Personal Carbon Trading and British Columbia's Climate Policy

Beyond the Carbon Tax: Personal Carbon Trading and British Columbia's Climate Policy

by Laura Isela Guzmán Flores B.A., Universidad Tecnológica de México, 1999

Thesis Submitted in Partial Fulfillment of the Requirements for the Degree of Master of Arts

IN THE

DEPARTMENT OF GEOGRAPHY

FACULTY OF ENVIRONMENT

 Laura I. Guzmán 2014 SIMON FRASER UNIVERSITY Summer 2014

All rights reserved. However, in accordance with the Copyright Act of Canada, this work may be reproduced, without authorization, under the conditions for “Fair Dealing.” Therefore, limited reproduction of this work for the purposes of private study, research, criticism, review and news reporting is likely to be in accordance with the law, particularly if cited appropriately.

Approval

Name: Laura Isela Guzmán Flores Degree: Master of Arts (Geography) Title of Thesis: Beyond the Carbon Tax: Personal Carbon Trading and British Columbia's Climate Policy

Examining Committee: Chair: Janet Sturgeon Associate Professor

Alex Clapp Senior Supervisor Associate Professor

Mark Jaccard Supervisor Professor School of Resource and Environmental Management

Stephanie Bertels Internal Examiner Assistant Professor Beedie School of Business

Date Defended: August 11th, 2014.

Partial Copyright License

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Ethics Statement

Abstract

This thesis proposes a policy framing, communication and implementation model for personal carbon trading in British Columbia. Personal carbon trading is a scheme under which all individuals are allocated a number of free carbon allowances forming a personal carbon budget. Persons whose carbon emissions are lower than their carbon budgets can sell their surplus to persons who have exceeded theirs. As distributed allowances are reduced annually, consumers are encouraged to modify their behaviour and/or adopt technologies in order not to exceed their carbon budget. Personal carbon trading and carbon taxes are both carbon pricing instruments that, using different policy framings, aim to reduce greenhouse gas emissions. Comparative experiments in the United Kingdom tested the hypothesis that, due to economic, social and psychological drivers, personal carbon trading would have greater potential to deliver emission reductions than taxation alone.

This thesis explores that hypothesis in the context of British Columbia’s climate policy. It builds on an analysis of the BC carbon tax, international examples of carbon pricing instruments, and strategies for behavioural change such as social networking, loyalty management, apps development and gamification. Interviews were conducted with experts in financial services, energy efficiency, and the green economy, as well as with specialists in climate, health and taxation policy. They offered opinions on the potential of personal carbon trading to increase individuals’ participation in carbon emission reductions in BC. Their input, together with a review of the theoretical literature and practical case studies, informed the proposed design of a personal carbon trading system for BC. The thesis concludes with policy recommendations for increasing individual engagement, carbon budgeting and collective action by linking personal carbon trading to social, financial and health incentives.

Keywords: Carbon Pricing; Personal Carbon Trading; Carbon Tax; Behaviour; Behavioural Change; Gaminification.

Dedication and Acknowledgements

I would like to dedicate this thesis to:

In Spanish: Quiero dedicar esta tesis a:

My family for their support, encouragement and unconditional love, mum, I remember when I told you about this idea some years ago while vacationing at the beach in Acapulco, it was very gratifying when you understood and liked the idea and when you said you wanted to be part of this system…maybe one day it will become a reality! Yadira, my adorable sister and best friend, without your constant support and help in every aspect of my life, this project would have never been possible. Dad, I hope you smile when you see your girl defending this thesis, thanks for your inspiration to always try to make a difference for our world. Please send your blessings from heaven.

In Spanish: Mi familia por su apoyo, motivación y amor incondicional, mami, recuerdo cuando te platiqué acerca de esta idea hace algunos años cuando vacacionamos en Acapulco, fue muy gratificante cuando entendiste y te gusto la idea y cuando dijiste que querías participar en este sistema… ¡tal vez algún día será realidad! Yadira, mi adorada hermana y mejor amiga, sin tu constante soporte y ayuda en cada uno de los aspectos de mi vida, este proyecto no hubiera sido posible. Papa, espero que sonrías cuando veas a tu niña defendiendo su tesis, gracias por la inspiración que siempre me diste para aportar ideas y crear un mejor entorno global. Manda bendiciones desde arriba.

Alex, my senior supervisor at SFU, for your incredible patience in giving shape to my ideas. And in helping me to overcome the challenges of improving my English and academic writing. I am so much more comfortable and conversant and I have you to thank for that. Thanks for believing in me and encouraging me to continue every time I felt it was too difficult.

Mark, my co-supervisor, your deep knowledge, and contributions to the field of climate change, were a real inspiration. Thank you for challenging and improving my ideas and accepting me into your research group. It means a lot.

My dear friends in no particular order: Sergios, Scott S., Scott D., Mel, Jess, Emma, Anca, Sharon, Martin, Hurrian and Stu, for your encouragement and friendship, and for believing in me. You instilled the confidence in myself that I needed to create this project and bring it to fruition. For your help through my first years of school in Canada when my grammar wasn’t great and understanding of academia was very limited, for your great ideas, for your example, for your patience and for all the times that you did not get mad at me when I could not go out and play ;-).

My work colleagues at the Climate Action Secretariat, in particular to Tim and Jess for your flexibility in allowing me the time to conduct this research and for sharing your expertise in the areas of public policy and climate change.

And to all the incredible people I had the opportunity to meet and interview during this research. Thanks for all your ideas, for the time and energy that you put into helping me to mold this policy proposal. For your constructive criticism and for referring me to relevant people, jurisdictions and companies. The culmination of these ideas snowballed into the research contained in this policy paper.

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Table of Contents

Approval ...... ii Partial Copyright License ...... iii Ethics Statement ...... iv Abstract ...... v Dedication and Acknowledgements ...... vi Table of Contents ...... viii List of Tables ...... xi List of Figures...... xii List of Acronyms ...... xiii

1. Introduction ...... 1

2. Methods...... 9 2.1. Research Design and Procedures ...... 10 2.2. Interview Sample ...... 12 2.3. Data Analysis ...... 13

3. Theoretical Approaches to Carbon Pricing and Behaviour Change: Economic, Psychological and Social ...... 15 3.1. Economic Approach to Behaviour Change ...... 15 3.1.1. Tragedy of the Commons, Public Goods, Negative Externalities and Pigouvian Taxes ...... 16 3.1.2. Carbon Pricing ...... 18 3.1.3. Fixed Carbon Pricing Mechanisms: Carbon Tax ...... 19 3.1.4. Emissions Trading Mechanisms ...... 22 3.1.5. Personal Carbon Trading ...... 24 3.2. Social and Psychological Approaches to Behaviour Change ...... 31 3.2.1. Social Acceptability ...... 34 3.2.2. Consumer Behaviour and Commodity Fetishism ...... 35 3.2.3. What is and what is not Behavioural Change ...... 36 3.2.4. Barriers to Behaviour Change ...... 38 3.3. Design Principles and Strategies for Achieving the Behavioural Change ...... 41 3.3.1. Changing Defaults ...... 42 3.3.2. Using Social Proofing to Climate Action’s Advantage ...... 42 3.3.3. Bring the Public into the Conversation ...... 43 3.3.4. Enlist Help from Business and other Players ...... 44

4. Practical Approaches to Carbon Pricing and Behaviour Change ...... 45 4.1. Carbon Pricing by around the World ...... 47 4.1.1. United States of America ...... 47 4.1.2. European Union ...... 53 4.1.3. Australia and South Pacific Ocean Territories ...... 57 4.1.4. Other Countries ...... 62 4.1.5. Canada ...... 65

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4.1.6. Summary of Lessons and Recommendations from Analyzed Carbon Pricing Systems ...... 67 4.2. Carbon Pricing in British Columbia ...... 69 4.2.1. Results of the BC Carbon Tax ...... 71 4.2.2. Interviewees’ Perception of the BC Carbon Tax ...... 73

5. Beyond the Carbon Tax: Personal Carbon Trading for British Columbia ...... 78 5.1. Personal Carbon Trading: an Option for BC? ...... 79 5.2. How Climate Policies Could Influence Individual Behaviour ...... 82 5.2.1. Carbon Price Rate ...... 82 5.2.2. Making Goals Achievable, Fair, Real and Tangible ...... 83 5.2.3. Finding a Common Ground (Health & Fitness, Economy, Others) ...... 84 5.2.4. Putting the Power and Tools in the Hands of Individuals ...... 85 5.2.5. About Incentives ...... 86 5.2.6. About Intention and Gamification ...... 90 5.2.7. About Social Influence ...... 91 Social Networks ...... 92 5.2.8. About the Use of Technology ...... 93 5.2.9. Other Recommendations ...... 95 5.3. Assessing the Potential Effectiveness of a Personal Carbon Trading Approach ...... 96 5.3.1. Potential Benefits of Personal Carbon Trading System for BC ...... 98 5.3.2. Potential Challenges of Personal Carbon Trading ...... 98

6. Proposed Design: Policy Recommendation for a Personal Carbon Trading System in BC ...... 101 6.1. Carbon Health and Savings System: Design and Operation ...... 102 6.1.1. Sectors of the Economy and Allowances Distribution ...... 103 6.1.2. Determining a Baseline and Scope of Emissions ...... 105 6.1.3. Distributing Allowances ...... 106 6.1.4. Carbon Currency and Price ...... 107 6.1.5. Incentives ...... 108 6.1.6. Reserve of Allowances: New Entrants and Visitors ...... 110 6.1.7. Options to Buy and Sell Carbon Allowances ...... 111 6.1.8. Options for Compliance ...... 111 6.1.9. Voluntary vs. Mandatory ...... 112 6.1.10. Avoiding Double Regulation ...... 113 6.2. Creating a Coalition: Taking Advantage of What Already Exists ...... 115 6.2.1. Potential Participants and their Roles in the CHSS Coalition ...... 116 6.3. A Technology Platform for CHSS ...... 123 6.3.1. Super App as an Integrated Technological Solution ...... 124 6.3.2. Unique Multi-use Electronic Card: BC Services Card ...... 128 6.4. Minimum Viable Product and Coalition ...... 129 6.5. Conclusion ...... 131 6.5.1. Further research ...... 133

References ...... 135 Appendix A: Sample Interview Guidance ...... 150 Appendix B: Generic Description of the Roles and Expertise of Interviewees ...... 157

List of Tables

Table 1: Summary and Comparison of Existing Personal Carbon Trading Proposals ...... 27

Table 2. Research methods used to consider whether Personal Carbon Trading is socially acceptable ...... 34

Table 3. Fuel and Carbon Taxes in the European Union ...... 56

Table 4. Carbon Pricing Schemes around the World (2014) ...... 63

Table 5. Summary of Lessons from Carbon Pricing Systems Applicable to British Columbia ...... 67

Table 6. Comparison of BC Carbon Tax and Personal Carbon Trading Policies ...... 81

Table 7. Examples of Existing Green Rewards and Green Credit Cards Programs ...... 89

Table 8. Optional Design Features for a Personal Carbon Trading System ...... 103

Table 9. Proposed Incentives under CHSS...... 108

Table 10. Proposed Apps for CHSS ...... 126

List of Figures

Figure 1. Different Approaches for Behaviour Change through Carbon Pricing ...... 31

Figure 2. Carbon Pricing around the World (2013) ...... 45

Figure 3. Carbon Pricing Coverage over Time ...... 46

Figure 4. Carbon, Health and Savings System for British Columbia ...... 102

Figure 5. Representation of Economic Sectors Regulated by Carbon Pricing ...... 105

Figure 6. BC Individual GHG Emissions Divided by Source ...... 106

Figure 7. Example of a Dashboard for Decision Making ...... 128

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List of Acronyms

AB32 Assembly Bill 32: Global Warming Solutions Act ARB Air Resources Board BC British Columbia C2ES Center for Climate and Energy Solutions CARB California Air Resources Board CCPA Canadian Centre for Policy Alternatives CDM Clean Development Mechanism CHSS Carbon, Health and Savings System CO2e Carbon Dioxide Equivalent COP Conference of the Parties CPM Carbon Pricing Mechanism DEFRA UK Government's Department of Food and Rural Affairs DTQs Domestic Tradable Quotas EPA Environmental Protection Agency ETS Emissions Trading System EU European Union EU ETS European Union Emissions Trading System FEASTA Foundation for the Economics of Sustainability GDP Global Domestic Product GHG Greenhouse Gas ICAP International Carbon Action Partnership ICT Information and Communication Technology IEA International Energy Agency IETA International Emissions Trading Association JI Joint Implementation Program LCFS Low Carbon Fuel Standard LEED Leadership in Energy and Environmental Design LNG Liquefied Natural Gas LoF List of Figures LoT List of Tables Mt Metric Tonnes MVP Minimum Viable Product NGO Non-Governmental Organization NICHE Norfolk Island Carbon/Health Evaluation NOx Nitrogen Oxides NRCAN Natural Resources Canada PCT Personal Carbon Trading PICS Pacific Institute for Climate Solutions RECLAIM Regional Clean Air Incentives Market

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RGGI Regional Greenhouse Gas Initiative RSA Royal Society for the Encouragement of Arts, Manufactures and Commerce in the UK SFU Simon Fraser University SIN Social Insurance Number SO2 Sulphur Dioxide SP Sustainable Prosperity TEQs Tradable Energy Quotas ToC Table of Contents UBC University of British Columbia UK United Kingdom UN United Nations UNBC University of Northern British Columbia UNFCC United Nations Framework Convention on Climate Change US United States UVic University of Victoria WCI Western Climate Initiative

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1. Introduction

Mitigating climate change poses a serious challenge for policymakers, both at the industrial scale and at the individual and household levels. Although personal carbon emissions are individually negligible, collectively they are very significant. The International Energy Agency (IEA, 2007) estimated that carbon emissions from individuals account for nearly half of all emissions in major developed countries. Emissions from individuals in Canada are about 30 per cent of total Canada’s greenhouse gas (GHG) emissions. In 2010, approximately 210 million tonnes of carbon dioxide equivalent (CO2e) (NRCAN, 2013), of a total of 701 million tonnes reported in the National GHG Inventory (Environment Canada, 2013), were directly attributable to individuals – sources include: household space heating, water heating, lighting, road transportation and aviation. The situation in British Columbia (BC) is very similar: individuals are also directly responsible for about 30 per cent of provincial GHG emissions, amounting to about 5 tonnes per person per year (LiveSmart BC, 2014) and over 10 tonnes including indirect emissions (CCPA, 2010). British Columbians are among the world’s highest energy users and energy accounts for more than 80 per cent of our emissions (LiveSmart BC, 2014), the remaining 20 per cent are emissions related to waste and process of consumption products.

Households contribute to GHG emissions in Canada in two ways. Direct emissions from motor fuel use and residential fuel use account for about one-third of household emissions, while indirect emissions make up the remainder. The use of motor fuels is the largest source of direct emissions attributable to households followed by space and water heating and cooking. Individual indirect emissions are a consequence of people’s daily life activities that involve consumption of products and services, but these emissions occur from sources not owned or controlled by the individual. Examples of individual indirect emissions are: the extraction of raw materials and the production of purchased products; the transportation of purchased fuels; or the generation of electricity consumed in households. The purchases of goods and services that usually result in the

highest indirect emissions from households are, in order of magnitude, electricity purchases, food and non-alcoholic beverage purchases, restaurant and accommodation services, motor fuel and lubricant purchases (Statistics Canada, 2004).

Although more people are becoming aware of the presence and risks of climate change and the fact that human activities are causing this global problem, most do not understand clearly which of their own activities contribute to climate change, nor how they could be accountable and/or rewarded if they modify any of those activities. The problem of climate change is compounded by the fact that people think about it in very different ways. Many see it as a technical problem that could be solved through technological changes; others see it as a social, cultural or political issue. Many people feel powerless: they don’t know what to do or how to do it, or when they know, they find it very complicated or too small and even negligible to make any difference in solving a problem of such a large dimension. A good example of this phenomenon has been investigated in the US, many people–as much as sixty per cent of the US population–do not believe that human behaviour is responsible for climate change (Pew Research Center, 2009). Furthermore, among those who do believe, many find it difficult to conceptualize the timing and the actions required to mitigate the effects (Sterman, 2008). One of the main conclusions in the study Americans' Problem with Global Warming states that “Perhaps most important [barrier] in obstructing public “uptake” [of climate change] is a widespread sense of powerlessness” (Hortwitz, 2004: 30). Another article advocating for the use of imagination to reshape our current path of ever escalating GHG emissions mentions “Too often people forget that [their] current socio- economic system came into being because human beings have imagined it, and thus they often feel powerless to intervene” (Wright et al, Organization, September 2013 :652).

Some people blame governments and large corporations and although they wish they could have the ability to influence their actions, many of them simply read the news, sometimes discuss the problem and their fears, but ultimately get distracted with their daily lives and, as long as there is no big impact to their comfort, they simply forget the problematic situation. Interviews with participants, who participated in Hortwitz’s (2004) study, confirmed that many people feel that there is no benefit in following climate science since they will not be able to apply whatever they might learn. They recognize

that their actions result in personal and environmental consequences and state that they want to do the “right thing”. But they also feel that it would be better to simply conform to the direction driven by more powerful and distant institutions and to the economic reality (Hortwitz, 2004).

Some other people take a next step and sign petitions, or even participate in protests, but the “urgency is not felt by many people […], how to make that cosmic sense of urgency immediately felt is one of the challenges of this (climate) movement” (Mingle, 2013: 3). Mingle (2013: 2) also suggested that social movements (i.e., protests) are the “one thing that could make the important urgent.” Social movements create moral urgency when they are accompanied by a sense of injustice, or even anger, but also by hope, and a sense of the possible solutions.

There are various approaches to a problem such as climate change, which presents a very complex adaptive challenge that requires a wider set of responses from different perspectives (i.e., technological, political, economic and behavioural), and from as many social actors as possible, including governments, firms, households and individuals. There is no single proposed solution that could serve as a magical wand to address the various facets of this global problem. Potential solutions could vary and interplay depending whether the problem is evaluated at the aggregate (e.g., provincial, national, global) or at the individual level (e.g., personal carbon footprint).Solutions would also depend on the level of public support in any given jurisdiction. Some policies demand a greater level of participation from society, and some jurisdictions could opt not to require direct engagement or efforts from large segments of the population. Other jurisdictions (e.g., Sweden’s carbon tax) may support policies that represent a high impact for individual consumers and large segments of their population. Personal carbon trading is such a high-visibility approach.

This study focuses mainly on economic and behavioural approaches to reduce personal carbon footprints as one possible approach that may have value within a policy portfolio. It draws on the attitudes and behaviours described above, and on the policy and human motivation literatures that address the kind of behavioural change that may be needed in the context of climate change. This study researches and proposes policies using economic, social and psychological motivators that have the potential to

generate behavioural change. But what is behaviour and behavioural change in the context of climate change?

For the purpose of this study, it will be assumed that behaviour is the way in which one acts in response to a certain situation and is determined by the interplay of three general factors of influence: intrapersonal, such as personality states, values, and motivations; interpersonal, such as social comparison, social norms and the power of collective action; and external, such as rewards, regulations and penalties. This study will present a policy approach to positive environmental behaviour that takes into consideration these three influences: It touches on personal values and motivations that are interrelated but not exclusive to the context of climate change; it uses positive and negative incentives to direct behaviour and builds on the hypothesis that one of the most effective forms of climate change mitigation lie in the collective power of people to assume ownership, accountability and control over their daily life activities that involve direct and indirect carbon emissions and that establish models of social comparison for other individuals.

Diverse policy efforts around the world are attempting to dramatically reduce GHG emissions. Most of them have chosen to regulate the larger and aggregated industrial emissions sources first. Some policies (e.g., California and Quebec cap-and- trade programs) have been designed to also regulate the distribution of fuels, which translates into a higher price for fuel consumers, thereby directly affecting individuals’ behaviour. Some success has been achieved, but in many cases this accomplishment is threatened by the increasing demand for products, energy and services by growing human populations. At the end of 2011, the world welcomed its seven billionth inhabitants, and by 2050, the United Nations projects that the world population will be between 8.1 billion and 10.6 billion persons (UN Department of Economic and Social Affairs, 2011). An example of threatened success in climate action is occurring in BC: contrasting with a reduction in carbon emissions by about 4.5 per cent from the period of 2007 to 2010 (BC Climate Action Secretariat, 2012), and as a result of increasing energy demand in Asia, in February of 2012, the BC government announced the development of a new liquefied natural gas (LNG) sector (BC Ministry of Energy and Mines, 2012). This new LNG sector could represent an increase on GHG emissions of about 73 million

tonnes of CO2e per year by 2020, equivalent to (at least) 30 million tonnes above B.C.’s 2020 climate target (Horne et al, 2014).

Almost two decades ago, carbon taxation was implemented in countries such as Denmark, Finland, Norway, and Sweden (Climate Commission Secretariat, 2012) as a policy aimed to reduce GHG emissions. Carbon taxes are a type of carbon pricing policy that put a direct and fixed price on the negative externalities of carbon emissions. In 1997, the Kyoto Protocol introduced emissions trading (i.e., cap-and-trade), another carbon pricing mechanism, to harness market forces to achieve GHG emissions reductions. Since then, various governments have adopted some type of carbon pricing policy, including British Columbia’s carbon tax in 2008.

Both carbon pricing mechanisms, carbon taxes and emissions trading, theoretically function by changing the relative price of goods and services depending on their carbon intensity. The prices of goods and services with higher carbon emissions are expected to rise relative to the price of those with lower carbon emissions; as a consequence, demand for the high carbon-intensity products and activities is expected to fall and carbon content falls per unit of economic activity. Carbon pricing mechanisms have been crucial in enabling global research & development of clean technologies that otherwise would not be economically justified. Governments around the World have designed carbon pricing policies that incent industrial investment in technologies that reduce emissions compared to business as usual operations or that improve the efficiency of their processes using less energy and reducing or repurposing waste.

This thesis acknowledges the importance and relative successes of existing carbon pricing policies and technology. Looking at personal carbon footprints and their connection to behaviour, however, there is one component lacking in the current carbon tax and cap-and-trade schemes: establishing a more conscious connection between the carbon pricing policy objectives and the individual actions without relying on further

increases in carbon taxes1. People know, and in many cases support, the existence of these policies, but often cannot clearly see how these policies could give them individually the power and tools required collectively to mitigate climate change. Some of these policies are not designed taking into consideration the interplay of intrapersonal, interpersonal and external influences on behaviour.

More specifically, the purpose of this research has been to investigate what kind of carbon pricing policy framework has greater potential to influence individuals’ environmental behaviour from intrapersonal, interpersonal and external influences, while given a lower or equal price signal than the existing BC carbon tax rate at $30.00 dollars (BC Government, 2014).

Personal carbon trading is a policy approach that provides a potential complementary carbon pricing mechanism beyond carbon taxes and cap-and-trade. This investigation is based on the hypothesis that the best solution to climate change lies in the orchestration of a wider set of technological advances, policies, education initiatives, and collective action at the individual, industrial, academic and governmental levels. Making use of interdisciplinary research, personal carbon trading is analyzed as an economic instrument interrelated with social and psychological aspects of human lives. The outcome of this research constitutes an individual-oriented policy proposal that, making use of technology, aims to address the various aspects intervening in people’s decisions to consume energy, services or products that result in carbon emissions.

