provides background information on the policies explored whilst section 3 outlines the policies designed for the purpose of this research. Section 4 details the survey methodology with survey results presented in section 5. Finally, section 6 contains the research conclusions and implications for policy makers. 2. Policy background Tradable Permit (TP) schemes are regulatory measures designed to achieve environmental targets at the lowest possible social costs. They have the potential to achieve targets set under traditional ‘command and control’ measures but at much lower economic costs (Verhoef et al., 1997) as pollution credits can be transferred amongst those who are better equipped to make the desired changes (e.g., a reduction in emissions produced) and those for whom the market prices are more economically feasible than abatement technology at that time. TP schemes therefore provide flexibility in meeting emissions targets, as those who pollute over their assigned amount of permits are able to purchase additional permits from those who pollute below their threshold and subsequently have excess permits, thus enabling new requirements to be achieved in a more cost effective manner. In a typical TP scheme, a target would be set (e.g. an emissions target), and the purpose of the scheme and the geographic area to be covered would be clearly defined. By distributing a certain amount of permits, the regulatory body is then able to control levels of pollution in line with the overall target, a process referred to as ‘cap and trade’ (Crals et al., 2003). Those affected by the system would then have to acquire tradable pollution permits equal to an amount of pollution which could then be emitted. The amount of permits available would then be gradually reduced until the target is reached. To date, TP schemes have been applied to stationary emissions sources with the first scheme (the US Emissions Trading Programme) beginning in the US during the mid 1970’s with the aim of adding flexibility to stationary sources in meeting the air quality standards required by the Clean Air Act 1975 (Tietenberg, 1985). More recently, phase I of the European Emissions Trading Scheme (EU ETS) was introduced across Europe in 2005, with phase II beginning in 2008, coinciding with the first Kyoto Protocol commitment period. The scheme was designed to “promote reductions of greenhouse gas emissions in a cost-effective and economically efficient manner” (DIRECTIVE 2003/87/EC) and to therefore contribute to achieving Europe’s commitment to the Kyoto Protocol, a GHG emissions reduction of 8% below 1990 levels between 2008-12 (UNFCCC, 1992). Currently the scheme includes high emitting industries, such as cement and steel, and power stations from the 15 countries that made up the EU before the expansion to 25 countries in 2004. 2 There is a growing political interest in the use of tradable permits to achieve emissions reductions in the UK. In addition to the desire to include aviation in the EU ETS, there is a strong interest in the use of personal carbon permits, where individuals are given a free allocation of permits and have the onus of reducing their own emissions. For example, the DEFRA recently commissioned a review of personal carbon trading (Roberts and Thumin, 2006), which investigated how such a scheme might work and highlighted the main knowledge gaps. The previous secretary for the environment, David Miliband, has also publicly discussed the idea of individual carbon trading (Adam and Batty, 2006). In addition, during a speech at the Audit Commission annual lecture, David Miliband highlighted several potential benefits of personal carbon trading (DEFRA, 2006c): “It is easy to dismiss the idea as too complex administratively, too utopian or too much of a burden for citizens. Do we really want another Government IT programme? Are there not simpler ways of achieving the same objective by focusing on business to change their behaviour not citizens? And will it ever be politically acceptable? But, as the Tyndall Centre’s work shows, in the long term, there may be potential to make a system work, and in a way that is arguably more equitable, more empowering and more effective than the traditional tools of information, tax, and regulation”. There is also a growing interest in the use of TP schemes to reduce emissions from motor vehicles i.e. non-point source, or mobile emissions (Raux, 2002; 2004; 2005; Swedish EPA, 2006; Grayling et al., 2006). The EU ETS currently includes large point sources of CO2 emissions, where monitoring is more feasible. However, the experience gained could then be used to extend the programme to regulate small mobile emitters, such as cars (European Commission, 2003). In the EU ETS review, the European Commission focused on 2 options – including car manufacturers and including individual motorists (European Commission, 2006). The UK government have also explored the prospect of including road transport in the EU ETS, concluding that the earliest date for inclusion would be during phase III in 2013 (DfT, 2007). In addition, the UK Government have declared their wish for aviation to be included in the EU ETS (DfT, 2003; DEFRA/DfT, 2007), which, if realised, could be a major step forward for the use of Tradable Permit schemes to reduce carbon emissions in the transport sector. In addition, the Commission for Integrated Transport (CfIT) recently published a piece of research exploring the design of a TP scheme suitable for surface transport (Watters and Tight, 2007).
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