Personal carbon trading and carbon tax are both carbon pricing instruments that aim to reduce GHG emissions. Although both instruments have been designed according to the principle that carbon emissions must be priced, these instruments operate in different ways and utilize different types of incentives, such as penalties

1 At the time of this study (summer 2014), the BC carbon tax at $30 CAN dollars per tonne of CO2e (BC Government, 2014) is one of the highest carbon prices in the world. However, some economists argue that this rate is too low to prompt radical changes in behaviour (Carbon Tax Centre, 2014). Another example of a carbon tax that has created a high level of awareness of climate change and has resulted in a dramatic drop in emissions per unit GDP is Sweden’s carbon tax at a rate equivalent to $150.00 US dollars (IETA, 2013).

versus rewards. It would be hard to determine that one policy approach is better than the other: both instruments have advantages and disadvantages. The answer depends on how each system is designed, as the design will determine the environmental and economic effectiveness.

If both approaches are well designed, these could be used in conjunction. A carbon price will provide an incentive for everyone, including industry and households. In designing a carbon price system, governments should look at aspects such as: how strong is the economic incentive (i.e., the carbon price) to reduce emissions? Does the system apply to all emission sectors? And how are the revenues used: are they invested in green infrastructure or corresponding tax breaks?

In 2011, a study was done in the UK to examine people's willingness to change energy consumption behaviour under three different policy framings: energy tax, carbon tax, and personal carbon allowances. The UK study tested the hypothesis that “due to economic, pro-environmental and mental accounting drivers”, a personal carbon trading framework would have greater potential to achieve emissions reduction than a taxation approach (Parag & Capstick 2011: 894). The results indicated that: “while a higher price signal is likely to bring greater emissions reduction, it would be less publicly supported, especially in times of economic decline” (Parag & Capstick 2011: 902). Therefore, it is possible to encourage people to reduce further GHG emissions, given a low price signal, by modifying the policy framing: using personal oriented mechanisms involving not only economic, but social and psychological motivators.

In this study titled Beyond the Carbon Tax: Personal Carbon Trading and British Columbia's Climate Policy, thirty-two interviews have been conducted to test a similar hypothesis for British Columbia. Could personal carbon trading be an extension or policy advance to the BC carbon tax? Could personal carbon trading have the potential to achieve greater emissions reductions as an alternative or complementary policy to the BC carbon tax? What characteristics should a personal carbon trading policy encompass to have a greater potential to be effective and publicly accepted in BC? Answers to these questions will be discussed ahead.

This research includes an interdisciplinary literature review comprised by a theoretical framework and carbon pricing and behaviour change case studies, as well as thirty-two semi-structured and unstructured interviews.

These methods, as well as the data analysis process are described in the second chapter of this thesis. Chapter three presents a literature review that provides the foundation of a theoretical framework that facilitates the understanding of carbon pricing and the different approaches to behaviour change. This chapter is divided into four sections: it analyzes the economic, social and psychological aspects to carbon pricing, and concludes with a review of principles and strategies for achieving behaviour change. This theoretical framework explores whether market price is the only, or even the most powerful tool for achieving behavioural change, and how economic, social and psychological motivations might interact to promote behavioural change. Chapter three’s theoretical foundations inform chapter four’s review of carbon pricing applications around the world, including an analysis of carbon pricing policy in BC. Chapter three also supports the analysis of interviews’ results presented in chapter five and six.

Chapter five includes an analysis of alternative carbon pricing policy frames for BC: personal carbon trading, and their potential effectiveness in modifying human behaviour and reducing greenhouse gas emissions. Chapter six presents recommendations for the design of a personal carbon trading system that promotes and enables individual engagement, personal carbon budgeting and cumulative collective action in the province.

2. Methods

In science research, particularly in social sciences, investigators are mainly centered in building and testing descriptive and explanatory models of the realities with which they are concerned (e.g., climate change policy). Any particular model aims to represent a simplified version of a more complex social reality. Generally, social research moves from model-building to testing the model that was built. Particular types of interviews may be used for model-building (e.g. unstructured interviews) or model- testing (e.g., semi-structured interviews). Also in a given interview, the interviewer may shift between model-building and model-testing activity (Wengraf, 2001). However, given that we cannot test a model until we have built one, the general sequence used in social research goes from model-building to model-testing (e.g., designing and then conducting the interview).

This particular research utilizes one-on-one semi-structured and unstructured interviews as the main research method beyond the literature review. Interviewing is one of the most frequently used research methods in social research, both quantitative and qualitative. Qualitative interviewing involves a special kind of conversation, one in which an interviewer (or more than one) asks questions to a respondent or subject (or more than one), on a particular topic or topics, and carefully listens to and records the answers. The purpose of qualitative interviewing in social science research, as of qualitative research in general, is to understand the meanings of the topic of the interview to the respondent; the qualitative interview’s purpose is to obtain descriptions of the experience and perspective of the interviewee with respect to interpreting the meaning of a described reality (Warren, 2003).

An unstructured interview, also called an in-depth interview, does not rely on closed-ended or structured questions. The interviewer pursues information about a given topic by asking open-ended questions or merely prompting the interviewee (Fontana, 2003). In this research unstructured interviews have facilitated conversations with

experts in areas of knowledge diverse but complementary to the main topic (i.e., environmental and economic policy). This type of free-flowing interview permits the respondents to feel more comfortable and provide deeper detail in their specific area of expertise, without the necessity to explore guided questions in other areas that might not be so familiar for them.

The semi-structured interview has a flexible and fluid structure, unlike structured interviews, which contain a structured sequence of questions to be asked in the same way of all interviewees – the structure of a semi structured interview is usually organized around an aide memoire or interview guide (Fontana, 2003). The use of an interview guide permitted to align the objectives and main research questions of this study with the specific questions asked to participants. The sectional structure and sequence of questions in which the interview guide was designed, also facilitated the analysis of results. Both open-ended and closed-ended questions can be combined in a semi- structured interview guide; in this study, closed-ended questions allowed for the inclusion of statistical information as an input that informs the policy proposal.

Unstructured and semi-structured interviews do not limit the provision of information and ideas to pre-established answers or more limited contexts as in structured questionnaires. Nevertheless, it is important to acknowledge that these research methods also allow for the introduction of personal bias and sometimes for assertions about topics where the interviewee does not have wide expertise. It is to address these challenges that participants in this study were selected from a variety of areas of expertise (e.g., public and private sector; policy, health, energy, transportation, banking, taxation and accounting, technology and loyalty management, among others) and free-flowing opinions were encouraged when there was the opportunity to contrast and complement statements provided by supporters of personal carbon trading.

2.1. Research Design and Procedures

To design this study the following steps proposed by Maxwell (2005) were followed:

1) Determine the study goals 2) Building a conceptual framework

3) Defining the research questions or research purpose 4) Selecting the methods 5) Decisions about data collection and data analysis

The conceptual framework for this study has been designed using an interdisciplinary approach: Economics, Sociology and Psychology are the three main areas of social science that support the theoretical understanding of this research. Information and Communication Technology (ICT) has been also used to inform the policy proposal presented in chapter six.

Three main research questions have guided this investigation:

1) What type of policy framework has the greatest potential to reduce individual carbon emissions in British Columbia? 2) What have been the experience and lessons from environmental market-based mechanisms around the world that could be applied to climate policy in British Columbia? 3) What features should be incorporated in a proposed policy design for an individual-oriented carbon pricing policy in British Columbia?

One-on-one semi-structured interviews were selected as the main method to evaluate whether a personal carbon trading policy approach could be an alternative or supplement to the carbon tax in British Columbia; some unstructured interviews were also conducted to explore specific topics (e.g., banking, loyalty management, information and communications technology). Exploring the type of policy-oriented questions that concern this study required open-ended questions that allow for participants to provide a deeper analysis and rationale to each response. When this research was initially proposed, it also included the use of a social survey to assess the level of social acceptability of a personal carbon trading system in BC. Conducting a survey was dependent on the availability of funding and it also represented a broader scope of research. The recommendations of my academic committee after defending my research proposal were: 1) to re-design the study employing interviews as the primary method of research, and 2) to adjust the scope of this study to produce policy recommendations instead of providing quantitative measures of public acceptability.

Questions on public acceptability were included in the interview process, as these questions have the potential to inform policy recommendations, but they did not provide quantitative information. Measuring levels of public acceptability of a personal carbon pricing approach could be the subject of further research as explained in chapter six.

2.2. Interview Sample

A group of potential participants was determined using three methods: internet based research, initial recommendations from acquaintances that work in green economy sectors in Canada and US, and snowball references. When participants provided a reference, they were asked to contact the person they suggested as a third party to ask whether that their party had any objection to the release of their name to the researcher for the study. Upon permission of the third party, the participant could have either provided their contact information to the principal investigator or asked the third party to contact the principal investigator directly.

All the potential participants were contacted by phone or email. The interview was conducted in person or over the phone, when the person agreed to be interviewed. All interviews were subject to the consent of the participant. The time to complete the interview varied between 45 and 60 minutes. The interviews were recorded and the participants were asked if they agree to have the interviews recorded, if the participants did not to allow the recording, notes were taken with pen and paper. Interviews were transcribed for information analysis and Masters’ thesis development.

A sample interview guide is included in Appendix A of this study. The questions in the sample interview were designed for response by key opinion leaders and experts in the low carbon economy, climate policy and sustainable energy sectors. The sample interview is divided in three sections. The first section is focused on assessing the effectiveness and challenges of the British Columbia carbon tax. The second section is intended to assess the potential of a personal carbon trading scheme to complement the carbon tax and to increase BC residents’ willingness to shift to a lower carbon emitting behaviour. Finally, the third section evaluates potential features to be incorporated in a

proposed design of a personal carbon trading system for BC. In addition to the sample interview, some customized interviews were conducted to obtain specific information on loyalty management, information and communication technology, banking, tax and carbon accounting experts.

Interviews were conducted with 32 participants who, based on their professional experience, professional role and capacity to influence environmental and economic policies, are considered specialists in the fields of carbon pricing, sustainable development and low carbon economy. Other individuals working in the field of energy production, green loyalty programs, green banking and sustainable retail were also interviewed. All participants were adults (19+ years). Participants were provided an explanation of the study goals, as well as a description of the carbon policy mechanism known as personal carbon trading, and then they were asked to respond a maximum of 15 questions. Every participant signed a consent form and agreed on the terms of this research. All the information shared in this study was used only in an anonymized or aggregated form, so that the information given cannot be attributed to its source. No names were used or attributed to specific points or quotations. A non-attributable description of the role and expertise of the participants in this research is provided in Appendix B of this study. It is important to acknowledge that, despite the level of expertise of the participants in this study, this group of individuals does not constitute a representative sample of British Columbians. This study presents points of view and opinions that together with a review of the theoretical literature and practical case studies, informed the proposed design of a personal carbon trading system for BC. Further investigation using different survey and sampling methods would be required to represent a representative sample of British Columbians’ policy preferences.

2.3. Data Analysis

An aggregate qualitative data analysis method (Jackson, 1980) was used to analyze the information collected during the various interviews. As a first step, initiating with the first interview, I transcribed and organized all the raw material provided. Then, I decided on a logical pattern of topics related to the research objectives. From each transcription, the remarks relevant to each topic were assigned to separate folders or

files. A repeated comparison process of these remarks helped to identify the common themes or sub-topics that constitute the major sections or paragraphs of my study. I also identified duplication of data, contradictions and novel ideas that could be used to develop hypotheses and provide evidence for these hypotheses associated with the research questions.

The findings of this study are intended to be useful in providing insights about how personal carbon trading as an additional or complementary policy could address some of the main challenges of the BC carbon tax. Although this study is focused to British Columbia, both the input provided by key opinion leaders and experts and the results could apply to other jurisdictions.

3. Theoretical Approaches to Carbon Pricing and Behaviour Change: Economic, Psychological and Social

The Stern Review, a 2006 report widely regarded as the largest and most complete economic analysis of climate change undertaken to that date, stated that:

“Climate Change will affect the basic elements of life for people around the world; […] hundreds of millions of people could suffer hunger, water shortages, and coastal flooding as the world warms… If we don't act, the overall costs and risks of climate change will be equivalent to losing at least 5 per cent of global GDP each year, now and forever. If a wider range of risks and impacts is taken into account, the estimates of damage could rise to 20 per cent of GDP or more." (Stern, 2006:VI).

For people living in the twenty-first century, the Stern Report’s pivot from human suffering to economic indicators (i.e., GDP) might seem obvious. Most observers have accepted the claim that economic indicators are good measures of human progress and prosperity. But is an economic driver the only or most powerful motivation for behavioural change? Different authors and interview participants have debated this question (Ariely 2007, Thaler 2008, and Rabin 2013). Many of them agree that in order to achieve behavioural change in the context of climate change, it is necessary to operate through three basic interacting approaches: economic, psychological, and social. This chapter analyzes how these three approaches could inform the design of alternative climate policies for British Columbia.

3.1. Economic Approach to Behaviour Change

Over the last two decades, environmental policies have increasingly shifted from command-and-control regulation to incentive-based policies such as tradable permit schemes and Pigouvian taxes (Kallbekken, 2011). One of the most important economic incentives to promote behaviour change towards climate change mitigation is carbon

pricing. A carbon price provides an economic incentive for reducing GHG emissions, but there is much more to this notion and it requires a deeper analysis of the basic economic concepts that generated carbon pricing.

3.1.1. Tragedy of the Commons, Public Goods, Negative Externalities and Pigouvian Taxes

Hardin (1968) introduced the economic theory known as the Tragedy of the Commons: if all members in a group use common resources for their own gain and with no regard for others, all resources would eventually be depleted. The tragedy of the commons concept is very useful for understanding one of the fundamental problems of climate change: the common use of (and need) for Earth’s atmosphere, which has a limited capacity to absorb human-created greenhouse gases without resulting in global warming effects. In more recent years William Rees (1996) developed the concept of the Ecological Footprint to estimate the number of earths that would theoretically be required if everyone on the planet consumed resources at the same level as the person calculating their own footprint. Clearly, it is not possible to count on more than one Earth to satisfy human needs, so in reality, what both Rees and Hardin indicated in their theories were the negative effects of over using common natural resources without being accountable for doing so. Both stated the need for economists and policy makers to better administer shared natural resources.

Hardin argued against relying on human conscience or morality as the means for overseeing commons (shared resources). He suggested that this approach favours certain individuals who have made use of the common resource in a self-interested way over others who are more vulnerable or altruistic. By recognizing natural resources as commons, we must also recognize that they require management (Hardin, 1968).

Various terms have been employed to describe the commons: some scholars have used the terms common property resources (Berkes, 1989) or common property regimes (Bromley, 1992). One economic term used to refer to resources that are commons is public goods (Samuelson, 1954). Examples include homeland security, scientific research and knowledge, clean air and water, pristine natural habitats, the ozone layer, and of course the global atmosphere (Batina and Ihori, 2005). Because of their public nature, it is difficult to exclude anyone from using them. Therefore many

public goods are subject to excessive use resulting in negative externalities affecting all users. A negative externality imposes a negative effect or cost on a third party who did not choose to incur that cost (Buchanan, 1962). If a public good suffers a negative externality, then the cost to society is greater than the cost consumers and producers are paying for it. One way to deal with negative externalities is to make rules that prohibit, or at least limit, the activities that produce such externalities. These rules can include putting a price on the activities (or products) imposing costs on others.

“When the imposing product competes on price with another market product, the negative externality enlarges the price differential between the two products because it effectively degrades the rival product in relative terms” (Nagler 2011: 401).

Anthropogenic climate change is the negative externality that requires policy interventions in order to prevent (and adapt to) a tragedy of the commons occurring to the whole planet (Stern, 2006:1). In 1920, Arthur Pigou proposed to solve the problem of negative externalities by establishing tax systems that have come to be called Pigouvian Taxes. Pigou argued that industrial firms look for their own marginal private interest, but when the marginal social interest differs from the marginal private interest, the firm has no incentive to internalize the cost of the marginal social cost: the party creating the social harm does not pay for it (Pigou, 1920). Pigou recommended that a tax be levied on the negative externality producer. If governments are able to calculate the social cost, the tax rate could aim at balancing the marginal private cost and the marginal social cost. This would effectively reduce the quantity of the product produced (Pigou, 1920).

Pigouvian taxes can be used to discourage different inefficient activities, such as environmental pollution (e.g., carbon taxes or taxes on gasoline), or consumption of tobacco and certain foods that endanger individuals’ health (e.g., taxes on fatty foods). Pigouvian taxes can be regressive, but one manner in which governments can deal with this effect is to use some of the tax revenue to make lump-sum transfers to low-income households (e.g., the carbon tax in British Columbia) (Kallbekken, 2011).

Ronald Coase proposed one alternative to the use of Pigouvian taxes: tradable rights to polluting (Coase,1988), by placing a limit on the total amount of the negative externalities allowed and creating a market for rights to generate this specific negative

externality (e.g., emissions trading). This alternative also offers the solution to regulate overproduction (e.g., when a price is applied to the carbon content of all fuels produced or distributed by industry, all carbon emissions costs are passed down to final consumers and demand for fuels is adjusted) .

3.1.2. Carbon Pricing

As described in the previous section, carbon pricing builds on the work of various economists (e.g., Arthur Pigou, Ronald Coase, Thomas Crocker, George Stigler, John Dales, etc.) who in the 1960’s and 1970’s developed the principles for the application of a price on environmental negative externalities (Gilbertson, 2010; Pearse, 2011). Carbon pricing has been identified, by the Stern Review amongst many others, as a critical policy tool for achieving carbon emissions reductions (Stern, 2006). Theoretically, carbon pricing functions by changing the relative price of goods and services depending on their carbon intensity. The price of goods and services with higher carbon emissions rise relative to the price of those with fewer carbon emissions; as a consequence, demand for the high carbon-intensity products and activities falls and less carbon is emitted (Pearse, 2011). A carbon price acts as a signal to market actors to decide how and to what extent they reduce their emissions, as opposed to command-and-control regulations that specify what technologies or measures must be adopted by emitters (IETA, 2013). When the cost of abatement of carbon emissions differs widely among sources and emitters, a market-based mechanism is likely to have greater gains, relative to conventional command-and-control regulations (Newell and Stavins, 1999).

Carbon pricing requires policy instruments (e.g., cap-and-trade or carbon taxes) to operationalize emissions reductions; environmental economists use the term market- based mechanisms to refer to such instruments. Stavins (2003) classifies environmental market-based instruments in four major categories: charge systems, tradable permit systems, market-friction reductions and government subsidy reductions. For purpose of this study, market based instruments will be divided in two groups only (Yamin, 2005): 1) Those instruments where the carbon price is applied directly with a fixed rate to goods and services in the form of a tax or fee; and 2) those where the carbon price is set indirectly by putting a fixed ceiling (cap) on the amount of carbon emissions allowed and

creating a market for carbon emissions (trading) – the fixed amount, or cap on carbon emissions, limits the supply (‘right to emit carbon’) in the market.

3.1.3. Fixed Carbon Pricing Mechanisms: Carbon Tax

From an economic perspective, carbon taxes are a type of Pigouvian tax, a carbon tax addresses the problem of emitters of greenhouse gases not facing the full social costs of their actions. Carbon taxes are variable in their ecological effects. A carbon tax does not guarantee achievement of a particular emissions reduction target, but it provides greater certainty about the cost (Helm, 2005). Carbon taxation has been operating in Denmark, Finland, Norway, and Sweden since the early 1990s. There is some evidence already available that on balance, carbon taxation delivers emission reductions beyond business as usual (Andersen, 2004).

Carbon taxation is seen as a simple policy mechanism that does not require complex bureaucratic structures to operate (Pearse, 2011), A carbon tax can rely on existing administrative structures for taxing fuels instead of creating purpose-built special mechanisms, it can therefore be implemented in just a few months. It has been also identified in the literature as one of the simplest ways to move forward in reducing GHG emissions at the global scale. A key advantage of the carbon tax is that “it’s easier and quicker for governments to implement” (David Suzuki Foundation, 2013). In theory, the implementation of a market based mechanism, such as cap-and-trade or personal carbon trading, tends to be more complex than carbon taxation alone. It requires the development of regulations, further infrastructure, and the creation of a carbon emissions market. However, once a carbon tax is operating, governments could focus on the development of innovative policies to complement and enhance the effectiveness of the carbon tax.

However, some economists see carbon taxation as a less effective market mechanism than emissions trading schemes because getting the price ‘right’ to achieve concrete emissions reductions is difficult to realise. If the price is too low, people will not care about paying a little more and continue emitting. Adjusting the price of carbon emissions over time is usually necessary in order to make sure the price is sufficiently corrective to produce a change from carbon-dependent behaviours (Goodman, 2010,

Prasad, 2010). Sometimes for a carbon tax to achieve ambitious emissions reduction targets, it requires an elevated tax rate. For example, in BC it is estimated that the carbon tax would have to increase to about 150 to 200 dollars per tonne of CO2e to achieve BC’s emissions reductions goals (National Round Table on the Environment and the Economy, 2009). However, elevated tax rates may presumably impact social acceptability (Stavins, 2003).

Carbon taxes could operate as a regressive tax when they directly or indirectly affect low-income groups disproportionately. However, the regressive impact of carbon taxes could be addressed by using tax revenues to favour low-income groups (Morris, 2013). To promote public acceptability, the revenue raised through carbon taxation has often been used to fund income tax cuts. This was the case in Denmark (Prasad, 2006), as well in BC (BC Government, 2008). To add some complexity, public support for carbon taxes could be also impacted by the type of revenue allocation, there is some evidence of greater public support when the revenues are targeted to narrowly defined groups (or environmental projects), as compared to when they are redistributed in a lump-sum fashion (Kallbekken, 2011). The Pembina Institute (2012) released a study stating that a big majority of British Columbians recommended investing, at least a portion of the carbon tax revenue, in projects that reduce GHG emissions or to protect low-income households from increased energy prices. None of the participants disagreed with using a portion of current carbon revenues for low-income tax credits.

There is also an important consideration with carbon taxation in that the decisions to consume are connected to a range of countervailing factors: there are things people need that they will not stop consuming regardless of price changes (i.e., products with low or null price elasticity of demand2). In such cases complementary measures and policies are required (Pearse, 2011). Sorrel and Dimitropoulos explain this condition (2009: 1359):

2 Price elasticity of demand is a measure used in economics to show the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price (Arnold, 2008).

“Whatever their scope and origin, estimates of price elasticities should be treated with caution. Aside from the difficulties of estimation, behavioural responses are contingent upon technical, institutional, policy and demographic factors that vary widely between different groups and over time. Demand responses are known to vary with the level of prices, the origin of the price changes, expectations of future prices, government fiscal policy, saturation effects, and other factors. The past is not necessarily a good guide to the future in this area […]”.

Stavins (1992, 2003) suggested that the long-term cost-effectiveness of a carbon tax system compared to a carbon trading system is affected by their relative responsiveness to change. In the presence of rapid rates of economic growth, a fixed tax can lead to an increase in aggregate emissions, whereas with a fixed supply of carbon allowances there is no change in aggregate emissions (but a potential increase in allowance prices). In the context of inflation, a fixed rate tax can decrease in real terms3, and so emissions levels could increase; whereas with a carbon trading system, there must be no change in aggregate emissions. In the presence of technological innovation in carbon abatement, a tax system could lead to an increase in control levels (i.e., a decrease in aggregate emissions); while a carbon trading system would maintain emissions levels, with a potential decrease in allowance prices.

Finally with respect to carbon taxes, there is evidence that framing a type of Pigouvian instrument as a tax can significantly decrease public support, but the effect depends on the design of the instrument. Specifically, the ‘‘tax’’ label, as opposed to ‘‘fee”, “license”, “contribution” or “compensation”, lowers support for instruments that redistribute revenues in a lump-sum fashion: there is baggage associated with the t-word (Kallbekken, 2011).

3 Exceptions to this rule could exist when tax rates are designed to be automatically adjusted by inflation rates (for an example see case of Mexico in section 4.1.4, table 4: Carbon Pricing Policies around the World by 1st Quarter of 2014.

3.1.4. Emissions Trading Mechanisms

Over the past decade, carbon trading (or emissions trading) has emerged as the centrepiece of official efforts to address climate change. United Nations agencies have promoted a neoliberal, market-based approach to climate change emanating from the United States (Gilbertson, 2009). The purpose of a cap-and-trade policy is to create a scarcity of emission permits in the market and a demand for the right to emit carbon. It is the demand for the ‘right to emit carbon’ that establishes an indirect price for carbon in the market. The way carbon pricing is implemented or revised has a crucial effect on whether jurisdictions meet their carbon reduction goals (Tietenberg, 2013). The regulatory principles of carbon markets were established in 1997 under Article 17 the Kyoto Protocol signed during the United Nations Framework Convention on Climate Change (UNFCC) Conference of the Parties (COP) celebrated in Kyoto, Japan (World Bank, 2103). Also, a new commodity was created in the form of emissions permits, reductions or removals. Since carbon dioxide is the principal greenhouse gas, a new term of carbon trading was established. Carbon since then has been tracked and traded like any other commodity. This is known as the carbon market (UNFCCC, 2014).

An example of a typical emissions trading system operation, would work as follows (EPA, 2002):

1) Government puts a ceiling or cap on emissions from covered entities (e.g., industrial facilities). 2) The government will lower the cap periodically (usually annually) according to their target emissions reductions. 3) The cap is divided into allowances. Each allowance authorizes emitting one tonne of CO2e emissions. Limiting the number of available allowances ensures the cap’s integrity. 4) Allowances are distributed among emitters based on any selected method (e.g. free equal distribution, emissions baseline, emissions benchmark, etc.). 5) Each year, every emitter requires enough allowances to cover its annual emissions. Unused allowances may be sold, traded, or saved for future use. 6) Emitters may have diverse options for reducing emissions, for example: fuel switching; energy-efficiency measures; renewable energy generation; or buying excess allowances from other emitters.

7) Each emitter requires a monitoring/tracking system to continuously measure and record GHG emissions. Emitters must report and pay with one allowance for each tonne/kg emitted. Those that don’t have enough allowances to cover their annual emissions could acquire allowances from government or other emitters, or surrender future year allowances, or be fined, or any other potential compliance mechanism. 8) Under a carbon trading mechanism, the price of emissions allowances will vary from year to year, accordingly to the market forces.

In an emissions trading approach the cap is set at a level designed to achieve a desired environmental outcome (Tietenberg, 2006). Emissions trading measures can be considered less coercive and more adaptive, based on the ideas proposed by Coase (1960), who suggested that a better way to deal with actions that cause harmful effects to others would be to consider the rights to perform those actions as factors of production (i.e., property rights). One potential advantage of freely allocated carbon trading systems over other policy instruments is associated with the incentive they provide for emitters and market participants to identify themselves and report their emissions (Stavins, 2013) as a way to manage their “property rights”.

Emissions trading is susceptible to price manipulation arising from market power that could, in principle, reduce the cost savings. However, actual experience with emissions trading has uncovered only one case of market power, which resulted directly from a design flaw. Evidence from the Regional Clean Air Incentives Market (RECLAIM), an emissions trading program in California, indicates that some generators manipulated NOx emission permit prices in late 2000 and early 2001 (Kolstad & Wolak 2008). Emission trading can be also subject to fraud, as in the example of the European Union’s Emissions Trading Scheme where in 2011 cyber-criminals breached security on its registries and stole $40 million worth of carbon emissions permits (Bierbower, 2011).

Cap-and-trade programs can have different scopes of coverage. Some existing programs cover one sector of the economy, such as the electric power sector. Other programs and policy proposals cover multiple sectors. Different policy proposals also specify different points of regulation: fuel extraction, production, import, distribution, or consumption. Thus, cap-and-trade programs can be focused on upstream or downstream sources (Ellerman et al, 2003):

• A cap-and-trade program focused on upstream sources regulates energy producers, suppliers, and transporters, such as oil and gas companies, coal mining operations, petroleum refineries, and fuel shippers/importers. • A cap-and trade program focused on downstream sources regulates emissions at the point of combustion or use (i.e., at the “smokestack” level). Because of the vast number of downstream sources and the associated administrative cost and complexity, regulated downstream sources are often limited to large-scale emitters, such as fossil fuel-fired power plants and energy-intensive industrial sources.

It is also possible to apply an upstream cap-and-trade to the carbon content of all fuels produced or distributed by industry so that all carbon emissions costs are passed down to final consumers (e.g., Waxman-Markey Bill) (Open Congress, 2012). Existing cap-and-trade programs such as California and Quebec have been designed to regulate emissions both at the point of production or extraction, as well as distribution (ARB, 2014). In this way the price signal incentivizes technological innovation in the ‘upstream’, while also affects individuals’ consumption behaviour.

Carbon taxes could also expand their coverage and point of regulation and be applied to sources of emissions beyond combustion of fossil fuels (e.g., production processes or imported carbon emissions) (Niemeier et al., 2008).

3.1.5. Personal Carbon Trading

Some authors believe that in order to achieve sufficient near-term reductions in greenhouse gas (GHG) emissions, all sectors of an economy must be regulated (Pacala and Socolow, 2004; Romm et al., 1998). Current carbon pricing systems have been designed to provide a price signal that could influence emissions reductions in various sectors, including the residential sector (e.g., cap-and-trade systems in California and Quebec starting in 2015) (ARB, 2014). When, both the production and distribution of fuels are capped or taxed, prices for individual consumers increase and demand decreases.

Carbon pricing systems have also served as drivers for technological innovation. For example, during the period from 2008-2010, there were positive signs that B.C. was experiencing a shift toward less fossil fuel use and lower emissions while attracting green investment and green technologies with twice the Canadian average adoption of

hybrid vehicles, 20 percent of all Canadian LEED gold building registrations since 2007, and a 48 per cent increase in clean technology industry sales (BC Government, 2012). In the year 2011 California attracted nearly $4 billion in new venture investment capital (Next10, 2013). Because so much investment has been attracted to the state since the passage of AB32, it is clear that a cap and trade system spurs investments in clean technology, energy efficiency and renewable energy.

However, there is still the question whether this price signal has provided enough environmental awareness and sense of control at the level of individual consumers, and whether this price signal has been enough to achieve a behavioural change at the level of individual emitters. People normally react to a higher price by reducing fuel consumption. However, the intra-personal (values, beliefs, motivations) and interpersonal (social comparison, social norms, power of collective action) aspects involved in the decision making that define environmental behaviour, may not be as directly affected by the price signal itself. It is hypothesized that complementary policies would be required to achieve a more conscious and permanent behavioural change with the potential to remain in the presence of a lower price signal or in the absence of an ascending price signal, as in the current case of British Columbia (BC Government, 2014). Fleming (2011) introduced the idea of a market-based mechanism that targets both individuals (i.e., the residential sector) and industrial emitters simultaneously and that involves social and psychological aspects beyond a price signal. He proposed a carbon trading system with free distribution of 60 per cent of allowances to individuals and auction of the remaining allowances to all non-household energy-users in the economy. This mechanism is called Tradable Energy Quotas (TEQs) and has been recently evaluated by the United Kingdom Government, resulting in an amendment to the their 2008 Climate Change Act granting powers to the UK Government to introduce an economy-wide carbon pricing scheme without further primary legislation (House of Commons, 2012).

In addition to Fleming’s idea, there are different proposed market-based schemes that target individuals. These schemes vary in names, but are broadly identified under the most common term of Personal Carbon Trading. Personal carbon trading is a general term used to describe a variety of downstream indirect carbon pricing policies, which allocate rights and responsibilities for carbon emissions to

individuals (Fawcett, 2010). The economic driver in personal carbon trading is also the price of carbon arising from a market of traded allowances. This price, similar to a cap- and-trade scheme, would be determined by supply and demand conditions, the value of the services carbon-based energy can deliver, and the extent to which there is a well- behaved market (Parag et al., 2011) – i.e., a market in which all individuals are obliged to participate that has a limited supply of emissions allowances, and that has efficient market oversight that avoids manipulation (C2ES, 2010).

Barrett (1995) originally introduced the idea of personal carbon trading, with a proposal titled “Tradable Personal Pollution Allowances”. Fleming (1996) published a similar idea named “Domestic Tradable Quotas”, which served as precedent for the previously mentioned Tradable Energy Quotas proposal. Ayres (1997) developed “Tradable Consumption Quotas”, and Hillman (1998) “Personal Carbon Allowances”. Since then different academic and government-sponsored studies have evaluated the potential and implications of implementing personal carbon trading, leading in 2008 to the first ‘carbon card’ pilot scheme sponsored by the Royal Society for the encouragement of Arts, Manufactures and Commerce in the UK (RSA, 2008); and in 2010 to the implementation of world’s first trial personal carbon trading program in Norfolk Island, called Norfolk Island Carbon/Health Evaluation - NICHE (N.I.C.H.E, 2012).Table 1 presents an overview of some of the main proposals published by the time of this study.

Table 1: Summary and Comparison of Existing Personal Carbon Trading Proposals

Scheme Scope Features and Comments An independent committee sets a national carbon cap. All adults periodically receive certificates entitling them (FEASTA, 2008) to an equal Cap & Share share of national emissions. Certificates are sold by individuals via banks or post offices to companies that import or extract fossil fuels. These Whole (FEASTA, suppliers require surrendering certificates equal to emissions from the use of the fossil fuels that they introduce into the economy. The price of Economy 2008) emissions flows through the economy. C&S is one of the more detailed and developed proposals. C&S was proposed and developed in Ireland for the Irish economy. It has been examined by the Irish government. Previously known as ‘DTQs’ (domestic tradable quotas). TEQs aim to tackle climate change and peak oil. A TEQ budget sets a limit on annual carbon emissions over the next 20 years, which then rolls forward week by week. 40% of the allowances are distributed free to individuals on an Tradable Whole equal per capita basis. Personal emissions allocations cover household energy use and personal travel, but not air travel. The remaining 60% Energy Quotas Economy are sold by tender to all other energy users. All fuels have a carbon rating and purchasers must surrender carbon units to cover related (Fleming,2007) emissions. Transactions are carried out electronically and all carbon units are tradable. TEQs is one of the more detailed and developed proposals. TEQs was proposed and developed in the UK. It has been examined by the UK government in a ‘pre-feasibility’ study. Tradable A national cap is set on carbon emissions. All national emissions are allocated for free to individuals on equal per capita basis. All products Consumption Whole would be carbon labelled. Quotas are surrendered by individuals to cover the emissions related to the non-manufacturing-related carbon Quotas (Ayres, Economy content of purchased goods and their own direct use of energy. Manufacturing organizations buy emissions quotas from individuals in a carbon 1997) market to cover their carbon emissions related to the process of manufacturing. The details of this scheme are not particularly well developed. Personal Household A national cap is set for emissions from household energy use and personal travel, including air travel. Allowances are allocated periodically on Carbon Energy & an equal per capita basis to individuals for free to cover these emissions. For every purchase of electricity, gas, transport fuels and services, Allowances Personal allowances are surrendered. Transactions are carried out electronically and allowances are tradable in the personal carbon market. PCA was (Fawcett, 2004) Transport proposed and developed in the UK. It has been examined by the UK government in a ‘pre-feasibility’ study. A yearly carbon emissions cap is set for residential energy use based on emissions reduction targets. Allowances are allocated to each Household household on an equal per household allocation basis via utility service providers who place the allowances in each user’s account. These are Carbon Trading Household deducted periodically by the utility according to energy use, and additional allowances must be purchased if the account is in deficit. The carbon (Niemeier et Energy allowances are fully tradable. At the end of a compliance period, the state collects the permits from the utilities and determines compliance. al.,2008) Household carbon trading was proposed in California and examined against its emission targets. Tradable A cap is set for emissions from private transport. Allowances are allocated to all individuals for free (not necessarily on an equal basis). For Transport Private every purchase of fuel, allowances are transferred to the regulating authority to cover the CO2 equivalent of a liter of fuel and cancelled. Carbon Permits Road Transactions and trading are carried out electronically. Participants buy and sell permits through intermediates like banks or buy them at the (Raux & Marlot, Transport petrol pump. Tradable transport carbon permits were originally suggested in France and the scheme was examined for emissions generated by 2005) French private transport. It has also been applied to the UK (Harwatt, 2008). Source: Ayres, 1997; Fawcett, 2004 and 2010; FEASTA, 2008; Fleming, 2007; Niemeier et al, 2008; and Raux & Marlot, 2005.

The existing personal carbon trading proposals vary in their inclusiveness, the scope of emissions covered, the level of individual engagement, and the rules and procedures for allocating, surrendering and trading carbon allowances. Despite the variation, the objective of all carbon trading schemes that target individuals is to limit the overall carbon emissions within a society by engaging people in a process of managing their carbon emissions (Fawcett, 2010). The main focus of all proposed personal carbon trading programs is household energy use and personal travel (Fawcett, 2010).

All personal carbon trading proposed schemes share common features: the scheme is mandatory, and there are no opt-outs; individuals receive an annual carbon quota for free; for every activity that involves carbon use within the scope of the scheme, allowances are surrendered, whether directly by the individuals or by firms generating carbon emissions; the allowances are tradable, enabling a market in allowances to deal with the different surrender requirements of above-average and below-average carbon consumers; and finally, allowances are reduced over time according with jurisdictional carbon reduction commitments (Fawcett, 2010).

Personal Carbon Trading: Academic Research and Results

Personal carbon trading is attracting ongoing interest in the academic world and academic research has proliferated. From 2004 to 2011 thirty-five academic papers were published, twenty-seven of them during 2010 and 2011 (Fawcett, 2012). However, at the time this study was conducted, none of the proposed personal carbon trading systems is a fully developed, regulated and implemented mandatory policy (Fawcett, 2012). Among the main motivators for personal carbon trading research are:

1) The notion that all sectors of an economy must be regulated (as discussed above); 2) the hypothesis that personal carbon trading could have greater potential to achieve emissions reduction at a lower price compared to other policy alternatives such as carbon taxation (Parag & Capstick 2011); and 3) the search for the optimal climate policy framework that has the greatest degree of social acceptability (Bristow et al., 2008; Owen et al., 2008; Wallace et al., 2010). The research on social acceptability indicated that when personal carbon trading is compared with carbon taxation (or other policies) it is usually preferred (Fawcett, 2012). The

topic of social acceptability will be discussed in deeper detail in section 3.2.1 of this study.

Academic and government sponsored studies have also examined the technology for implementation (RSA, 2007; Lane et al., 2008) and the costs of operation of the different proposals (Bird and Lockwood, 2009); their interactions with the existing policy landscape (Kerr and Battye, 2008); and the public’s ability to deal with a parallel currency (Seyfang, 2007). Proposals for equal per capita distribution of allowances have been evaluated from equality and fairness perspectives (Starkey, 2008; Hyams, 2009). In addition, there has been research on the projected impacts of personal carbon trading policies, both in terms of their psychological (Capstick and Lewis, 2009; Parag et al., 2009) and distributional effects (Ekins & Dresner, 2004; Thumim and White, 2008).

Research results of some studies (Ekins & Dresner, 2004; Thumim & White, 2008 and RSA, 2008, Wallace et al, 2010) suggest that personal carbon trading would be more equitable and progressive than simple carbon taxation: lower income households have lower carbon emissions than higher income ones and, therefore could sell unused allowances. Thumim & White (2008) study found that 71 percent of households in the lowest three income levels in the UK would be economically benefited under a personal carbon trading scheme, while 55 per cent of households in the highest three income levels would either have to buy extra allowances or reduce their emissions. However, there would be a minority of higher carbon-emitting low-income households that could be negatively impacted under personal carbon trading, which is (Fawcett, 2012). Thumim & White (2008) identified 12 per cent of the UK households who live in rural areas and some in larger-than-average homes that could have an allowance deficit driven by their heating rather than their transport emissions. BC’s rural population constitutes 14 per cent of total BC residents (Statistics Canada, 2011). A specific study to assess impact of a personal carbon trading policy in rural communities would be required.

With respect to barriers for personal engagement, Lorenzoni et al. (2007) describe concerns about fairness and free-riders1, it has been argued that an equal and free distribution of allowances, proposed by most of personal carbon trading studies, addresses these issues and suggests a new social norm wherein fair and equal carbon usage is emphasized (Parag & Strickland, 2011).The technology needed to introduce a personal carbon trading scheme is already available. Costs for implementation are disputed but are likely higher than for carbon taxation if considering initial set-up cost as well as annual running costs (Fawcett, 2012). Finally, personal carbon trading would overlap with some existing energy and carbon policies – whether this is particularly problematic in a policy area that already includes many policy tools is a matter for debate (Fawcett, 2012).

In general, personal carbon trading has been subject to study from the three different approaches (economic, psychological, and social) involved in behavioural change. Researchers (Parag & Strickland, 2009; Capstick. & Lewis, 2009) on personal carbon trading have utilized the following diagram (figure 1) to show how in this carbon pricing instrument, there is an interplay of behavioural change motivators including: 1) external influence factors – the carbon price providing an economic constraint; 2) intrapersonal factors – the requirement and tools for carbon budgeting providing a psychological signal that creates awareness and perception of control; 3) interpersonal factors that allow for social comparison, social support and sense of community. Personal carbon trading has been presented as an extension to carbon pricing policy with greater capacity to incorporate and combine the different approaches and factors that influence behaviour change, in this case reducing energy consumption and GHG emissions.

1 The free-rider effect assumes that some individuals (“free riders”) may choose to consume or use more than their ‘fair share’ or fail to co-operate with the costs of maintaining a natural resource. The free-rider effect is explained by Hardin as part of the ‘tragedy of the commons’ (1968). If the resources being maintained are indispensable for human welfare – and so the free rider could not do without them – this adds a further dimension to the unfairness. By avoiding sharing the costs of maintaining the resources, the free riders assume a liberty that they would not be willing to extend to others.

Figure 1. Different Approaches for Behaviour Change through Carbon Pricing

PCT

Source: Yael Parag (http://theconversation.com/radical-vision-of-personal-carbon-allowances-

could-be-the-answer-to-greenhouse-gas-glut-23288)

The objective of this study and the following sections is not to repeat previous studies on personal carbon trading, but to build on existing evidence and explore further approaches that can influence behaviour change under the framework of an individually oriented carbon policy designed for British Columbia.

3.2. Social and Psychological Approaches to Behaviour Change

Since the 1970s, environmental psychologists have tried to determine the factors involved in environmentally related behaviour, including lines of research linked to behaviour affecting climate change. Some examples include: the Theory of Planned Behavior (Ajzen, 1991) which assumes that behavioural intention is the main psychological determinant of behaviour. Intention is, in turn, causally determined by three factors: First, individuals must have a positive attitude about the climate-relevant

behaviour (as determined by their values and beliefs). Second, individuals must believe that such behaviour is normal and congruent with the expectations of important reference individuals or groups (social norms). Third, individuals must believe that they have sufficient control over the action. According to the theory of planned behaviour, the more that these three factors are aligned in the pro-environmental direction, the more likely the person will intend to engage, and will actually engage, in the pro-environmental behaviour. The theory of planned behaviour is an extension of the Theory of Reasoned Action (Fishbein & Ajzen, 1975) which suggests that attitudes and behaviours are closely connected, and that behaviour-specific attitudes are more predictive of intent, and thus of pro-environmental behaviour, than are generic environmental attitudes.

Two other theoretical frameworks that predict and explain positive environmental behaviours are the Norm Activation Model (Schwartz, 1977) and the Value-Belief-Norm Theory (Stern et al., 1999). The norm activation model proposes that an individual perceives a problem (e.g., potential negative consequences to the environment), understands the consequences of action or inaction, and then weighs the benefits or costs of acting or failing to act. The value-belief norm theory suggests that personal values precede environmental beliefs. It asserts that behaviour follows from personal norms, which are activated by a belief that environmental conditions will threaten something valued by the individual (e.g., nature) and the belief that the individual is able to act to reduce this threat. Other more complex models have also been proposed, such as Hines el al. (1986) Model of Responsible Environmental Behavior, or Grob’s Structural Model of Environmental Attitudes and Behavior (1995). However, as noted by Kollmuss & Agyeman (2002) none of these models overcome the fact that associations between knowledge and attitudes, attitudes and intentions, and pro-environmental behaviour are weak. This suggests that behaviour is also determined by external, or situational, factors, such as economic constraints, available options, and other psychological barriers.

As described in the introduction of this study, it will be assumed that behaviour is determined by the interplay of three general factors of influence: intrapersonal, such as personality states, values, and motivations; interpersonal, such as social comparison, social norms and the power of collective action; and external, such as rewards and penalties. Environmentally significant behaviour with respect to carbon pricing policies is

influenced by the same factors: attitudes, values, beliefs, informational awareness, and perceived behavioural control (Black, Stern, & Elworth, 1985; Nordlund & Garvill, 2003; Swim et al., 2009; Attari et al., 2010).

Under a carbon tax, the perception of control and informational awareness should increase–the carbon price should be perceived separately from the overall cost. This could result in a more environmentally conscious behaviour (i.e., emissions reduction) by those individuals for whom climate change is a significant concern. Under a personal carbon trading scheme, the motivation for lower carbon-emitting behaviour would be driven in a similar way–although in this case carbon visibility and awareness would be connected to the allocation and use of individual carbon allowances (Parag et al., 2011).

In personal carbon trading, the intrinsic psychological mechanism of behaviour change is driven through a combination of the carbon price, the scale of the individual allowance, and the visibility of the carbon emissions related to the individuals' actions. Experimental work carried out by Capstick & Lewis (2008 and 2010) shows that people may be inclined to respond to personal carbon trading partly based on the absolute size of the allowance and whether they are in credit or debit, rather than responding based on the monetary value of such allowance and the potential dollar cost or profit of their actions. This, plus the carbon price itself and the process of carbon budgeting, create carbon awareness and establish a relationship between personal emissions and activities. Lorenzoni et al. (2007) describe different barriers to engagement in respect to climate change; these include, among others, the feeling of helplessness, concerns about free riders, and lack of enabling initiatives. Other authors propose measures to help reducing these barriers–such as information campaigns, personal advice programs, and more informative billing and metering (Abrahames et al., 2005). It is reasonable to hypothesize that an economic penalty/reward linked to other policies could increase the effectiveness of personal engagement. Additionally, increasing people's knowledge of their carbon emissions would help correct any wrong perceptions of their actual energy consumption. Carbon visibility, awareness, and correct information are critical for promoting behavioural change. These aspects also have implications for political acceptability, which might increase when people become more aware of the problems

resulting from their daily activities involving energy and consumption, and feel morally obliged to contribute to solving these problems.

It is important to highlight that the problem of climate change is so broad and complex that it requires an orchestration of multiple types of policies, disciplines and technological advances. The design of policies aiming to positively influence individuals’ environmental behaviour is one of the instruments playing in the orchestra; however, behaviour change alone is unlikely to be able to achieve climate change mitigation goals in the absence of the technologies needed for individuals to facilitate such emissions reductions.

3.2.1. Social Acceptability

The topic that has attracted most research interest with regards to personal carbon trading has been social acceptability. Social (or public) acceptability of a carbon pricing system requires evaluation from two perspectives: reaction to the idea and response to the market signal that it creates (Roberts, 2006). By 2012, nine studies (using a variety of methods) had reported that at when personal carbon trading is compared with carbon taxation (or other policies such as upstream cap-and-trade) it is usually preferred or is the least opposed option (Fawcett, 2012). Those who prefer personal carbon trading, see fairness and effectiveness as main benefits; those against, point out the complexity of implementation and potential for unfairness as their main concerns. Table 2 summarizes some of the existing studies on social acceptability.

Table 2. Research methods used to consider whether Personal Carbon Trading is socially acceptable

Researcher(s) Method Number of Policy Context participants Low (2005) Focus Groups 30-40 PCT compared with increased carbon taxation Howell (2007) Focus Groups 30-40 PCT compared with increased carbon taxation Von Knobelsdorff Questionnaires by post 300+ PCT in isolation, no comparison with (2008) and email other policy Harwatt (2008) Interviews, using 60+ PCT for transport only, compared with questionnaires and increased fuel taxation, with personalised unstructure replies information on extra costs

Bristow et al. (2008) Questionnaires 300 PCT compared with increased carbon taxation and revenue recycling with personalised infromation on extra costs IPPR (2008) Opinion poll, on-line 1000+ PCT compared with increased carbon taxation and upstream cap-and-trade Owen et al. (2008) Focus groups 80-90 PCT compared with increased carbon taxation and upstream cap-and-trade Source: Fawcett (2010) Energy Policy 38: 6868–6876

Several of the above studies have been carried out in the UK. Besides their indication of preferences, these studies also show that there is a degree of willingness by people to accept some level of responsibility for their actions. In particular, the UK Government's Department of Food and Rural Affairs (DEFRA) study found that “resistance to behaviour change was less than expected” (Owen, 2008). One relevant policy implication of the findings in social acceptability studies is that it may be possible to encourage people to further reduce emissions, given a low price signal, by altering the policy framing (i.e., personal carbon trading vs. carbon tax). A higher price signal is likely to bring greater emissions reduction, but it would be less publicly supported, especially in times of economic decline (Parag et al., 2011).

3.2.2. Consumer Behaviour and Commodity Fetishism

The concept of fetishism of commodities (Marx, 1867) explains the symbolic attribution of power to an object (commodity), to the point that people believe and act as though the fetish object really has that power. In reality, we know that this power is not an intrinsic characteristic of the object at all. However, in terms of social behaviour, if a sufficient proportion of people act as if the object has the power, then the object can function as if it really had that power.

This power given to commodities makes them not only exchangeable, but highly desired; and when this phenomenon becomes the driver of an economy, several market failures will be observed, such as the ones discussed in the previous section. Many environmentalists and researchers have tried to ‘defetishize’ the use of fossil fuels or the consumption of products that contribute to raise carbon emissions, through ‘moral charges’ on consumer behaviour, but this has not been always successful, at least not to cause lasting and consistent change. Goodman (2002) argues that rather than trying to

sweep aside any ’veil’ (fetish) that a commodity might have, environmentalists and policy makers should take Taussig’s (1980, 1991) advice and get with its fetish to help re- imagine and reshape economic relationships. Instead of attacking the idea of a neoliberal market, better to use its forces to promote low carbon consumer behaviour.

People generally resist or refuse ideas that are not “natural”, this meaning ideas that are not tangible, material or familiar in their present lives. Most of us, who have been long accustomed to a capitalist culture, have arrived at the point at which we have naturalized socially constructed practices, such as unsustainable consumption and consumerism. We now believe that only the physical, the tangible, the observable, the “thing-like” is natural (Taussig, 1980). Thus, consumption becomes natural. This is how capitalist culture enshrouds its social creations (Taussig, 1980).

Encouraging people to mitigate climate change may lack the incentive that consumers need not only to exchange (trade) commodities, but also to confer the power to make them not only familiar and natural, but also highly attractive. The aim of my research is not to attack the existence of commodity fetishism in high-carbon intensity products and services, it is to find ways to harness this effect in switching to a low- carbon lifestyle, which could not only represent a moral obligation for individuals, but something highly desired to improve their well-being and links with others. My research also follows Taussig’s advice, not only to get with the fetish inherent in high-carbon intensity products and services, but also to create a fetish that makes carbon emissions reduction a highly desirable activity. Not only physical commodities can become tangible, familiar, highly attractive and even fancy.

3.2.3. What is and what is not Behavioural Change

As discussed on the introduction of section 3.2, behaviour is determined by the interplay of three general factors of influence: intrapersonal, interpersonal, and external. Behaviour change in the context of climate change occurs in the interplay of some or all of these three factors. Behavioural change is a significant and consistent change in the way and the frequency one person uses technologies, services, structures or infrastructure. While it initially may require a conscious effort – since it represents a shift

from the habitual behaviour– the change may become effortless, unconscious and permanent over time (personal communication with Dr. Mark Jaccard on June 18, 2014).

Some behaviour-change strategies tend to be ‘individualised’, often focusing on the choices individuals make in isolation, and they seek to appeal primarily to self- interested concerns, such as financial self-interest. This precludes the opportunity to appeal to other interpersonal influences on behaviour, such as views about fairness, the will to co-operate with others, or the anger at others’ failure to co-operate (Horton & Doron, 2011).

Behaviour change is also an uphill battle with multiple intrapersonal barriers; for example, individuals find changes to routine difficult and cognitively draining. Habits are difficult to break, because the formation of a new habit uses cognitive energy, while maintaining an existing habit is a quick, automatic process (Ariely, 2007). However, some behavioural changes can occur less through cognitive effort and more by changes in the physical environment within individuals live, such as a move to higher density community or dwelling, the mixed use of housing, or the closer proximity to a comfortable, efficient and cost-effective public transit system (personal communication with Dr. Mark Jaccard on June 18, 2014).

Policy development aiming to influence behaviour should be concerned with the whole range of influences that underpins behaviour. It is as well important to define what outcomes can be qualified as behaviour change. For example, buying a hybrid car, but driving it as much or more, could not be considered as behaviour change– the buying decision could have been influenced by interpersonal factors (e.g., others in the buyer’s circle of influence driving a similar car) or by external ones (e.g., government sponsored grants or subsidies for new technologies), but without creating change at the intrapersonal level (e.g., transforming personal attitudes or habits). Buying a hybrid car and driving it much less or cycling instead of driving, could be considered behaviour change. This action represents a clearer interplay of values and habits, interpersonal influence in both directions (e.g., a friend is looking more fit after a month of cycling or a community encouraging members to cycle to work) and potentially the influence of external factors (e.g., saving in gasoline expenditures when prices are rising).

Technological and regulatory changes are also factors to be considered in defining behavioural change. For example, the use of fuels containing 5 per cent or more of ethanol as a result of a Low Carbon Fuel Standard regulation (external factor), or of gasoline that no longer contains lead, or of zero-emissions biofuel, without modifying driving habits (i.e., driving less) should not be considered as behavioural change. This might result in emissions reductions, but may not create any behavioural change at the intrapersonal level. . Also, most likely, drivers would be completely unaware of the technological change - or of the policy that caused it. In contrast, if someone has an electric vehicle (with no internal combustion engine like a plug-in hybrid) and that person must use it differently in order to ensure that the battery does not run out at an inconvenient time, then there would be a behavioural change (personal communication with Dr. Mark Jaccard on June 18, 2014) influenced by both external and intrapersonal factors.

Identifying barriers is also a crucial step for policy makers aiming to create social behavioural change. The following barriers are applicable to many types of behaviour change, but are especially relevant to the change resistance that sustainability movements face.

3.2.4. Barriers to Behaviour Change

Besides the structural barriers, such as pressure from powerful climate change deniers and insufficient infrastructure, climate action behaviour change campaigns face diverse human barriers. There is still a perception that most of the consequences of climate change will happen in the vague future, so individuals prefer to focus their attention on present needs, desires and threats. Additionally, the phenomenon of climate change is best described by scientific reports (IPPC, 2013), which most individuals have a hard time grasping and this has an impact in their emotional response. Climate change, being a problem of global dimensions, can make individuals feel hopeless and that they have no control over whatever vague doom is looming in the distant future. Environmental psychologist Robert Gifford has studied at length the different psychological barriers to pro-environmental behaviour change. Of the 30 barriers he has identified (Gifford, 2011), he suggests that the top three barriers may be perceived as: lack of control, social comparison, and conflicting goals. However, he notes that different

social groups may face different barriers, which makes important to study and understand who the audience in any is given behaviour change campaign (2013). Some of the potential barriers that should be taken into consideration in the design of policy to promote behaviour change are explained ahead:

• Focus on tangible risks: Individuals are hardwired to respond to immediate, tangible risks, rather than distant, indirect, vague risks. People generally focus on the present reality, and discount the impact of future risks (Cabinet Office and Behavioural Insights Team, 2011; Shome, & Marx, 2009). Additionally, since Miller’s (1956) influential paper on limited working memory, cognitive psychology has supported the notion that our brains only have a limited capacity for critical thinking. After exerting self-regulation (e.g. taking time to find a recycling bin rather than throwing a bottle in the garbage), individuals tend to be more passive in future decisions (e.g. choose to drive because it’s easier than looking up the bus schedule) (Baumeister et al., 1998). Individuals often need to exert self-control and make many decisions per day, and many things compete for their attention. Behaviour change requires a cognitive major effort, so it may not make the cut when individuals are deciding which things to pay attention to. For something to win people’s attention, it needs to be urgent or engaging. Behaviour change initiatives and outreach require minimal effort tactics as possible. • Social comparison: As social beings, humans are constantly comparing to others to better understand who they are, how they fit into the social world and the appropriate behaviour for a situation. Festinger’s (1954) social comparison theory hypothesized that individuals are motivated to gain a better self- understanding by looking to others for clarity. Thus, seeing peers discounting the threat of climate change and acting unsustainably can have a powerful effect on people and lead to them failing to act as well. Individuals will generally fail to make the extra effort to change their behaviour if their neighbours and friends are taking the easy route. • Lack of a widespread social movement: Although there are pockets of environmental movements, they have not swept up the general population. For rapid transformative change, McKibben (2012) says we need a global movement, but that that requires an enemy. He says we need to see the fossil fuel industry as that enemy because they have the resources and power to permanently alter the earth's chemistry, and are planning to use them. • The more information the better/ information overload: There is a common idea, supported by classical economics, that if information needed to make decisions is accessible to people, they will access it, absorb it, and integrate it into their decisions (Kennedy, 2013). However, humans are not always rational, behavioural economist Dan Ariely (2007) points out that people are bad at collecting relevant information and putting it to good use. For example, calories posted at fast food restaurants have little effect on eating habits. If individuals do read the information, the information may not have the desired effect. After spending time and mental energy taking in the information, individuals may feel that they have actually “done their part” for climate action

by simply reading environmental material, and refrain from actually making the changes that have an impact. Gifford (2011) calls this barrier tokenism. • Scare tactics: Although scare tactics can help individuals to better feel the threat and thus change their behaviour, they also have a strong chance of backfiring, and thus should be used with caution (Talking Climate, 2011-2013). As emotional messaging is often more effective than analytical (Center for Research on Environmental Decisions, 2009), many NGOs and governments made the understandable conclusion that highlighting the scariness and real threat of climate change would be effective in reaching the public. Highlighting the threat can make it seem more real and less distant, which can be effective if a direct and personal link is made between the threat and the mitigating behaviour (Hoog et al, 2005). However, if fear tactics are not paired with constructive behaviour options and a “we can do this together” message (Moser & Dilling, 2007), there is a risk of making people feel overwhelmed and with lack control (O’Neill and Nicholson-Cole, 2009). • Financial incentives: Financial incentives have been shown to be somewhat successful at changing behaviour, and are suggested by some experts as a means for gaining environmental behaviour change (e.g. Vandenbergh, Stern, Gardner, Dietz, and Gilligan, 2010). In some of the cases, the uptake of a green behaviour change hinges on financial support. For example, financial incentives for electric vehicles and home energy retrofits can enable individuals and families, who have a desire to make sustainable changes, to make the changes that would otherwise not be possible.

However, financial incentives do not generally foster the internalization of climate action values. Financial incentives are external rewards, and external rewards can indeed achieve behaviour change, as operant conditioning involving reward and punishment (Skinner, 1948). However, the change is motivated by the reward or incentive, and not by the value of the activity itself. Thus, the new sustainable behaviour will be unlikely to have carry-over effects to other sustainable behaviours. Furthermore, externally rewarding an activity that an individual was already doing because they enjoyed or valued the activity itself, can lead to a cognitive re-evaluation of the task that leads to the individual doing the activity for the reward instead. Receiving incentives for what would normally be a good deed decreases sense of autonomy when interpreted as controlling behaviour and individuals lose their internal motivation to act (Deci, 1971). If the reward is then removed, the behaviour may cease because the individual is no longer doing it for reasons other than the reward (Deci, 1971).

• A better world for our children: The argument of “leaving a better world for our children and future generations” can have emotional strength to it and is an easy positive message to stand behind. However, it could leave parents

feeling their actions can’t possibly have any effect over their children’s world, making them feel guilty or helpless. Additionally, it doesn’t enable individuals and families to actually do anything about climate change. As discussed above, when people feel their actions have no impact on the larger scale, they are likely to be overwhelmed and unlikely to act (Gifford, 2011; Pike, 2011). When knowledge about the dire state of climate change conflicts with an individual’s unsustainable actions, the individual experiences uncomfortable cognitive dissonance (Festinger, 1957). To relieve this dissonance, the individual will likely discount the seriousness of climate change so that they can continue to act as normal. When parents are busy, changing behaviour becomes more difficult than changing an attitude or discounting a distant threat.

3.3. Design Principles and Strategies for Achieving the Behavioural Change

Although some strategies have not been as effective as hoped in achieving behavioural change at the three levels of influence (intrapersonal, interpersonal and external), behaviour change research is gaining momentum. Alternative strategies are gaining support, and work is being done to bridge the gap between theory and practice with practical suggestions on how to make behaviour change effective (see sections 3.3.1 to 3.3.4 for examples). Some of the general principles to achieve behavioural change include (e.g. Vandenbergh, Stern, Gardner, Dietz, and Gilligan, 2010):

• Prioritize high-impact actions taking into account both the carbon emissions from the activity and the expected uptake of the behaviour. • Provide sufficient financial incentives to do the right thing wherever possible. • Market the program effectively. • Provide credible data at the point of decision making (e.g. when individuals are buying a new product. The source of data could be an authority, expert or government. • Keep it simple: the less cognitive effort required for behaviour change, the better • Provide quality assurance: Prove that the suggested action or new product really works.

Other authors have been more innovative in proposing strategies; the following sections explore some of these proposals.

3.3.1. Changing Defaults

Individuals tend to choose the default option, which is the automatic, most available behaviour. By making the default option the environmentally-friendly option, and making the less environmentally-friendly option require an opt-out action, people will be more likely to choose the green option. Utilizing the effect of defaults has been suggested or supported by the US Center for Research on Environmental Decisions (Shome & Marx, 2009), Behaviour Change and Sustainable Systems Consultant Ruben Anderson (Anderson, 2013), environmental psychologist Dr. Robert Gifford of the University of Victoria (personal communication, May 1, 2013), and Dr. Shane Gunster of the SFU School of Communication (personal communication, May 3, 2013) and the UK Cabinet Office and Behavioural Insights Team (2011).

An excellent example occurred at Rutgers University in New Jersey, where double-sided printing was made the default option, saving 7,391,065 sheets of paper in the first semester. Students generally have no preference, but are often in a hurry, so everyone without a preference switched to printing double-sided instead of single-sided. This switch in default shows how even a relatively simple change can make a significant impact (Print Management Information, n.d.). Another good example is the many universities who give out bus passes to all students, as part of what they receive for their student fees. For many students who don’t have much money, bussing becomes the default transportation option and is never hampered by lack of change. Thus the low carbon option (public transit) becomes the default option. To expand on this example, employees could, by default, receive a bus pass, rather than a parking space.

3.3.2. Using Social Proofing to Climate Action’s Advantage

Social proofing is when an individual looks to others for correct behaviour and then models that behaviour. It involves social comparison (one of the barriers above) followed by action. However, rather than seeing social comparison as only a barrier, we can see it as a strategy to positively influence the public. Social proofing occurs when someone is uncertain about how to behave, and believes that others have a better idea. The more people who exhibit the observed behaviour, the more likely that someone will model that behaviour. If multiple people are doing it, individuals surmise that it must be the best/correct behaviour. Social influence is very powerful, and if individuals believe

that most of their neighbours, coworkers or friends are adopting a certain green behaviour, like recycling, composting, or home energy retrofitting, or using green transportation options, they are more likely to follow suit (Naumof, 2013).

To promote social proofing, messages about environmental initiatives can be tailored to highlight large participation in the initiative. For example, the BC Government uses social proofing language on their Efficiency Incentive Program (n.d.) webpage: "Tens of thousands of British Columbians are saving energy and money because of their participation in the LiveSmart BC: Efficiency Incentive Program. Join your neighbours across B.C. who are saving money and reducing energy use by accessing these incentives."

Plastic bags reduction initiatives are also examples of social proofing. More and more people are seeing fellow shoppers walking in and out of grocery stores carrying reusable bags. The norm is becoming the use of reusable bags, and nonusers are likely feeling the social pressure. Another interesting example of harnessing social comparison to the climate action advantage is the US reality show, The Energy Smackdown. In season 2, teams of households from three different communities in Massachusetts competed for the largest energy reduction over 12 months. The winning community reduced their energy use by 73%. The challenges included activities such as biking to work and replacing shower fixtures and light bulbs. The contestants were models in their community and for their TV viewers, making energy reduction a prominent activity for others to look to and emulate. (Center for Research on Environmental Decisions, 2009).

3.3.3. Bring the Public into the Conversation

Social marketing experts, such as Doug McKenzie-Mohr, stress the importance of public consultation and involvement. McKenzie-Mohr’s book Fostering Sustainable Behaviour (1999) outlines three different points in the development of a program where public engagement is needed, involving focus groups and phone surveys. By involving community members from the target population, a program can be developed that is specific to the barriers and needs of that community. Public involvement can restore people’s sense of control in the policy process by bringing them into the conversations around shaping their government programs, policies and local communities.

3.3.4. Enlist Help from Business and other Players

Often businesses are more prominent in day to day lives through consumer habits and advertising, and they also can have more financial resources to promote behaviour change. Additionally, the point of decision making, where prompts and behaviour-change shaping can be most effective, is often located at a business, such as a grocery store or car dealership, rather than at a government agency. Behaviour change initiatives such as plastic grocery bag reduction and the U.S. Cash for Clunkers program, were both successful in gaining momentum, widespread public awareness and the desired behaviour change. The successes of these initiatives can arguably be attributed to the grocery store industry’s championing of the anti-plastic bag movement and the automobile industry’s support of Cash for Clunkers. In both cases, industry provided much of the advertising, as both programs could be said to be in the industry’s best interests (Vandenbergh, Stern, Gardner, Dietz, and Gilligan, 2010). In the creation of policies for behaviour change, governments require public-private partnerships. The key is to find the economic motivators to promote participation of the private sector.

4. Practical Approaches to Carbon Pricing and Behaviour Change

The spread of carbon pricing policies around the world over the last decade has been remarkable. In 2012, the Australian Climate Commission anticipated that by 2013, 33 countries and 18 sub-national jurisdictions would have a carbon price in place (Climate Commission Secretariat, 2012).These schemes were expected to cover around 850 million people, around 30 per cent of the global economy and around 25 per cent of global emissions.

Figure 2. Carbon Pricing around the World (2013)

Source: International Emissions Trading Association (IETA)

In its most recent carbon market report, the International Emissions Trading Association (2013) confirmed the Australian Climate Commission’s projection, stating that by 2016, assuming that the current programs run as scheduled, carbon pricing

policies would be operating in jurisdictions that together account for almost a quarter of total global GHG emissions. If carbon pricing in China is extended nationally, global coverage of GHG emissions could increase to over 40 per cent. Figure2 depicts IETA’s carbon pricing coverage projection broken down by jurisdiction. The blue line shows the proportion of world energy and industry CO2e emissions occurring in jurisdictions with carbon pricing. If all jurisdictions had carbon pricing schemes this line would reach 100%. The green line shows the proportion of global CO2e emissions from energy and industry that are priced. The gap between the two lines represents GHG emissions that are either subject to other policy instruments in jurisdictions with pricing, or not covered by policy at present. Question marks indicate legislation in progress but not yet enacted or where implementation appears uncertain by the end of 2013 (IETA, 2013).

Figure 3. Carbon Pricing Coverage over Time

Source: International Emissions Trading Association

The first section of this chapter reviews the most important carbon pricing schemes currently in place around the world; these are practical experiences of carbon

taxation or emissions trading systems that might serve to inform the design of an individual-oriented carbon pricing system for BC.

This study analyses in detail five of the larger systems with the longest track records, including the European Union Emissions Trading System (EU ETS), the Regional Greenhouse Gas Initiative (RGGI) in the Northeastern US, Australia’s carbon tax and Norfolk Island personal carbon trading pilot program, and the California cap-and- trade system. It also provides an overview of other newer or smaller-scale systems where results were still not quantified or easily accessible when this study was conducted.

For each major carbon pricing system, the following aspects have been analyzed:

1) A general overview of the system design. 2) An overview and discussion of the effects of each mechanism on four main indicators: Carbon reduction, economic impact, social justice, and impacts on consumer behaviour and public support. 3) Lessons and best practices from each jurisdiction that could apply to climate policy, including individual oriented mechanisms, in BC.

The second section of this chapter pays special attention to the analysis of carbon pricing policy in British Columbia.

4.1. Carbon Pricing by around the World

4.1.1. United States of America

The United States has not yet legislated either a price or a limit on greenhouse gas emissions. In June of 2013, President Obama released The President’s Climate Action Plan (The White House, 2013), a strategy heavily focused on clean energy, adaptation and international cooperation. Although President Obama called for the elimination of US fossil fuel tax subsidies in the 2014 budget (The White House, 2013), his plan does not yet contemplate support for carbon pricing at the federal level. In the past, some market based mechanisms were proposed that included a broader coverage of the economy and market participants, for example: the American Clean

Energy and Security Act (i.e., the Waxman-Markey bill) that was approved by the United States House of Representatives in June 2009, but died in the Senate in July 2010 (Open Congress, 2012). This proposed upstream cap-and-trade system policy covered 85 per cent of the overall US economy, including electricity producers, oil refineries, natural gas suppliers, and energy-intensive industries. The Waxman-Markey bill proposed a cap at the point of extraction or importation, requiring monitoring and accounting of the amount of fuel produced or imported and its carbon content. The price signal in this type of policy has an effect on reducing both downstream and upstream emissions, similar to a personal carbon trading system, it affects buying decisions at the retail level.

The US has also been a leader in introducing the concept of market-based mechanisms and pricing of negative externalities, although the US Environmental Protection Agency Acid Rain Program, launched in 1995 (EPA, 2011), is not focused on carbon emissions, it is widely regarded as a successful example of an emissions trading policy. The Acid Rain program allows power plants to trade permits to emit sulphur dioxide (SO2) and nitrogen oxides (NOx). Through this program, by 2010, SO2 emissions fell 49 per cent from the 2005 level, and annual NOx emissions dropped 42 per cent (EPA, 2011).

At the regional level, two emission trading systems already exist in the US: the Regional Greenhouse Gas Initiative has operated in the power sector in nine northeastern states since 2009 (Huber, 2013), and California’s emissions trading scheme started operations in January 2013.

The Regional Greenhouse Gas Initiative (RGGI)

The Regional Greenhouse Gas Initiative (RGGI) was the first market-based regulatory program in the United States created to reduce GHG emissions. RGGI is a cooperative effort among the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont to cap and reduce CO2 emissions from the power sector (RGGI, 2014). Under RGGI, only power producing entities are subject to regulation.

In September of 2008, RGGI held its first allowance auction and began its first three year compliance period in January of 2009. RGGI accounts for 22% of the region’s overall emissions and has a reductions target of 10% below 1990 levels by 2020 (Huber, 2013). The future of the program is under discussion, including combining it with a low carbon fuel standard for the transportation sector.

One peculiarity of RGGI is the agreement to address emissions leakage (i.e., increased electricity imports and associated emissions. RGGI member states monitor electricity imports on an ongoing basis and report the results of the monitoring on an annual basis since 2010.

Summary of Mechanism

Covered Sectors Electricity generation Covered % Total Emissions 22% • Allows auctions of allowances. • Up to 3.3% of compliance obligations may be met by using offsets Design Features • Entities may bank allowances for future compliance periods • States must use at least 25% of auction revenue for public benefit (Huber, 2013) Most Recent Price/Tonne CO2e $3.00 (RRGI, 2013)

Results Summary

Consumer Behaviour / CO2e Economy Social Justice Public Support Home owners reported that energy audits have been popular (University of 25% of auction is Maryland, 2010). Emissions 45% mandated for “public $1.6 Billion net below cap in benefit” programs, proceeds 2012 (Ramseur, most states using Public expenditures on efficiency in (Ramseur, 2013) 2013) 60% or more end-use electricity consumption have (Ramseur, 2013) led to energy bill savings for consumers (University of Maryland, 2010)

Results Discussion By 2012, GHG emissions released by the RGGI members were 45 per cent below the program cap (Ramseur, 2013). It is unclear how much RGGI itself drove this reduction. The economic recession reduced demand for energy and the low prices and vast quantities of domestically produced natural gas caused fuel switching from higher carbon intensity fuels. This reduced the demand for carbon permits, creating oversupply (Ramseur, 2013). In 2008, RGGI’s cap was initially set at 165 million metric tons of CO2e, but in 2013, it was adjusted to 91 million metric tons of CO2e (Huber, 2013). The cap’s existence coupled with unlimited emission allowance banking (RGGI allows entities to bank allowances for upcoming compliance periods) and an auction reserve price attaches a price to the regulated entities’ CO2 emissions. Because the cap is currently non-binding, this price acts like an emissions fee or carbon tax (Huber, 2013). Average annual net electricity imports into the 10-state RGGI region increased by 5.0 percent, from the 2009 to 2011 period compared to the 2006 to 2008 base period. GHG emissions from these net electricity imports decreased by 7.4 percent during this period, indicating a reduction in the average carbon intensity rate of the electric generation supplying these imports (RGGI, 2013).

The Analysis Group (Hibbart, 2011) estimated that RGGI has generated about $1.6 billion in economic proceeds for the region, the equivalent of $33 extra dollars per capita. Member states are required to spend at least 25 per cent of the revenue from auctioned allowances on energy efficiency and other GHG-related programs targeted at decreasing social inequities associated with the program. RGGI-regulated entities can use carbon offsets to meet up to 3.3% of their required reductions under the cap. Several RGGI studies indicate that supporting energy efficiency provides multiple benefits: emissions reduction, consumer savings via lower electricity bills, and job creation (Huber, 2013). The economic benefit has been accomplished largely because RGGI encourages the reinvestment of auction revenue, paying special attention on lower income communities; this counteracts potential negative effects to these communities and addresses social justice. States have also allocated 6 per cent of their total auction revenue towards investment in GHG offset projects on transportation improvements and wetlands protection (RGGI, 2012).

As for electricity consumption and behavioural change, a study commissioned by the state of Maryland (University of Maryland, 2010) reported that free audits sponsored by RRGI proceeds can reach consumers who otherwise might not participate in efficiency programs. However, audits can be costly compared to the resulting energy savings if consumers do not implement the efficiency recommendations. In order to minimize wasted free audits, some energy service companies only absorb the cost of the audit if the customer pursues the proposed repairs. In contrast, programs that subsidize efficiency measures but not audits face the hurdle of the upfront cost of audits for consumers.

California’s Cap-and-trade System and the Western Climate Initiative (WCI)

In February 2007, the Governors of five states (Arizona, California, New Mexico, Oregon, and Washington) and the Premiers of four provinces signed an agreement directing their respective jurisdictions to set a regional target for reducing greenhouse gas emissions, participate in a multi-state registry to track and manage greenhouse gas emissions in the region, and develop a market-based program to reach the target. Today, only five of these are still WCI partners–California, British Columbia, Manitoba, Ontario and Quebec–and of those only California and Quebec have passed relevant legislation (WCI, 2013).

California is the 12th largest economy in the world, and its cap-and-trade program, with a cap over 400 million metric tonnes (Mt) of CO2e in 2015, is the second largest compliance program in the world (IETA, 2013). California has completed its first year of compliance within its cap-and-trade system, which was linked with Quebec’s system in 2014 (IETA, 2013). Starting their second compliance period (Jan, 2015), both systems will extend their point of regulation to fuel imports and distribution (including distribution of heating and transportation fuels). At that stage, California’s cap-and-trade will cover nearly 85 percent of the state’s total greenhouse gas emissions (C2ES, 2014).

Summary of Mechanism

Electricity generation and industrial facilities Covered Sectors Emitters producing over 25,000 Tons of CO2e (CARB, 2013). Covered % Total Emissions 85% (CARB, 2013). Allows allowance auctions. Up to 8% compliance obligation may be met by Design Features using offsets. Entities may bank allowances for future compliance periods (CARB 2013). Most Recent Price/Tonne CO2e $11.10-$11.48 (CARB, 2013).

Results Summary

Consumer Behaviour / CO2e Economy Social Justice Public Support

By 2013, $500 million were Public support for climate collected from auction proceeds. California is on policy in California remains There are no track to meet its very high. As of reports yet of 2020 emissions 78 clean energy projects were concerns with July 2013, 75 per cent of reduction announced during 2012-2013, regards to voters supported immediate target. But not creating 43,500 associated jobs. equality and action by state and federal on track to meet social justice. governments to arrest global their 2050 goal. $4 billon investment in venture warming and prepare for capital in California in 2011. climate impacts.

Results Discussion

The state of California appears to be on target to meet its goal of reducing emissions to 1990 levels by 2020 (Connor, 2013). A recent study (Greenblatt, 2013) claims that meeting its 2050 goal of an 80 per cent reduction below 1990 levels may require more ambitious action in the form of additional policy. The extension of the cap to fuel distributors in 2015 has the capacity to generate a price signal for final consumption of fuels. By doing this, California is encouraging emissions reductions at the personal level.

The Electric Power Research Institute (2013) estimates that only 18 of 80 megatons of California’s CO2e targeted reduction by 2020 will come from the cap-and-

trade program, while the remaining 62 megatons will come from complementary policies such as the Low Carbon Fuel Standard (LCFS). California has implemented a range of overlapping complementary policies that aim to reduce emissions from the power and transportation sectors in particular (IETA, 2013). Because such a high percentage of California’s emissions come from the transportation sector, LCFS offers diverse compliance options to drive emissions reductions without simply capping this sector. The state believes that the use of market-based mechanisms (i.e., response to consumer demand) allow fuel providers to choose how they will reduce emissions and comply with LCFS (Yeh et al. 2009).

In the year 2011 California attracted nearly $4 billion in new venture investment capital (Next10, 2013). Environmental Entrepreneurs reports that as many as 78 new projects have been announced in the past two years, with as many as 43,531 associated jobs (Clean Energy Jobs, 2013). There is no way to determine how many of these jobs are directly attributable to the cap-and-trade mechanism itself; however it is clear that investments are spurring job creation in clean technology, energy efficiency and renewable energy.Public support for climate policy in California remained very high: A poll taken by the Public Policy Institute of California (July, 2013) indicated that 75 per cent of voters supported immediate action by state to mitigate and adapt to global warming effects (IETA, 2013)..

4.1.2. European Union

Emissions Trading System (EU ETS)

The European Union Emissions Trading System (EU ETS) was launched in 2005 to reduce carbon emissions of about 12,000 power stations and industrial plants in 30 countries: 27 countries of the European Union, and three non-European Union members: Iceland, Liechtenstein, and Norway (European Commission Climate Action, 2012). The EU ETS is the largest multi-country, multi-sector GHG emissions trading system in the world. It is the most widely studied and critiqued cap-and-trade program in the world, and its history has provided significant lessons for the implementation of similar programs in the future. To date, three operational phases of the EU ETS have been delivered or agreed. Phases I and II are concluded, phase III initiated in 2013 and will continue until 2020 (European Commission, 2013). A major reform took effect in

phase III with a progressive shift towards auctioning of allowances in place of cost-free allocation. From 2013 power generators must buy all their allowances: they are now passing on the total cost of allowances to customers – European consumers pay some of the highest electricity prices globally. This has proved to be a powerful driver to promote individual and community ownership of energy generation (IETA, 2013). In 2013, the manufacturing industry received 80 per cent of its allowances free of charge, but this will decrease annually to 30 per cent in 2020 (European Commission, 2013).

Summary of Mechanism

Power production, manufacturing, aviation (European Commission, Covered Sectors 2013). Covered % Total Emissions 45% (European Commission, 2013). EUTS includes three phases. It allows the auction of allowances. Up to 8% of compliance obligation may be met by using offsets. Design Features Entities may bank allowances for future compliance periods. On phase III, aviation emissions were covered (2012). Auctioning will progressively replace free allocation at least 50% of allowances were auctioned in 2013 (European Commission, 2013). Most Recent Price/Tonne CO2e 5.30 Euro (Point Carbon, 2013)

Summary of Results

CO2e Economy Social Justice Consumer Behaviour/Pubic Support 2-4% emissions No businesses Had initial trouble In 2012 EU ETS introduced aviation reduction per relocated as a with windfall profits emissions their scope. However, year, result of ETS. No and fraud; these have exceptions were made in court with attributable net effect on jobs, since been corrected. respect to international airlines. An directly to ETS although some (European international agreement is still under (Liang, 2013). companies and Commission, 2013). debate. Consumers could potentially countries reported reduce flights’ demand due to higher job gains prices. (Chan, 2013). German consumers pay among some of the highest electricity prices in Europe, which has encouraged individual and community ownership of energy generation (European Commission, 2013)

Results Discussion There has been controversy over the results of the EU ETS. The EU ETS has been successful in lowering the GHG emissions of the EU: one study (Liang, 2013) concluded that the EU ETS has been responsible for reductions of 40-80 Mt of CO2e per year, around 2-4% of covered emissions under the cap. The emissions trading scheme has faced various difficulties with the program’s initial design; however, it can be stated that the EU ETS has learned from its own initial design flaws. These flaws have informed not only improvements to its own system, but the design of subsequent mechanisms.

Due to the multi-jurisdictional nature of the cap-and-trade program it has been difficult to assess the effect of the legislation on jobs (Brown, 2012). According to one report (Chan, 2013) which looked at the three most heavily regulated industries under the EU ETS (electric power, cement and iron), after the first two phases of the program, there was no significant statistical effect on employment.

One design flaw faced by the EU system was that the original allocation of allowances was based not on historical emissions data, but on a “best estimate” of emissions for the compliance period. The result was an over-allocation of allowances: more were given out than the market demanded, causing the price of carbon to crash to $0 for a time (CDC Climate Research, 2012). In general, trading prices for allowances have been low, but are expected to increase as the European Commission corrects for oversupply (Reuters, 2014) and the cap decreases (1.74% per year). Allocations of allowances are now based on historical emissions data and a majority of allowances are set to be auctioned rather than given away (European Commission, 2013). This represents an important change in ensuring that the carbon price signal will be reflected to final consumers, including individuals. The use of offsets in the EU ETS has sometimes been criticized. Under the Kyoto Protocol, ETS countries may use offsets generated under the Clean Development Mechanism (CDM) or the Joint Implementation Program (JI); however unless these offsets represent additional, verifiable reductions, there is no guarantee that emissions are being reduced. Offsets may also have contributed to the oversupply of the EU market. Some have suggested that a shift toward internally-generated offsets rather than the international offsets provided under these Kyoto mechanisms may help alleviate this issue (Convery, 2013).

In 2012 EU ETS initiated its coverage of aviation emissions. An international agreement is still under debate (IETA, 2013). A potential agreement on pricing aviation emissions would have a clear impact on consumers. Profits for airlines might be impacted if carbon costs are reflected to consumers and the demand reduces due to higher prices.

European Union Fuel and Carbon Taxes

A carbon tax was proposed by the European Commission in 2010, but this policy has not yet been agreed upon the 27 member states. Several European countries have enacted carbon or fuel taxes individually. They include: Denmark, Finland, Ireland, the Netherlands, Norway, Slovenia, Sweden, Switzerland, and the UK ((IETA, 2013), (SBS, 2013), (Talberg, 2013), (Tietenberg, 2013). The following table 3 provides an overview of these mechanisms.

Table 3. Fuel and Carbon Taxes in the European Union

Country Type of policy Highlights Introduced as the world’s first carbon tax in 1990, initially with exemptions for specific sectors. Many changes were later introduced, Finland Carbon tax such as a border tax on imported electricity. Natural gas has a reduced tax rate, while peat was exempted between 2005 and 2010. In 2010, Finland’s price on carbon was €20 per tonne of CO2. Introduced in January 2014 on carbon emissions from gas, heating oil and coal. Revenue will be invested in renewable energy. The tax is France Carbon tax projected to raise €4 billion per year and will be rated at 7 euros per tonne emitted in 2014, 14.5 euros per tonne in 2015 and 22 euros in 2016 (Reuters, 2013). Carbon tax The Introduced in 1990. In 2007 it was complemented by a carbon-based (replaced by a tax Netherlands tax on packaging, to encourage recycling. on fuels) In Sweden, carbon is priced both directly through a tax on each emitted unit of CO2e and indirectly through an energy tax on fossil fuels. The carbon tax was introduced in 1991 at a price 0.25 SEK/kg Tax on the use of ($US100 per tonne of C02e) and was later raised to $US150. Both coal, oil, natural taxes cut carbon pollution by 9 per cent between 1990 and 2006. Sweden gas, petrol and aviation fuel used With the introduction of the European Union Emissions Trading in domestic travel System (EU ETS) in 2005, some sectors were covered by both the carbon tax and the EU ETS. To avoid double regulation, the government exempted industries covered by the EU ETS from the carbon tax.

Country Type of policy Highlights Introduced in 1991. Unfortunately, carbon emissions increased by 43 Norway Carbon tax per cent per capita between 1991 and 2008. Introduced in 2002 at a rate of 100 DKK per metric tonne of CO2, equivalent to approximately 13 Euros or 18 US dollars. Denmark’s carbon tax applies to all energy users, but industrial companies are Denmark Carbon tax taxed differently depending on the process the energy is used for, and whether or not the company has entered into a voluntary agreement to apply energy efficiency measures. Introduced in 2008. Includes all fossil fuels, unless they are used for Carbon incentive energy. Swiss companies can be exempt from the tax if they Switzerland tax participate in the country’s emissions trading system. The tax amounts to CHF 36 per metric tonne CO2. In 1993, purpose was to reduce emissions in the transport sector. The UK's Climate Change Levy was introduced in 2001. The United Kingdom participates in the European Union emissions trading Tax on retail UK scheme and is covered by European Union policies and measures. petroleum products The United Kingdom has put in place regulations requiring all new homes to have zero emissions for heating, hot water, cooling and lighting from 2016. Came into effect in 2010. It was estimated to add around €43 to filling Ireland Tax on oil and gas a 1000 litre oil tank and €41 to the average annual gas bill. Sources: IETA 2013, SBS 2013, Talberg 2013, Tietenberg 2013.

4.1.3. Australia and South Pacific Ocean Territories

Australia Hybrid System: Carbon Tax & Emissions Trading Scheme

Australia stands out in terms of per capita carbon intensity. The country introduced a carbon pricing scheme on July 1st, 2012, including a fixed price carbon tax transitioning into a non-fixed price emissions trading scheme (Australian Government, 2013).

According to a 2011 study, while 70 per cent of Australians agree that climate change has an anthropogenic cause, only 30 per cent claimed to support the government’s carbon tax proposal (Spencer, 2012). The Gillard government passed the Clean Energy Bill containing the carbon tax legislation in 2011. In July of 2012, the tax took effect, covering the largest 500 emitters in the country. It was designed to charge

$23 AU/tonne CO2e for the first year (roughly $24/ tonne in USD), increasing by $5 AU/year until 2015 and then transition to a full cap-and-trade system with a price floor

and price ceiling within a six-year timespan. On Sept. 7, 2013 a new government was elected and soon introduced draft legislation to repeal the Carbon Pricing Mechanism (CPM). Until the repeal legislation passes the CPM will remain law. The new Liberal government proposed policy includes some direct action to reduce carbon emissions, for example: establishing a Green Army to clean up and protect the environment in local communities throughout Australia supplementing the current land care efforts of councils, farmers and volunteers. The Liberal government advocates reducing carbon emissions inside Australia, not with foreign carbon credits, which may keep more jobs in Australia (Liberal Party of Australia, 2013). As of March 2014, the Australian Senate voted down legislation to eliminate the carbon tax, the Liberal government plans to call a new vote (double dissolution) on July 1st when the Senate changeover will occur (Griffiths, 2014).

In August 2012, a plan to link the EU ETS and the Australian emissions trading was envisaged to start no later than July 1, 2018, with an interim, unilateral link starting on July 1, 2015. However, subsequent to the government change in September 2013, bilateral linking talks currently are on hold (ICAP, 2014).

Summary of Mechanism

Emitters producing over 25,000 Tons CO2e, Covered Sectors excluding transport and agriculture Covered % Total Emissions 50% Fixed-price emissions-permit system, legislated to Design Features move to a cap-and-trade or flexible emissions price scheme in July 2015 Most Recent Price/Tonne CO2e A$24.15 (US$22.00) per tonne of CO2e (Robson, 2014 and Australian Government, 2014)

Results Summary

Consumer CO2e Economy Social Justice Behaviour/Pubic Support There has been a There has not been an Tax cuts that were Only 30% of Australians significant increase in economic ‘double dividend’ originally promised claimed to support the electricity from the carbon tax in the to come into effect government’s carbon tax prices. By Dec, 2013 form of lower marginal in 2015–16 have proposal. emissions from the income tax rates for most since been Australian workers. rescinded (Robson, power sector New Liberal government 2014). decreased by 6%. proposal to invest in GHG However, industrial $121 million government reductions inside emissions increased investment in energy Australia, avoid the use of due to expansion of oil efficiency and renewables, foreign carbon credits and and gas and mining. $328 million actually spent create community projects This nullified the gains by companies. 25% such as the green Army from electricity increase in renewable seems to be receiving generators. energy. public support. (Hannam, 2013).

Results Discussion

As one might expect from such a hotly debated mechanism, the results of the Australia carbon tax are different depending on the source, and this makes a discussion of results complex. The Australian Green Party produced a report about the tax’s first year in which they claimed emissions from the electricity sector had declined by 7.4%, over 150,000 jobs had been created and billions of dollars of investment had been realized (Australian Government, 2013). Unfortunately increasing emissions from deforestation from land clearing and fugitive emissions from coal mining and gas production expansion have nullified the positive effects of the tax (Hannam, 2013).

A report from Griffith University (Robson, 2013) suggests that the average increases in energy costs have been over 14% for both businesses and individuals, leading to a variety of unfavorable employment and social equity outcomes (these outcomes so far have been in the form of case studies due to the young age of the program). The report blames these outcomes on:

1) A lack of understanding surrounding the marginal cost and benefit of either tax or cap-and-trade as compared to future costs and consequences of inaction;

2) A poorly executed set of complementary policies leading to increased inefficiencies in implementation; 3) Poor execution of the income tax shift, increasing taxes for low- income individuals; 4) Excessive costs to Australia’s export industries stemming from these industries’ emissions intensity. Also, coal and LNG exporters claim an inability to pass through costs to consumers because their product (fossil fuel) is highly commoditized on the international market.

One of the most significant problems with the design of the overall carbon tax policy was the mismatch between the tax’s revenue inflows and the outflows for compensation measures. Reductions to the personal income tax system were committed well before the tax came into effect and generated revenue, this resulted in the need to rescind tax cuts that were originally promised to come into effect in 2015–16. (Robson, 2014).

Trial Personal Carbon Trading Scheme in Norfolk Island (NICHE)

Norfolk Island is located 1600 km off the east coast of Australia with a resident population of 1750 people. The island is part of the Commonwealth of Australia, but has been granted a large degree of self-governance (Australian Government, 2013). Based on calculations by the University of Sydney, the average Norfolk Islander personally produces 13.5 tonnes of carbon per annum, “in order to sustain a global population of 7 billion this needs to be reduced to around 5 tonnes of carbon per person, per annum globally” (NICHE, 2012). The NICHE project is a world-first personal carbon trading trial program funded by the Australian Research Council. The NICHE proposal was developed by three Australian universities (Southern Cross University, Deakin University, and University of South Australia) based on proposals developed initially in the United Kingdom. Since 2010, residents of Norfolk Island have been encouraged to sign up to a three-year voluntary scheme which aims to reduce greenhouse gas emissions, obesity and chronic diseases, such as type 2 diabetes. The aim of NICHE study is to encourage change through the use of the carbon card with minimal disruption to an individual's lifestyle. This study also looks to promote healthy local food choices which would positively impact people’s overall carbon balance.

The NICHE trial project aims to respond to three main research questions (NICHE, 2014):

1) Is the allocation of Personal Carbon Allowances likely to be effective in reducing an individual's carbon footprint? 2) Can personal carbon allowances influence behaviours in a way that may improve body weight? 3) Is a Personal Carbon Trading system acceptable to the public as a tool for emissions reduction and /or a public health strategy?

As part of the NICHE trial project a household survey was conducted inviting participation of the whole island population. In August 2012 it was reported that more than 50% of households completed the survey, and after comparing personal information provided with the 2011 Norfolk Island Census, investigators stated that the survey sample matched that of the entire community (NICHE, 2013).

Under the program, the island's residents have received a carbon card and a key tag, which operates like a credit or debit card, containing a set number of carbon units. This card represents carbon units as a parallel currency. During the trial, residents will use their carbon card when they pay for petrol and power. Those who use fewer units by walking or cycling instead of driving or using less electricity at home will be able to exchange any remaining credit at the end of the year for cash. Over time the number of carbon units handed out on the cards will go down, forcing individuals to work harder to maintain a low-carbon lifestyle. A statement is sent out each month and if their carbon account hits zero, they have to pay to get more credits; other people can sell unused credits and make a profit. With the main aim of gathering information on public acceptability, during the 3 year trial, the NICHE project will only provide incentives (people will not have to pay to get more credits, although a negative balance might be shown in their statements). Accompanying the carbon usage statement, households are receiving a comparison with the carbon usage in other households that have the same number of members (NICHE-Statements, 2013).

Norfolk Island receives around 30,000 tourists or visitors each year and they will also be included in the project. When they get to the island they are be given a carbon card with a certain number of units depending on how long their stay is. Tourists are able to recover the money that is left on their cards if they are frugal with it or they will have to pay extra if they go over (Southern Cross University, 2010). Current plans for the project

will involve monetary donations to local service clubs/charities for community participation.

The following is a list of benefits advertised by the NICHE project to encourage Norfolk Island residents to sign up to participate in the voluntary scheme:

• During the trial period only, there are no disincentives. • Participation in the trial will be rewarded. This may include discounts on certain items and cash pay-out for any residual carbon allowance at the completion of the project. • The opportunity to assess current environmental impact. • The ability to continually monitor carbon credits and personally decide whether or not people want to change their consumption habits. • The carbon account allows comparing individual’s consumption/energy use with the average in the island; and provides information on how sustainable that level may be.

The Norfolk Island project has also launched a page on Facebook to advertise events and milestones in the implementation of their trial (Facebook: NICHE, 2012).

At the end of 2013 the NICHE Project moved into the intervention stage. All NICHE participants were offered $200 cash to complete a new survey after reviewing their carbon usage statement. Participants were asked to have a look online at their account or at the statement emailed. All NICHE household averages are calculated against household sizes. The new survey included only ten questions to assess the experience as a NICHE participant.

As of February of 2014, there are not yet publically available results with respect to the operation, public acceptability, GHG emissions reduction or health improvement under the NICHE project.

4.1.4. Other Countries

Almost a decade after the European Union launched the world's first emissions trading scheme (EU ETS). The use of this policy instrument and carbon pricing in general has spread around the globe. From 2005 to 2015, the share of global emissions covered by ETS will have increased by more than 70 per cent (ICAP, 2014). The

following table 4 summarizes the main carbon pricing schemes introduced or announced as of February, 2014.

Table 4. Carbon Pricing Schemes around the World (2014)

Country Type of policy Highlights India Carbon tax In July 2010, India introduced a nationwide carbon tax of 50 rupees per tonne (less than $1 USD) on coal produced in or imported to India. China Emissions trading The Chinese government plans to develop ETS in seven key schemes cities and provinces: Beijing, Shanghai, Tianjin, Shenzhen, Chongqing, Guangdong and Hubei. Each region is charged with designing its own scheme with a planned start date of 2013 (although some were not ready in time). These schemes will cover around 250 million people.

The Chinese government also aims to work towards a nationwide approach based around an emissions intensity target, initiating after 2015; they contemplate future links with other systems including Europe, Australia and California. South Korea Carbon tax & A national carbon tax was introduced in 2008. emissions trading scheme The Republic of Korea passed legislation in May 2012 for an ETS to start from 1 January 2015. The ETS will cover facilities producing more than 25,000 tonnes of greenhouse gas emissions – expected to be around 450 of the country’s largest emitters.

In 2010, in the lead up to a full ETS, the South Korean government established a precursor scheme known as the Greenhouse Gas and Energy Target Management System. Companies with emissions above the 25 000 tonne threshold are required to monitor, report on, and limit their annual emissions to below set caps. There are no credits or tradable permits. Those companies that exceed their annual cap are penalized with a fixed fee.

Country Type of policy Highlights Japan Carbon tax & In April 2012, Japan legislated a carbon tax of approximately emissions trading ¥289 per tonne (aprox. $3.0 USD) by increasing existing taxes scheme in Tokyo on fossil fuels (coal and LPG/LNG) with effect from 1 October 2012. Half the revenue will fund low-emissions technologies.

Japan has an ETS operating in the Tokyo and Saitama regions, covering 20 million people. All permits are given out free at the beginning of each phase, and a reserve is kept for new entrants into the market. The scheme does not allow linking to schemes outside of Japan. A report published by the Tokyo Metropolitan Government shows that Tokyo’s 2010 emissions were reduced by 13 per cent compared to the base year (which is an average of three consecutive fiscal years selected between 2002 and 2007). New Zealand Emissions trading Introduced in 2008, the scheme initially covered forestry, and scheme was then expanded in 2010 to cover stationary energy, transport, liquid fossil fuels and industrial processes. Most participants receive free allocations. The NZ government had planned for its ETS to cover all sectors of the economy (including agriculture, NZ’s biggest source of emissions) by 2015.

On the passage of Australia’s ETS legislation, NZ announced its intention to link the schemes. The price of NZUs has been in steady decline, and is now (1Q 2014) below $NZ2 ($18.2 USD). South Africa Carbon tax on new Introduced in September 2010. South Africa is planning to vehicle sales introduce a carbon tax, starting at 120 ZAR ($11 USD) per tonne for emissions above a threshold. Each company will have 60 per cent of its emissions tax exempt, with higher exemption thresholds for cement, iron, steel, aluminum, ceramics and fugitive emissions as well as trade exposed industries. Agriculture, forestry, land use and waste will not be taxed. Kazakhstan Emissions trading A national ETS was introduced on 1 January 2013. The scheme scheme covers plants in the manufacturing, energy, mining, metallurgy, chemicals, agriculture and transport industries which emit more than 20 000 tons of CO2e per year. This scheme covers 178 participants and about 80 per cent of national emissions. The first year is considered a pilot stage, rolling into full implementation and compliance in 2014. During the second phase, which ends in 2020, a penalty will apply for emissions above the threshold. Costa Rica Tax on carbon Enacted in 1997, set at 3.5 per cent of the market value of fossil pollution fuels. The revenue raised from this goes into a national forest fund which pays indigenous communities for protecting the forests around them.

Country Type of policy Highlights Brazil Emissions trading The cities of Rio de Janeiro and Sao Paulo are said to be scheme developing their own state ETS with plans to link. Chile Emissions trading Chile received implementation funding to develop a roadmap for scheme the design and eventual implementation of an emissions trading scheme for GHG mitigation in the energy sector in March 2013. The Santiago Climate Exchange provides a local platform for trading voluntary greenhouse gas (GHG) reductions.

Mexico Emissions trading The General Climate Change Law (Ley General de Cambio scheme Climatico) of April 2012 establishes a basic framework for the establishment of a voluntary ETS in Mexico. Carbon tax and gasoline tax Two taxes have been introduced effective January 1st, 2014. Carbon tax rate was proposed at 70.68 pesos per tonne of CO2e ($5.3 USD). Gasoline tax (/ IEPS): applies to the imports and sales of fossil fuels such as propane, butane, jet fuel, gasoline, diesel and others. The tax is determined according to the CO2e content of every fuel, there are different rates per unit of fuel and these rates will be updates according to the official inflation rate. Source (IETA 2013, SBS 2013, Talberg 2013 and ICAP 2014.

4.1.5. Canada

Canada does not have a federal carbon tax, but two Canadian provinces have existing carbon taxes (Quebec and British Columbia). Although, the Canadian Federal Government has no immediate plans to implement national emissions trading, Alberta implemented an intensity based emissions trading in 2006 and Quebec’s cap-and trade scheme was initiated in 2013.

Alberta's Specified Gas Emitters Regulation

In 2007, Alberta regulated large industrial GHG emissions, mandating that all facilities emitting more than 100,000 tonnes of CO2e per year reduce emissions per unit of production by 12 per cent below their approved baseline emissions intensity. The baseline emissions intensity for established facilities is the average of its emissions for the years 2003-2005 (Government of Canada, 2014). Alberta’s regulation allows emitters four compliance options to achieve their reduction requirement: reduce the GHG intensity of their operations; buy emissions performance credits from other regulated

facilities that achieve reductions beyond their requirement; buy Alberta-based offsets; or pay $15 per tonne of CO2e to the Climate Change and Emissions Management Fund that is used to support development and application of clean energy technologies (Alberta Government, 2013).

As of 2013, Alberta has reported a cumulative of 40 Mt of emissions avoided (20 Mt in facility reductions and 20 Mt through carbon offsets) and $398 million paid to the Climate Change and Emissions Management Fund with $182 million allocated to 48 clean energy projects (Government of Canada, 2014).

Alberta’s system is an intensity-based program: the cap establishes a maximum amount of emissions per unit of production or GDP or other economic indicator. This type of system has the potential to reduce overall carbon emissions in relative terms, but not necessarily in absolute terms (Marschinski, 2009).The carbon content per unit of production decreases, but if total production increases, total GHG emissions are likely to increase. Alberta’s overall emissions are growing as the Oil Sands production increases. Canada's total emissions grew by 111 Mt between 1990 and 2011, with oil sands emissions responsible for 36 per cent (40 Mt) of this increase (Alberta Government, 2013).

Quebec Cap & Trade System

Quebec’s 2013–2020 Climate Change Action Plan, which was released in June 2012, includes an emissions reduction target of 20 per cent by 2020 from 1990 levels. To achieve its emissions reduction goal, the Quebec government has enacted regulations for an Emissions Trading System. As with the Californian scheme, it began in 2013 and applies to those operators in the industrial and electricity sector emitting in excess of 25,000 tonnes of CO2e per year. It covers around 75 participants, about a quarter of Quebec’s total emissions. Quebec linked its scheme with the Californian cap- and-trade system in 2014 (Gouvernement du Québec, 2014). In 2012, Quebec allocated a number of allowances for free up to 100 per cent depending on the type of emissions (e.g., combustion and process emissions). The number of free allocated units will gradually drop by between 1 and 2 percent each year, beginning in 2015 (Gouvernement du Québec, 2014). There is an auction floor price of $10.50 CAN per tonne, increasing by 5% annually (Talberg, 2013). In 2015, the fuels sector will be

added, representing a major reform that, similar to the case of California, ensures that the carbon price embedded in gasoline (and in other fuels) is passed on to individual consumers. The economic effect of this policy is similar to the constraint that would be imposed by personal carbon trading: when individual consumers experience higher fuel prices, they tend to modify their buying and driving decisions. The difference between these two policies lies in the interplay of intrapersonal, interpersonal and external factors that influence behaviour. Personal Carbon Trading offers the possibility to affect behaviour by economic (external), psychological (intrapersonal), and sociological (interpersonal) approaches. It is argued that this could result in greater emissions reductions at a lower cost, especially in times of economic constraint (Parag & Capstick, 2011).

4.1.6. Summary of Lessons and Recommendations from Analyzed Carbon Pricing Systems

The following table 5 presents a summary of potential lessons and recommendations that could be applicable to inform the design of a new carbon pricing policy in BC. These lessons and recommendations have been derived and concluded from the data presented in sections 4.1.1, 4.1.2, and 4.1.3 of this study, and are not directly attributed to specific authors:

Table 5. Summary of Lessons from Carbon Pricing Systems Applicable to British Columbia

California • California has successfully made of its cap-and-trade program a key piece of the state’s climate policy and political platform. Public support for climate policy in California remains very high, which shows that promoting clean technology investment driven by a carbon price could also drive capital investments and creation of jobs. • A suite of complementary policies and incentives is necessary to leverage emissions reduction efforts from carbon pricing, for example by making California’s Low Carbon Fuel Standard applicable to the transportation sector.

RGGI • In setting a GHG emissions cap and allowances distribution, it is important to plan for possible changes to the energy mix and economy of the jurisdiction and trading partners. As part of a program design, regulators should keep the flexibility to modify the number of allowances in the market under specific conditions. • RGGI encourages the reinvestment of auction revenue paying special attention to low income communities, energy efficiency investments have reduced consumer energy bills. Similar guidelines in the use of revenue could be used in the design of a personal carbon trading system for BC. • RGGI and most other emissions trading systems allow for the use of offsets. A personal carbon trading system does not typically include a carbon offsets mechanism. However, in the absence of this policy mechanism, personal carbon pricing policies should include options to incentivize individuals who cannot reduce further their direct emissions, but who could contribute to the reduction of GHG emissions from other individuals. • Potential for emissions leakage (as in the example of electricity imports) is a critical aspect to consider in the design of carbon pricing policy. A personal carbon trading system does not require making a distinction between imported or locally produced emissions. It targets consumption of both local and imported sources of GHG emissions. The European • Over-allocation of allowances will diminish the effectiveness of the policy in Union reducing GHG emissions (the sense of scarcity disappears). IETA (2013) recommended allowing the supply of allowances to fluctuate in line with extreme changes in demand. • While free allocation can increase public support for the policy, it can also result in windfall profits (e.g. industrial covered entities raise prices to consumers to account for a carbon cost that industrial facilities haven’t actually paid). • Designing a program to be deployed in various phases, including in some cases a pilot phase, provides the opportunity to correct potential flaws in the initial design, as well as incorporate market feedback. This can also provide the time that is required to develop infrastructure needed to support regulated entities in reducing further emissions. • The use of offsets has been a challenge in several jurisdictions, including BC. Developing alternative mechanisms to encourage and facilitate emissions reductions in sectors not directly regulated, should be a priority for policy makers. The concept of offsets as initially developed must evolve to avoid corruption, re- direct ethical investments and avoid unnecessary costs. • The civil aviation sector ranks as a top-ten emitter of carbon dioxide globally (IETA, 2013). The EU ETS policy to regulate aviation emissions provides the opportunity for innovation in this sector. Using the power of consumers can be an important driver to motivate technology innovation in the aviation and other sectors. Personal carbon trading addresses aviation emissions from the consumer side.

Australia • When two carbon policies interact (e.g. carbon tax and emissions trading), it is important to be mindful of the interactions of both mechanisms with complementary policies to avoid double regulation, inefficiencies or inequity outcomes. • It is important to plan and design policies taking into account changes in government, such as conflicts between different political parties. • The new Liberal government proposal to invest in GHG reductions inside Australia, avoid the use of foreign carbon credits and create community projects such as the Green Army seems to be receiving public support. BC is already very protective of allowing only BC based offset projects for regulation compliance. NICHE (Norfolk • Linkage of a carbon trading program and GHG reduction goals with health and Island) fitness improvement goals can increase the likelihood of public support for a new policy. • Inclusion of visitors in the program can increase the opportunities for further carbon reductions and revenue. • During a trial period, there could be incentives only, these could include: Discounts on certain items (e.g. gasoline purchases), cash pay-out for any residual carbon allowance at the completion of the project. • Using a carbon card (and a key tag) helps participants track their consumption (e.g. purchases of gasoline). • Providing data comparing the average carbon usage of similar households encourages program participants’ continuous improvement and provides them with a sense of social healthy competition.

4.2. Carbon Pricing in British Columbia

In 2008 British Columbia committed to legislation to reduce their greenhouse gas (GHG) emissions by at least 33 per cent below 2007 levels by 2020. Since then, the provincial government has tried to build a carbon price signal strong enough to reduce emissions by up to three million tonnes of greenhouse gases annually (BC Ministry of Finance, 2012). This carbon price signal is driven mainly by a revenue-neutral carbon tax. In 2008, BC enacted a revenue-neutral carbon tax that includes refundable tax credits for low-income segments of the population, and reductions in personal and business income taxes.

The BC carbon tax rate on July, 2008 was equal to $10 per tonne of CO2e emissions. The rates were increased by $5 per tonne annually until reaching $30 per tonne of CO2e or about 6.7 cents per litre of gasoline on July 1, 2012 (BC Ministry of Finance, 2013).

Environmental protection was top-of-mind for BC voters in 2006, when this legislation was initially proposed. By 2009, the economy had trumped all other issues in public perception worldwide, and BC was no exception. Due largely to the proposal of a very unpopular sales tax, Premier Gordon Campbell resigned in March of 2011, allowing a new administration under the leadership of Christy Clark to assume control (Hunter et al., 2010). As part of the new government initiatives, the carbon tax policy underwent a review in 2012. The goal was “to ensure that the BC's carbon tax was fair, that there was political support from families, communities and businesses, and that the carbon tax revenue was invested in making BC’s communities more enjoyable and healthier places to live, while growing the economy and producing new jobs” (BC Ministry of Finance, 2012). More than 2,200 British Columbians – including over 2,000 individuals – made submissions (BC Ministry of Finance). A poll released by the Pembina Institute in 2011 found that 51 per cent of British Columbians did not want the carbon tax to continue increasing each year. There were also a variety of views about revenue neutrality, with some strongly supportive and others wanting carbon tax revenues used for environmental programs and initiatives.

In February of 2013, citing affordability for British Columbians in the midst of economic recovery, Clark’s administration decided not to increase the tax from its current level of $30/ton CO2e and not to include any new sources of emissions (BC Ministry of Finance, 2013).

According to a report published by the Pembina Institute (2012), a majority of British Columbians support the carbon tax as a way to fight climate change. However, similar to what has occurred in other jurisdictions, the BC carbon tax has been the object of wide debate about its effectiveness in reducing GHG emissions, and the degree that would be required to truly contribute to climate change mitigation. Those criticizing the effectiveness of the carbon tax usually centre their attention in the economic and operational aspects of the policy (e.g., tax rate, or revenue neutrality); but they lack analysis of the social and psychological facets that any carbon policy requires to influence behaviour at the individual consumer level. Also these criticisms do not always offer policy alternatives that could potentially be more effective or enhance the effectiveness of the carbon tax in reducing GHG emissions.

Based on the responses from this study’s interviews, some of the main challenges of the BC carbon tax are related to: 1) the political acceptability of higher tax rates and income tax rebates as incentives; 2) the social awareness and engagement with the operation and objectives of the carbon tax; and 3) the difficulty of providing certainty in the environmental outcomes of the policy (i.e. measuring and anticipating emissions reductions as a result of the tax).

4.2.1. Results of the BC Carbon Tax

The BC Government identifies the carbon tax as one of the factors that contributed to the reduction of 4.5 per cent of greenhouse gas (GHG) emissions in BC from the period of 2007 to 2010 (BC Climate Action Secretariat, 2012). However, it is not clear yet how much of these carbon reductions have been achieved as a direct result of the carbon tax shifting consumers’ behaviour with respect to high carbon intensity products and services, and how much is attributable to the economic downturn faced during this period.

Research conducted by Sustainable Prosperity- SP (2013), a BC-based non- profit that has been tracking the progress of the BC carbon tax since its implementation, indicated that, since the carbon tax took effect in 2008, British Columbians’ use of petroleum fuels subject to the tax has dropped by 17.4% –and by 18.8% compared to the rest of Canada. This study also acknowledges that causality is not proven and that the system needs to be reviewed after a longer period.

A more recent study, conducted by SP (Elgie, 2013) as well, concluded that the BC’s carbon tax has been a highly effective policy to date (4Q 2013). Because GHG emissions data was unavailable for 2011 and 2012, SP utilized the per capita consumption of refined petroleum products and motor gasoline as proxies for the environmental impacts of the tax. From 2008 to 2011, BC’s per capita GHG emissions associated with carbon taxed fuels declined by 10.0 per cent. (9 per cent higher compared to the average decline in per capita carbon emissions in rest of Canada). SP (Elgie, 2013) describes only a small difference of 0.1% in total economic growth during 2008-2011 between British Columbia and the rest of Canada, as measured by the growth of GDP (gross domestic product) per capita, and concluded that the evidence

does not show that the carbon tax is harming the provincial economy. Moreover, the report suggests a slightly positive net impact to the BC economy as measured by GDP per capita.

The above preliminary results for BC appear to be consistent with previous studies looking at the effect of environmental taxes in European nations on their economic growth (Andersen et al., 2007). For example, Sweden world’s highest carbon tax, currently (2013) at a rate of $150 USD per tonne of CO2e, was introduced in 1991. Since that time up to date, Sweden's economy has grown by more than 100 per cent, and the country recently ranked fourth in the world on economic competitiveness (David Suzuki Foundation, 2013). Sweden’s carbon tax is imposed only on households, services, and industrial sectors not covered by the EU-ETS sectors. Households and services pay 100% of the current rate; however, there are tax breaks to protect the competitiveness of Sweden’s domestic industries, including agriculture (e.g., 30% of carbon tax in 2013 and 60% in 2015). Sweden also promotes efficient fuel use and the use of renewable energy sources in passenger cars.

Pedersen & Thiessen (2013) argued that the carbon tax is having a positive effect in reducing BC’s GHG emissions, citing Statistics Canada data showing that BC’s gasoline consumption declining 7.7 per cent since its peak in 2004. Another analysis (Rivers et al., 2012) found that BC’s tax was highly effective at reducing demand: a five- cents-per-litre increase in fuel prices from the tax resulted in a 10.6% reduction in short- run gasoline demand. Also, economists at the University of Ottawa found that “the seven cent per litre carbon tax in B.C. has induced a downward demand-response for gasoline that is almost five times greater than would occur for an equivalent market price jump” (Rivers & Schaufele, 2013).

Other authors argued that the BC’s carbon tax has been ineffective; further, they implied that the carbon tax is a distraction that is causing potentially dangerous delay in consideration of policies that might have a more significant impact on BC’s carbon emissions, or criticize the fact that the tax revenue is not used to provide drivers with more options to reduce their use of fuel (Tieleman, 2013; Nickson, 2013). Despite the positive results, a submission to the Carbon Tax Revision by the International Institute for Sustainable Development (Gass & Sawyer, 2012) found that at its current rate of

$30.00 dollars, the carbon tax could deliver only 3 megatonnes (Mt) of emissions reductions annually by 2020, representing only 14% of the provincial target by 2020.

The revenue neutrality of the BC carbon tax is expected to improve the average economic welfare of British Columbians by $120-200/per person per year by 2020 (Elgie, 2013). However, revenue neutrality has also had one unintended consequence, at least anecdotally: because revenues (around $1 billion per year) are used to lower other taxes rather than invested in environmental improvement projects, the tax may be creating confusion as to the environmental benefit it represents (Meisner, 2012). As a response to this issue, some environmental groups have begun to advocate doing away with the revenue neutrality aspect of the tax and using revenues for public transit and other environmental projects (Webb, 2013).

4.2.2. Interviewees’ Perception of the BC Carbon Tax

With respect to the claims and results showed by the carbon tax in BC, all of the interviewees in this research agreed with the statement that no one single carbon pricing mechanism can do all the work itself to achieve greater GHG emissions reductions in BC. Carbon policies complementary to the carbon tax are required, including other carbon pricing instruments such as cap-and-trade.

This study has been centered in evaluating opportunities for improvement in the design of carbon pricing policies that aim to positively influence behaviour at the individual level. Some of the questions asked in this research focused on assessing the effectiveness of the BC carbon tax in influencing individuals’ behaviour and encouraging further emissions reductions at the individual level. This study did not assess the effectiveness of the carbon tax in providing emissions reductions from the commercial and industrial sectors of the economy. The following is a summary of the limitations faced by the BC carbon tax, according to interviewees’ opinions.

Visibility of the BC Carbon Tax: Understanding and Connection with Individual Consumption Decisions

Twenty-six of the thirty-two interviewees in this research agreed that the average BC inhabitant had only a slight understanding of the carbon tax. Interviewees also concurred that British Columbians were not familiar with the exact amount of carbon tax

that they pay. Some interviewees added that due to the constant fluctuations of oil and natural gas prices, it is difficult for individuals in BC to identify the amount of carbon tax that they pay for a litre of gasoline or a cubic meter of natural gas. Opinions also indicated that few individuals in BC are aware of the environmental goals that the carbon tax pursues and the importance of achieving those goals. If scheduled increases in the carbon tax are announced in advance, a market signal is sent to consumers that the price at the pump is going to keep going up. The simple expectation that prices were to keep going up appears to set a demand-response that result in a decline in average fuel consumption (Rivers & Schaefele, 2012). If the carbon tax remains unchanged, according to opinions from participants in this study, there is a potential for no further decline in average fuel consumption, and carbon tax visibility could further decrease.

Some interviewees in this study believe that people in BC do not know that the primary purpose of the carbon tax is to create an incentive structure for people to make investments in emissions reduction and to change their behaviours. In this respect, five of the interviewees in this study offered the following opinions:

“there is a disconnection between people knowing they are paying this additional tax, but not having clear where is that money going to or why they are paying it” (interviewee 8).

“I don't think that many people understand, even me in the industry I am in [energy efficiency], I don't fully understand the carbon tax. I have a very cursory knowledge in terms of aspects like cost, revenue neutrality, and point of application, but I have no idea how to measure, how to monitor or how to read any of this carbon accounting stuff” (interviewee 16).

“The more people are aware of the direct link between what they are consuming and how much they are paying in incremental taxes may change their thinking about how much they drive, how they drive and what kind of vehicle they purchase” (interviewee 14).

“There are some misconceptions out there about Carbon Tax. I think it is safest to say there is a slight understanding of it. The concept of revenue neutrality is widely understood and people tend to assume that revenues are taken and used for something. However, it is a bit of a jump for most of the people that it is a behavioural signal for a carbon emissions reduction primary purpose” (interviewee 4).

“The biggest weakness of the BC carbon tax is how it was explained and communicated to the population. I think this problem is a problem with the taxation as a whole, government is not very effective in

explaining what is doing with the funds: explaining the public goods achieved with taxation” (Interviewee 5).

Creating awareness about the existence, purpose and operation of a carbon tax is important; a carbon tax, however, is designed to work even without any awareness. If the price signal is strong enough to modify consumption behaviour, it may not be necessary for citizens to understand why they should reduce gasoline consumption. They reduce consumption because the price is higher or high enough to produce an impact in their household economy. If a carbon tax provides a strong price signal, an awareness campaign might not be necessary. If the carbon tax price signal is not high enough at the individual level, however, it will be necessary to continue advertising and creating awareness of the environmental (and potentially social) benefits of the tax. This takes us to the next challenge of the BC carbon tax: the tax rate.

Rate of the BC Carbon Tax

As explained at the beginning of this chapter, when governments design a carbon pricing mechanism, it is important to look at several aspects to ensure the effectiveness of the policy in the long term. One of the aspects is the strength of the economic incentive (i.e., the carbon price) to reduce emissions. The effectiveness of the tax depends in large part on whether the tax rate is set high enough to create real market incentives that lead to developing and adopting climate-friendly technologies.

Twenty-eight of thirty-two interviewees agreed that the rate of the carbon tax has been somewhat effective in reducing GHG emissions, but it would need a much higher price to influence individuals’ behaviour and provide greater emissions reductions.

“For people to be more sensitive to the price, it needs to be much higher than $ 30 dollars per tonne of carbon dioxide equivalent (CO2e) emissions” (interviewee 4).

“Establishing a price for carbon is extremely effective, however. I think there is a political calculation as to how far you can go in term of taxes. I think when these calculations were made, there was not enough money actually put into mitigating the climate change, it all went into making it revenue neutral because that was the underlying philosophy” (interviewee 14).

These statements are consistent with economic research estimations that for the carbon tax to achieve BC’s emissions reduction targets by 2020, the tax rate would have

to increase to about 150 to 200 dollars per tonne of carbon emitted (National Round Table on the Environment and the Economy, 2009), and likely to be expanded to other emissions sources than combustion of fossil fuels.

Incentives of the BC Carbon Tax

The third aspect where the majority of interviewees identified limitations of the carbon tax is related with the use of incentives. To provide revenue neutrality to the carbon tax, every dollar generated by the tax is returned to British Columbians through reductions in other taxes (e.g., income tax credits for low income individuals, northern and rural homeowners’ benefits of up to $200 annually, and business taxes reduction). However, the reductions (incentives) do not reach every individual in BC (moreover, they are not granted as a direct reward for demonstrating a desired behaviour); potentially this creates a perception of unfairness and a disconnection with the noble goal of the carbon tax. The following are some opinions provided by interviewed experts with regards to the effectiveness of the carbon tax in achieving desired environmental behaviour trough the provision of incentives:

“I think we would need to come up with an incentive but not necessary financial to encourage people to make these changes. We have an addictive behaviour to the way we relate to energy, the way to break this addiction and I don't think is money, there must be something like values, connecting to people's values” (Interviewee 7).

“You can progress from year to year with an incentive, everyone goes green 'I've going to make another 100 dollars on this', in the end what happens when you pull incentives away, you have to get to a deeper level, it is a question of awareness, education, promotion, communication […]”(interview 9).

“I believe [the carbon tax] fell short in terms of achieving personal engagement and providing the incentive. It is a brilliant mechanism but it is more about the details of execution” (interviewee 14).

The following chapters 5 and 6 will discuss implications and potential solutions with respect to the use of incentives embedded in climate policies.

Conclusions

Opinions offered during the interviews discussed some limitations of the BC carbon tax that could potentially be addressed by a complementary policy; these limitations can be summarized as follows:

1) The price of the carbon tax is not high enough to achieve desired (or required) GHG emissions reductions. 2) Revenue neutrality through income tax rebates is not enough of an incentive to engage individuals in changing their consumption behaviour. 3) There is a lack of understanding about the existence and operation of the carbon tax that translates in a disconnection between paying an additional tax and the environmental desired behaviour the tax is pursuing.

5. Beyond the Carbon Tax: Personal Carbon Trading for British Columbia

In evaluating and designing a carbon price system, governments should look at aspects such as: how strong is the economic incentive to reduce emissions? To which emission sectors does the system apply? How are the revenues used? Are they invested in green infrastructure or corresponding tax breaks? According to the discussions provided in chapters 3 and 4 of this study, the main areas of opportunity for carbon policy improvement in BC are:

1) Incentives must be equally available to all individuals, and also attractive enough to engage people in trying new behaviours; 2) A higher price is required, enough to achieve desired (or required) GHG emissions reductions, but not too high to be politically or socially unacceptable; 3) Policy needs to be better understood by the public collectively and individually, so it translates into a clear connection between the price, the desired behaviour, and the goal the policy is pursuing.

The purpose of this research has been to investigate how one other policy could potentially address the areas of opportunity for improvement of the current carbon tax in BC. This investigation is centered on the individual and household sector of the economy, and personal carbon trading has been selected as the primary policy alternative to be analyzed. Personal carbon trading and carbon tax are both carbon pricing instruments. It would be hard to state that one policy approach is better than the other; both instruments have advantages and disadvantages. It all depends on how each system is designed. The design will determine the environmental and economic effectiveness. If both approaches are well designed, the two options could be used in conjunction. What's important is that the price on carbon pollution provides an incentive for everyone, from industry to households, to be part of the solution.

5.1. Personal Carbon Trading: an Option for BC?

Personal carbon trading is a scheme under which all individuals are allocated a number of free carbon allowances forming a carbon budget (usually on an annual basis). In order to manage this budget and be able to benefit from carbon trading, individuals need to practice carbon budgeting and accounting. Persons whose carbon emissions are lower than their carbon budget can sell their surplus to persons who have exceeded theirs. As distributed allowances are reduced annually, consumers are encouraged to modify their behaviour and reduce carbon-emitting activities in order not to exceed their carbon budget. The net impact is an overall reduction of carbon emissions across society. The objective of personal carbon trading is to engage citizens in a process of managing and trading carbon allowances on a personal level. Due to the complexity in accounting for personal carbon emissions, personal carbon trading schemes usually focus on household energy use and personal travel. Based on existing personal carbon trading proposals (see section 3.1.5 of this study), the operation of this carbon pricing mechanism would typically involve the following steps:

1) The government sets an annual limit on carbon emissions. This limit is reduced over time according with the reduction goals of the corresponding jurisdiction. 2) The carbon budget consists of carbon allowances that are usually allocated equally to individuals at no charge (diverse studies have been done to determine the optimal rules for allowance allocation (Fawcett, 2004, Starkey, 2008; FEASTA, 2008; Fleming, 2007, Hyams, 2009) These studies evaluated factors such as age, income level, geographic location, carbon footprint, etc., and most of them have determined that equal per capita and free distribution is the best approach). Usually each permit represents one kilogram of carbon dioxide equivalent (CO2e). These allowances function like an alternative currency and can be distributed and utilized through electronic means similar to debit cards. 3) Individuals are required to submit these permits when they purchase products or services involving CO2e emissions within the scope of the scheme. 4) Individuals who emit more than their initial allocation will have to purchase allocations from those individuals who have allocations remaining. Individuals with a lower carbon footprint can profit in this scheme. Allocations are tradable in a carbon market with an established clearing price similar to the cap-and-trade scheme. Public and private financial institutions, post offices, gas stations, grocery

stores and on-line services are potential facilitators of personal carbon trading systems.

To facilitate the understanding of personal carbon trading as a carbon pricing policy, the following table 6 provides a comparison with the BC carbon tax:

Table 6. Comparison of BC Carbon Tax and Personal Carbon Trading Policies

Proposed Personal Carbon Trading BC Carbon Tax Schemes In UK, the Climate Change Act 2008 grants powers to the Government to introduce personal carbon trading without further Status Operating since July 1st of 2008. legislation. Norfolk Island began trials of the world's first personal carbon trading program in 2011. What Fixed-rate revenue-neutral tax. Market-oriented carbon price mechanism. Primarily individuals. Some proposed Who Industry and individuals. schemes cover industrial emissions as well. Carbon allowances are allocated to A direct tax is applied on the carbon How individuals (broadly to adults on equal per (CO2e) content of fossil fuels. capita basis). Fixed and scalable. In 2013, the rate was set at $30 per tonne of CO2e and The price of personal carbon trading Rate/Price translated into tax rates for each type allowances is market determined according to of fuel (e.g. 6.67 cents per litre of supply and demand. gasoline). Purchase or combustion of fossil fuels Personal travel, household energy and any Scope of within BC (industrial process and product where carbon can be accounted. emissions upstream emissions are not currently Upstream emissions originating in other covered). jurisdictions can also be covered. Cap on Does not require a cap or a carbon An annual carbon budget and cap is initially emissions budget. set, and this cap declines annually. Revenue is used to provide: income A number of allowances are allocated for free tax credits for low income individuals, to Individuals. Individuals can profit from reductions in business taxes and the Incentives selling surplus allowances. Allowances can lowest two personal income tax rates, also be obtained through qualified activities and a benefit of up to $200 annually that reduce emissions. for northern and rural homeowners. Point of combustion for industrial Point of emitters only. Point of sale for Point of sale. Application individuals and industry. An electronic card similar to a bank debit card No instrument is required. Carbon tax Operation is usually provided. There are other cost is fixed and pre-determined per Instruments technological alternatives (fingerprints, social unit of CO2e emitted. insurance numbers, and driver licenses).

5.2. How Climate Policies Could Influence Individual Behaviour

Opinions of the majority of interviewed participants in this study agreed that for any policy to be able to influence individuals’ behaviour and achieve greater GHG emissions reductions than the carbon tax, various design aspects need to be revised, including for example: 1) the $30 rate needs to be higher and/or more visible, creating a connection between individual actions and desired environmental goals; 2) the revenue collected needs to serve as an incentive to promote positive change; and 3) a communication, education and operation strategy needs to empower individuals to take action on their own. The following section will analyze in detail the areas of improvement identified in the design of a new carbon pricing policy for BC.

5.2.1. Carbon Price Rate

As described in sections 4.2.1 and 4.2.2, the BC carbon tax rate would need to be much higher to achieve emissions reductions legislated in the province – the tax rate would have to increase to about 150 to 200 dollars per tonne of carbon emitted (National Round Table on the Environment and the Economy, 2009). Similar estimations were conducted by the Northwest Economic Research Center (2013) in their investigation of the effects of implementing a British Columbia-style carbon tax in Oregon. One of their conclusions was that in order to reach Oregon’s emissions reductions goals, a price comparable to the world’s current highest carbon pricing schemes (i.e., Sweden over $150 per tonne of CO2e) would be required. However, that study considers that it would be difficult to institute such a high carbon price, since it would negatively affect business competitiveness and public support would be very low (NERC, 2012). Similarly, a poll released by the Pembina Institute in 2011 found that 51 per cent of British Columbians did not want the carbon tax to continue increasing each year. If higher carbon prices are not publically supported, then alternative policy frameworks are required to deliver emissions reductions at a lower price. The only way to do this is through policy instruments that set a limit on emissions and that involve social and psychological drivers, able to raise the level of awareness about desired behaviours in the population. According to the results of a comparative experiment done in the UK, personal carbon trading would have greater potential to deliver emissions reduction than taxation given a low price signal, especially in times of economic decline (Parag & Capstick, 2011).

In this study, interviews were conducted to test a similar hypothesis for British Columbia. Could personal carbon trading have the potential to achieve greater emissions reductions and serve as an alternative or complementary policy to the BC carbon tax? Twenty-three of thirty-two respondents answered positively to this question. Existing carbon trading mechanisms (see chapter four) have usually delivered emissions reductions at lower rates than taxation. Respondents also agreed that this is one of the potential benefits of a personal carbon trading approach. Further discussion in this respect will be provided in section 5.3.1.

5.2.2. Making Goals Achievable, Fair, Real and Tangible

Recommendations of the majority of study participants, with respect to the sectors of the economy that could be regulated by a personal carbon trading policy, were that only individuals should be regulated by personal carbon trading, while industry should continue to pay carbon tax. A great majority of the interviewees also agreed that a personal carbon trading scheme should only cover personal travel (including air travel and excluding public transportation) and household energy. The main rationale for this recommendation lies in the complexity of tracking emissions associated with the consumption of products and services. This could be addressed in the future when carbon labeling2 becomes a standard, but it is not feasible at the present time.

With respect to allocation of allowances, most of the participants suggested that allowances should be initially distributed for free, but that not all allowances in the carbon budget should be distributed. Also, allowances should be distributed on an equal per capita basis, with the exception of children that would count for 50 per cent and whose allocation would be proportionally given to their parents.

2 A carbon label describes the carbon footprint embodied in a consumer product as a result of manufacturing, transporting, or disposing processes. This information is important to consumers wishing to minimize their ecological footprint. The world's first carbon label was introduced in the UK in 2006 by the Carbon Trust (Carbon Trust, 2014)

Participants also recommended designing a plan to avoid/minimize any negative impact on low income households and elderly. Further research would be needed to know what percentage of the population in BC falls into this category and what percentage of carbon emissions they represent.

Potential concessions could be based on the example of the Energy Conservation Assistance Program in BC (interviewee 7) which focuses on supporting low income households in achieving their energy conservation targets. This program is free of charge and sponsored partially by BC Hydro. Options of services include an energy saving kit, support for improving insulation, and refrigerator replacement free of charge. Many First Nations communities have also access to this program.

5.2.3. Finding a Common Ground (Health & Fitness, Economy, Others)

People only change if important aspects of their daily lives are affected. Paying a carbon tax is simple, but also little noticed at the individual level (interviewees 9, 16, 21). However, if a carbon policy and its goals are linked to short-term human concerns and goals, they have a higher likelihood of creating change.

Health, sports, economy, and social recognition and cohesion are all highly relevant in people’s daily lives, and are most likely to be considered desirable near-term co-benefits (interviewees 5, 8, 11, 16, 21, 27 and others). An example of this kind of approach could be the NICHE program in Norfolk Island, where obesity and chronic diseases, such as type 2 diabetes, are presented as familiar risks to be alleviated along with climate change.

Eighty- five percent of the population pays attention to sports, either practicing sports or watching sports on television, while only 17 percent of the population pays attention to environmental issues (Green Sports Alliance at Carbon Neutral Government Conference, 2013). The message here is that sports forums can be used to introduce sustainability. One of the respondents mentioned:

“I absolutely see how you can link the amateur sports into behavioural trending! For an incentives based (or personal carbon trading system) is important because a healthy life style starts in childhood and it is

mapped into adulthood. If you are playing organized sports as a kid there is a statistically greater chance you will have an active life style in the adulthood. Tracking and incentive sports activities on a household can be done with the records of League participation payments. Also, get the professional teams organized because those are the role models. Kids are playing hockey at a very young age because they love the Canucks” (interviewee 18).

Finally, one aspect highlighted by various respondents (2, 4, 16, 17, and 18) was the importance of linking human activities behaviourally. For examples, there are links between greenhouse gases and driving, between a healthy life style and reduced carbon footprint, and between reducing energy consumption and saving money.

5.2.4. Putting the Power and Tools in the Hands of Individuals

In climate change policy, it is important to integrate communication, education and tools that can create a sense of power and clarity about how individuals’ actions, summed with others’, can mitigate a global problem of such magnitude as climate change. Generating a critical mass of individual actions is crucial, and policies complementary to the carbon tax are needed to address this issue. In this respect, one Interview participant mentioned:

“The overarching challenge to climate change is that we, as individuals, don’t think that our tiny actions will have an impact in the world bigger problems, sometimes we know what to do, but we don’t act because we cannot clearly see what difference one single person can possibly do” (interviewee 20).

Another participant commented (Interviewee 25) that young people take very seriously the topic of climate change when they receive information in such a way that they feel they can do something about it themselves. Quite often the issue of climate change is shown as so catastrophic that it appears there is nothing that individuals can do about it. When information is presented in a simple and not catastrophic way, people realize that there are lots to do at the individual level. If a carbon policy could provide a sense of own power, it would be a highly supported policy (Interviewees 13, 22, 24).

5.2.5. About Incentives

Ten of the participants in this study commented that they would like to see a policy based more in a reward model than a penalty model. They agreed with the fact that positive incentives are what drive positive changes in people’s behaviour. “People always respond to incentives, they are a great tool that can be used to convince people of doing the things that government wants them to do” (interviewee 21).

Incentives can be positive or negative. Positive incentives reward people for a desired behaviour: if the proposed behaviour makes sense to them and the reward is attractive enough, it is likely that they will adopt such behaviour. Negative incentives penalize people for an undesired behaviour. If the penalties are apparent and strong enough to have an impact in people’s life, people will likely try to avoid being subject of such negative incentives. A carbon tax is designed as a primarily negative incentive. Although a revenue neutral carbon tax is accompanied by a positive incentive (income tax rebates), this positive incentive does not motivate environmental desired behaviours. Revenue neutrality can offset negative impacts in the overall economy, but does not guarantee an environmental benefit as a direct result of applying a positive incentive. This does not suggest a defect of the carbon tax; it simply confirms the hypothesis that a single carbon pricing policy cannot do all the work. Without incentives, it is much more difficult to predict what type of behaviour will be chosen under different circumstances by different individuals.

Incentives can reduce operational costs for governments if they stop expending money in advertising campaign and instead offer rewards. One example is the Save on Energy and be Rewarded campaign from the Ontario Power Authority that increased program participation by 530 per cent with 133,000 Ontario customers and reduced operational cost by two thirds (Loyalty One, 2013). “People love rewards [...] offering rewards to incentivize a desired action is cheaper and more effective than any other incentive or communication campaign to promote public acceptability of environmental policies” (Interviewee 18). “Even small incentives would do the work rather than expending lots of money in advertising” (Interviewee 20). “Canadians are so addicted to loyalty points. You can use this addiction too and turn it into a positive incentives

policy/program oriented to achieve a desired environmental or social behaviour” (Interviewee 27).

To design a personal carbon trading system with potential to deliver greater emissions reduction than carbon taxation, it would be necessary to balance positive and negative incentives. Revenue collected from negative incentives can be used to fund positive incentives. Three considerations are important in the design of an incentives program: simplicity, threshold-setting, and incentives’ relevance.

The Holy Grail of any positive incentives program is avoiding complexity; it has to be simple for the participant. Personal carbon trading may require consumers to understand what it’s going on.

“Make it simple, but relevant, it has to makes sense to people, it has to also offer diversity or ample options to receive the rewards. For example, you could say people: I will reward you if you go the grocery store and buy tomatoes, it may have zero effect; but, if you offer rewards to buy fresh produce, this will provide more meaningful results” (interviewee 27).

Governments could use rewards systems to promote more sustainable and healthy behaviours such as exercising, walking more, eating organic, fresh or local produced, etc. An example of this in BC is the Air Miles program developed by Health Check Management and the British Columbia Ministry of Health. In the spring of 2011, this program tested financial incentives to change behaviour related to the purchasing of healthier food products in grocery stores (Health Canada, 2013).

“In order to succeed you have to be very careful to set the threshold of desired behaviour, not very low or high, same as the rewards, they don’t need to be very high to be still attractive” (Interviewee 18).

A potential approach to facilitate setting a threshold is choosing to reward people not necessarily for the final activity but for taking the first step. “Instead of saying people they will get incentives when they reduce their energy consumption by 20 per cent, they could receive incentives when they take the steps that are necessary to reduce energy consumption, for example: buying a thermostat, or high efficiency appliance, or the right light bulbs” (interviewees 20, 24, 27).

“What we want to create in an incentives program is a personal benefit for the win of the collective good” (Interviewee 24). Rewards for individuals to do something as part of the collective good might be easier and more effective than demonstrating economic savings. For example, a pilot project in the UK rewarded people for recycling. When people would put their recycling bin on the street, there was a bar code on the recycling bin would be scanned, and people would receive points. The combination of personal rewards and the opportunity to demonstrate that they are part of a larger movement was very effective (Interviewee 3).

Use of alternative currency

Alternative currency refers to any commodity that can be used as a mean of exchange accepted within a community. Alternative currencies can be created by an individual, corporation, or organization (including governments). The right to emit carbon has become a commodity exchangeable both, under voluntary or mandatory basis. Rewards programs (i.e., points, Air Miles) are also good examples of alternative currencies; time itself has been also exchanged and banked as a commodity (e.g., time banks). In general, people enjoy the use and collection of alternative currencies that can be exchanged for other desired commodities or even for the satisfaction of contributing to a good cause. A personal carbon trading system uses alternative currency to drive consumer behaviour. The right to emit a kilogram of CO2e is the commodity and its monetary value depends on both the scarcity and consumer’s need to emit carbon. Alternative currencies can also be combined, complemented or exchanged for other commodities different than money. The following table 7 provides examples of existing green loyalty programs and credit cards that use alternative currencies to provide incentives that motivate sustainable consumer behaviours.

Table 7. Examples of Existing Green Rewards and Green Credit Cards Programs

Name Description Air Miles My Planet program is an initiative designed to inspire AIR MILES My Planet (Air Miles collectors to make more sustainable choices in their everyday lives through green Toronto, ON) rewards. My Planet uses guidelines created by Terra Choice (third party environmental validator) to identify more environmentally sustainable products and services. Source: https://www.airmiles.ca/arrow/MyPlanet?splashId=6800054&changeLocale=en_CA Green Rewards, Inc. is a loyalty program that offers points for the everyday Green Rewards, Inc. shopping. The point’s card is used in exchange of eco-products, services and (London, UK) experiences including charitable donations and offsets for personal carbon footprint. Source: http://www.greenrewards.co.uk/ Greenopolis’ offers members to redeem points by recycling containers and packaging at retail-placed recycling stations. Greenopolis members are rewarded Greenopolis (USA) with coupon-prizes for recycling as well as activism of the site. Source: http://www.shopmyexchange.com/docs/greenopolis.pdf Released in 2007 allowing consumers to appoint one per cent of their purchases to fund projects that offset carbon dioxide emissions. All of the generated offsets get GE Money Earth pooled and then annually on Earth Day, GE says they will invest them in legitimate Rewards carbon offset projects. Source: http://ecofriendlycreditcard.com/ge-money-earth- rewards.html About 0.1% of purchases made using the card go towards funding local HSBC Green Credit environmental projects. In Hong Kong funds are being used to create green roofs Card for schools in one of the most densely populated cities in the world. Source: http://www.hsbc.com.hk/1/2/cr/environment/projects/green_credit_card Helps support local projects through the VanCity EnviroFund, which donates a VanCity Enviro Visa percentage to the fund every year. Source: Card https://www.vancity.com/Visa/TypesOfVisa/enviroClassicVisa/ Issued by JP Morgan Chase in the United States. When signing up for the card, JP Morgan Chase donates an initial $50 to the WWF, as well as 1% of every WWF Platinum Visa transaction made on the card. Funds go towards conservation of endangered species and their habitats. Source: http://www.economywatch.com/uk-credit- cards/providers/wwf-charity.html Source: Various listed above

Time banking is an alternative currency system that exchanges units of time. The unit of currency is usually an hour of any person's labour. Time banking is primarily used to provide incentives for work such as mentoring children, caring for the elderly, being neighborly, planting trees, or other activities that a pure market system devalues. The time that one person spends providing these types of community services earns time that can be spent to receive services (Gill, 2004). Two examples of time banks exist in

British Columbia: Quadra Island and Comox Valley. There are several time banks in the US.

Designing a personal carbon trading system with a greater likelihood for public acceptability would require the use of various alternative currencies that combined could serve as strong incentives to motivate consumer behaviour change (interviewees 6, 8, 11, 20, 25, 27). A carbon card could be complemented with green rewards and a green time bank approach. Further discussion on this topic will be provided in chapter six.

5.2.6. About Intention and Gamification

Gamification techniques seek to leverage people's natural desires for competition, achievement, status, self-expression, altruism, and closure. A core gamification strategy rewards players who accomplish desired tasks. Types of rewards include points, achievement badges or levels, the filling of a progress bar, or providing the user with virtual (alternative) currency (Huotari & Hamari, 2012). One of the behaviour change experts interviewed stated: “It works to educate people but it is more likely that people will take action when they develop the attitude and the intention” (interviewee 15). If governments invest in education, but they cannot create an intention, the behaviour change goals pursued might not be achieved. Creating an intention can be done by using strategies of gamification, and education tools that engage rather than just lecturing. An expert in energy efficiency (interviewee 19) commented:

“I know from a social science perspective that an information campaign alone doesn't impact behavioural change. So if you are going out with information, posters, stickers, people are not going to absorb. In the industry that I am in, sustainability is a key function of the society today. If a campaign is just information base, I don't think it will be of any value. I think we need to look at how the society and individual can benefit from this”.

Gamification can encourage behavioural change, and also provide a benefit to people. Successful games are based around discovery and/or accomplishment (Voll, 2014). An example of this occurs in the UK, there is a contest called the Savviest Family. Families register and write a blog on the best ways to save money. It is fun, uses social media to share best practices, is inspiring, and creates a sense of belonging to a community (interviewee 18).

Other opinions about education highlighted the importance of creating something fun and simple. Some examples of working with children were provided:

“Children are actually making a commitment with sustainability while they are having fun. To educate children we made a little solar car for kids and we race them outside. We also trained dogs to pick up recycle bottles, the children really like it! When we ask the children what did they like the most, it is usually the dogs. Stories and games also make the whole concept accessible for the younger audience to understand that their future is at stake. We have a game called Eco-Bingo” (Interviewee 7).

Information-based education can have the same effect as untargeted advertisements, often failing to form the intention needed to change behaviour. Governments need to start looking at gamification and engaging strategies to complement advertising and education initiatives that promote environmental sustainable behaviours (interviewee 13).

5.2.7. About Social Influence

There is an inconsistency between the personal tendency to do things according to whatever habits were developed as children (after observing what seems to work), and the tendency to do what the situation demands (e.g., driving vs. riding to work). “People will always want to know who else supports the demanded behaviour, before deciding whether to adopt it or not” (interviewee 9). Any alternative or complementary policy to the BC carbon tax should be designed taking this fact into account: “People need social recognition for their actions… People do what others do” (Interviewee 9).

There is often a conflict between wanting to do the right thing and also wanting to be comfortable. However, evidence suggests that showing people what and when their neighbours (or circle of influence) are doing “the right thing” has a higher probability of success in influencing a desired behaviour. Chapter six explains the case of O-Power, which has reduced energy consumption by an average 2 per cent across its customers – this percentage reduction in energy consumption would be equivalent to the potential percentage reduction of a 10-20 per cent increase in energy prices (IETA, 2013).

Participants provided other examples that illustrate the fact that people do what others do. In one experiment, an energy efficiency company tried to get people to save

electricity using door hangers. They put four different door hangers in different communities. The first door hanger read 'you save money', the second door hanger read 'it is good for the environment', the third hanger read 'it's your obligation', and the fourth hanger read 'your neighbours are doing it. Results showed that the most positive impact in saving electricity came from 'your neighbours are doing it'. The first three hangers had no measurable impact, while the fourth had a very high conversion rate.

One of the interviewees (26), who does community base social marketing, and works with Natural Resources Canada creating behavioural change programs, shared the story of a home owner who puts out his recycling bin every second cycle:

“If the recycling truck comes every two weeks, he is putting his recycling bin every four weeks. When he started doing that, his neighbour came up to his door and actually challenge him as to why he was not environmentally conscious, the home owner response was: I am environmentally conscious, because if I put the recycling bin that is only half full, the environmental impact for the recycling truck to stop, pick up my recycling and start up again is higher, so it is better to wait for the recycling bin to be full and pull it out every four weeks”.

The fact that this person was challenged by his neighbour and the fact that he proved adding value by not putting it out every two weeks, showcased what is more important in terms of behaviour change (interviewee 26).

“When you actually put a recycling blue bin out in the front yard that is a status symbol, it shows your neighbours you are environmentally conscious and people appreciate that. Not very different than driving hybrid cars, which have a big ‘Hybrid’ logo on the back so people can showcase that they are environmentally aware” (Interviewee 16).

Social Networks

Communication of desired behaviours and the reasons for them should be through media that have already proven to influence people: carbon policies should use the power of influential institutions and their users to drive action rather than the power of government (Interviewee 22). A Switzerland-based company called ‘MySollars.com’ has recently launched a Facebook social game for consumers, to encourage them to reduce their carbon footprint in a “fun and easy way” (MySollars, 2012), allowing comparison of their results with their friends and other people within the country. The company offers firms additional traffic, sales, business intelligence and engaging

consumers in their social responsibility initiatives (MySollars.com, 2012). Other examples of applications designed to improve health and fitness also use gamification techniques and social networks to facilitate the connection and competition among participants. Some names include: Fitbit, Fitsby and My Fitness Pal. Chapter six will provide a deeper discussion on these applications.

5.2.8. About the Use of Technology

Computational Sustainability is an interdisciplinary field that aims to apply techniques from computer science, information science, operations research, applied mathematics, and statistics to balance environmental, economic, and societal needs for sustainable development. The objective of computational sustainability is to develop models and methods for decision making concerning the management and allocation of resources in order to help solve some of the most challenging problems related to sustainability (ICS, 2014).

Participants in this study recommended the use of the most innovative and available technology, and suggested the support of computational sustainability experts in the task of designing a platform for personal carbon trading with an embedded incentives system. Also, various interviewees (18, 21, 27, 29, 30, 31, 32, etc.) agreed that the best way to deliver a new program or application is through a smart phone. About two-thirds of British Columbians owned a smartphone in 2013. Furthermore, according to an online poll by Insights West (2013), more than one in four people between the ages of 18 and 34 say they can’t live without a smart phone (Vancouver Sun-Digital Life, 2013). Accordingly, the best way to implement and operate a personal carbon trading system or any climate policy targeted for individuals is to create a smartphone app: “Combining a mobile application with an electronic card is the best approach to track and motivate behaviour change” (interviewee 21).

Many loyalty programs run on top of credit cards. By doing this, they allow multiple reward earning layers on one single transaction. A driver license could also serve as a multiple use card among BC residents: if people are accident- and incident- free – no parking tickets, no speeding tickets, no accidents or insurance claims in any given year – they can be rewarded, but they could also get incentives if they reduce the

miles they drive in a given period of time. The incentive value could be related to the expected operational savings in government budgets as a result of reductions in the provincial insurance rate and the potential reduction in GHG emissions. Using an electronic card provides the option to combine incentives to encourage not only environmentally sustainable behaviours, but also other best practices in the use of other systems, such as transportation or health care.

Various experts concurred with the idea of “why build when you can borrow?” (interviewees 16, 14, 17, 18, 20 and 21). Many applications already exist that are successful in helping people to modify their behaviours for their own, and others’, benefit. There are applications that can track exercise and the amount people walk during the day, as well as black boxes that people can get installed in their vehicles so that insurance companies can determine, based on their driving behaviour, how they will adjust annual rates.

Super-apps are applications that combine multiple applications. If a super-app is developed for the purpose of managing individuals’ emissions, it could also manage or monitors multiple activities associated with a car, or physical activity, or even economic transactions. A smartphone application has become a common way in which transactional data can be collected; based on that data, governments can tell whether they are reaching the performance or behaviour levels desired from the population and determine rewards or incentives to be given. The reward would be based on the savings that government expects from a better use of the social infrastructure required in order to support the population (Interviewees 14, 17, 18, 21, and 27).

With respect to technological platforms to run a personal carbon trading system, loyalty management companies are providers of computational technology. They also have the ability to connect databases and transactions with retailers, gasoline stations, banks, air travel, hotels, restaurants, and NGO’s among others.

5.2.9. Other Recommendations

Creating a Coalition:

A coalition effort allows multiple companies working together to achieve a common benefit. Coalitions provide the flexibility in the rewards that could be offered to people. In the design of a rewards program it is recommended to ask people what is important to them to figure out what is the reward they really value that could achieve behaviour change (Interviewee 18). This would determine the type of institutions involved in the coalition. A public-private coalition in BC could include a loyalty management company; usually these companies collaborate with airlines, banks, grocery stores, utilities and transportation companies as part of a coalition.

However, governments are different than private companies in many aspects, and one is that they have to work under full transparency and be very protective of personal information in building a coalition and using technological tools such as mobile apps and electronic cards. It is essential to protect privacy rights and the confidentiality of personal information. Chapter six will discuss a potential approach in this respect when discussing a proposed alternative for a multi-use electronic card (BC Services Card).

Select an optimal geographic location to test the policy

As in the example of Norfolk Island’s trial on personal carbon trading (NICHE), where a highly self-sufficient and environmentally conscious community was chosen for this experiment, some interview respondents (1, 9, 14, 16, and 19) recommended that if similar policy were piloted in BC, it should engage a policy innovation hub. Innovation hubs commonly integrate research centers with scientific discovery to addresses critical or problematic issues (Inteli, 2007). A policy innovation hub can be described as a community where innovative policies can be researched, tested, promoted and supported with the objective of solving a problem affecting the community. Examples of hubs located in British Columbia that are suitable for the implementation and support of innovative policies promoting sustainable living at a variety of scales are: City of Vancouver, Salt Spring Island, Eagle Island, and the City of Dawson Creek. Portland, Oregon is another example of a policy innovation hub in the USA.

Design a Minimum Viable Product and Coalition

The minimum viable product (MVP) is the version of a new product which allows a team to collect the maximum amount of validated learning about customers with the least effort (Ries, 2011). An MVP has only the core features that allow the product to be deployed, and no more. The product is typically deployed to a subset of possible customers, such as early adopters that are thought to be more forgiving, more likely to give feedback, and able to grasp a product vision from an early prototype or marketing information. Developing a MVP is a marketing a strategy targeted at avoiding building products that customers do not want; it is an iterative process of idea generation, prototyping, presentation, data collection, analysis and learning. Applying this marketing strategy to a personal carbon trading policy proposal and product design was recommended during the defence of this thesis by Dr. Stephanie Bertels (2014). She, in agreement with other authors (Kelly, 2012), suggests that in order to create an MVP, a Minimally Viable Team (i.e., a team or coalition which is only just big enough to create the product) is also required. Chapter six will discuss the potential elements to be incorporated in a personal carbon trading MVP policy, as well as proposed members of a coalition needed to launch and operate this MVP.

5.3. Assessing the Potential Effectiveness of a Personal Carbon Trading Approach

Most of the research participants agreed that personal carbon trading has the potential to act as a complementary policy to the carbon tax. Some of them (nineteen participants) suggested that the areas of opportunity for improvement of carbon pricing policies at the individual level could be addressed with a personal carbon trading approach, but that it would be necessary to address the challenges perceived for this type of policy (e.g., complexity of implementation, and impacts in low-income rural communities).

“Personal carbon trading would be interesting in that you have a budget, you have to stay within the budget. If you exceed it you have to buy and the interesting one would be for people who have surplus and they can sell. Once people would get used to using it would set up very interesting behavioural patterns. There would be a very steep learning curve for people how to use it” (Interviewee 5).

“Personal carbon trading has the capacity to create a personal connection to GHG emissions. Personal carbon trading can give people a sense of what their personal actions are, how they are related to climate change and what they can do to make a change into a more sustainable lifestyle” (Interviewee 12).

Twenty five of thirty two interviewees suggested that in principle both schemes (carbon tax and personal carbon trading) could coexist in BC. However, government would require a mechanism to ensure that there is not double taxation or double regulation for individuals, even if the mechanism initiates a voluntary policy.

One of the interview questions asked whether interviewees preferred paying a carbon tax or participating in a voluntary personal carbon trading system. Nineteen of thirthy-two participants chose personal carbon trading, as long as its operation would not highly interfere in their daily schedules.

An important aspect of the evaluation of the implications of personal carbon trading for BC was whether it should be implemented as a voluntary or as a mandatory policy. Opinions were varied in this respect, but the majority of interviews agreed that the best approach for BC would be to begin with a voluntary pilot program, evaluate its market penetration, figure out why people are or not volunteering, and then make the scheme mandatory after a certain period of time. Opinions from interviewees in this respect were:

“Who would participate voluntarily in a program where you would have to pay extra for extra fuel? If you think back for the group of value for the consumers, if the consumers end up with a negative value because it is costing them, how would you make it voluntary? Making something voluntary where people have to sacrifice value for the collective good, might reach 2 to 6% of a targeted group in the best case scenario (Interviewee 2).

“I think it should be a voluntary program at this stage because the last thing you want to be the green police because it would have the opposite effect. It is important to get this at the values level. If you don't get it at the values level, it is a bit like smoking: as soon you tell the smoker not to smoke it gets anxious and need to smoke so it does the opposite” (Interviewee 4).

5.3.1. Potential Benefits of Personal Carbon Trading System for BC

This study has inquired whether personal carbon trading has the potential to achieve greater emissions reductions at lower rates than the carbon tax. A majority of interviewees agreed with this hypothesis, similar to results from previous studies (Capstick & Lewis, 2010). The main reason for this opinion is the mental idea of a carbon budget: if people are conscious that they have to operate within a certain budget, they might abstain from doing activities that could exceed the budget, independently of whether it represents a low or significant cost. A study in the UK (Capstick & Lewis, 2010) presented evidence about people’s tendencies to make more energy-conserving decisions as a consequence of a restrictive and diminishing carbon budget – this tendency was independent of the carbon cost, potential economic savings or information provided.

Personal carbon trading could benefit low-income households because in general the demand for household energy and personal travel tends to be lower in low-income households than in those with higher incomes; however, exceptions would occur in Northern and rural communities in BC (see section 3.1.5). For this reason –and although carbon pricing policies should ensure that everybody is encouraged to reduce emissions, independently of their income level– it would be necessary for a personal carbon trading system in BC to address potential negative impacts on low-income households. This could be done by creating additional incentives that facilitate emissions reductions, for example: the Energy Conservation Assistance Program in BC (BC Hydro, 2013). Chapter six will discuss further recommendations to address the issue of low- income household and other vulnerable groups.

5.3.2. Potential Challenges of Personal Carbon Trading

Some of the main concerns that people expressed during the interview process were and which serve to inform the proposed design of a personal carbon trading system for BC presented in chapter six are:

1) With a carbon tax, people start paying a carbon price right away, hence the price and innovation signal starts right away. With a personal carbon trading system, the price innovation signal might not start until people exceed the budget (interviewee 4).

2) There is still so much political push back over climate change policy that it is difficult to imagine that legislation for a policy like personal carbon trading could occur in the short term. Also, a personal carbon trading system could potentially upset people if presented as another tax (interviewee 1, 6, 14, and others). 3) There are various prerequisites and activities that need to occur before implementing a personal carbon trading system. For example: setting acceptable budget limits, developing a computing application, testing a pilot program, etc. (Interviewees 2, 5, 6, 13, 22 and others). 4) Special attention must be given to vulnerable groups (Interviewees 4, 7, 11, 17, 28 and others). 5) It is possible that people would oppose using a system like personal carbon trading if it represented investing additional time, remembering and using a new id number, learning something new, or allowing any Government service provider to have access to an individual’s private data (interviewees 3, 5, and 16). 6) The learning curve for the general population is problematic. Personal carbon trading would be interesting for young people, and could be introduced to them as part of the future policy landscape and could be fairly easy for them to adapt to. However, for someone over the age of 50, it could be a fairly significant policy backlash if is the new policy and technology tools are not properly introduced and accepted (Interviewees 1, 5, 8, 12, etc.).

7) The cost of implementation and operation of personal carbon trading appears to be higher than carbon taxation.

Other challenges that personal carbon trading would have to overcome in order to be publically accepted in BC are:

• The complexity for government to refund or exempt payment of carbon tax. • Ensure minimal disruption to individuals’ lifestyles: • People might not want to carry another new card.

As part of this research, a proposed policy design that addresses the potential benefits and challenges of a personal carbon trading system is presented in chapter six.

5.4. Conclusions

Personal carbon trading could be a more equitable policy for individuals than carbon taxation. It could also have the potential to achieve greater emissions reductions

at the personal level than carbon tax. Personal carbon trading could be a complementary policy to the carbon tax in BC and the technology for implementation is available. However, despite the existence of the technology necessary to support its implementation, interviewees considered that 2014 is not the right time to introduce a mandatory personal carbon trading system in BC, but agreed that it is the right time to submit this idea for consideration and deeper evaluation that could lead to the implementation of a pilot program.

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6. Proposed Design: Policy Recommendation for a Personal Carbon Trading System in BC

Carbon pricing policies have been widely investigated from different approaches, including economic, social and psychological. Through this study, I aim to combine all these three approaches in developing a proposed design for a personal carbon and lifestyle policy framework.

This proposed policy framework incorporates the learnings from the theoretical literature review presented in chapter three; from the analysis of existing carbon pricing policies presented in chapter four; and from the data collected through the thirty-two conducted interviews, as well as the various examples and case studies provided in chapter five. I also use ideas and tools from interdisciplinary areas of study including: Information and Communications Technology (ICT), Gamification and Computational Sustainability. A minimum viable product version of the proposed policy framework and technical platform is also outlined.

This policy framework proposes the united implementation, operation and goal- setting of a personal carbon trading system, together with other applications and programs that already exist, have attained success, and were designed to positively influence behaviour in relevant aspects of human lifestyles, including health and fitness, economy, and social recognition and cohesion. The ultimate objective of this proposal is to create, not only the likelihood for greater carbon emissions reductions at the individual level, but the opportunity to create new lifestyle possibilities.

For the purpose of this study, to facilitate the understanding of the proposed policy framework, and to establish a differentiation from a personal carbon trading system in the abstract, a name has been chosen to refer to the proposed personal carbon and lifestyle policy: Carbon, Health and Savings System (CHSS). The following figure 4 offers a visual representation of the proposed policy framework.

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Figure 4. Carbon, Health and Savings System for British Columbia

6.1. Carbon Health and Savings System: Design and Operation

The following table 8 offers three options for the design features of a personal carbon trading system. This table was presented to participants during the interview process of this study; the majority of participants selected the options highlighted in green. In the following sections these selections will be analyzed and in most cases translated into a proposed design feature for the proposed Carbon, Health and Savings System for British Columbia.

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Table 8. Optional Design Features for a Personal Carbon Trading System

Option 1 Option 2 Option 3 Personal travel (excluding public Personal travel, household Scope of transport and Purchase of fossil fuels energy, and other products emissions including air travel) and services such as food and household energy Based on carbon footprint (an Equal per capita basis Distribution of Based on income initial assessment can be (children receive 50% of Allowances level made linked to annual tax adults allocation) returns) Free of cost for the 100% 60% for free, 40% Initial Allocation All allowances have a cost of issued allowances auctioned Freely market determined Market Price Floor price Ceiling price (no floor or ceiling price) Sectors of the Individuals and Small Individuals, Small Business Individuals only Economy Businesses and Industrial Emitters Multi-use electronic Operation Separate and unique cards (e.g., Care Fingerprints Instruments electronic card Card, SIN, driver license) Option to exchange unutilized Option to donate or allowances for services or Economic profit on Incentives cancel unutilized products (e.g., car co-ops, unutilized allowances allowances bicycle rent, organic local food) In kind-payment (e.g., Paying with money at volunteering at a local Options to buy secondary market (from Borrowing from future garden, participating in car- Allowances other individuals) and/or years’ allocations pooling programs, donating a government auctions bicycle)

6.1.1. Sectors of the Economy and Allowances Distribution

As discussed in section 3.1.5 (table XX) of this study, some of the existing personal carbon trading proposals have recommended to use this approach to regulate GHG emissions from the whole economy (e.g., Cap & Share’ (FEASTA, 2008); Tradable Energy Quotas (Fleming 2007); and Tradable Consumption Quotas (Ayres, 1997)) rather than personal emissions exclusively. Interviewees in this study were asked what sectors of the economy could best be regulated by a personal carbon trading system in

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BC. Based on their responses, and considering the current economic and policy context in BC, my recommendation for this policy framework design is a carbon pricing scenario where the carbon tax and personal carbon trading work together. For example, the carbon tax would continue covering fuel combustion for all sectors of the economy, while personal carbon trading would focus exclusively on individuals’ activities involving their households and personal lives. Gasoline and natural gas consumed by households would be covered by both instruments, so section 6.1.10 will provide options to avoid double regulation through a carbon tax exemption or the allocation of free carbon allowances. Any activity performed by an individual on behalf of a corporation or commercial operation would be excluded from the scope of this system (e.g., driving a car owned and assigned by a corporation, air travel for business purposes, or energy consumed in a home office, but billed to a commercial operation or corporation).

Corporations and commercial operations in BC would continue to be regulated by the carbon tax and/or any carbon pricing (e.g. cap-and-trade) or industry standard (e.g. LNG GHG benchmark) implemented in the future. The reasons for this proposal are:

• The BC revenue-neutral carbon tax has been successful in generating emissions reduction and decarbonization in the industrial sector. • The BC Government is currently developing industry-specific regulations to manage carbon emissions from the industrial sector (e.g., LNG industry). • The incentives system and proposed complementary applications in the CHSS design would focus on the needs and motivators that have the potential for behavioural change in individuals. • Operation of the system would be more complex if various sectors of the economy are covered by one policy. • Distribution of allowances is more complex if corporations are involved in the same system (i.e., equal distribution is not a recommended option for the industrial sector).

The following figure 5 is a representation of how different sectors of the economy and aspects of human lives could be covered under different carbon pricing policy frameworks.

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Figure 5. Representation of Economic Sectors Regulated by Carbon Pricing

Note: A cap-and-trade system in partnership with the WCI was envisioned to regulate emissions from the industrial sector. Implementation has been delayed indefinitely.

6.1.2. Determining a Baseline and Scope of Emissions

As shown in figure 6, the main sources of individual emissions in BC are: road transportation (47 per cent), space heating & cooling(17 per cent), waste (14 per cent), air travel (13 per cent), and water heating, appliances and lighting (9 per cent) (LiveSmart BC, 2014). Indirect emissions from the purchase of products and services are not accounted in this estimation.

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Figure 6. BC Individual GHG Emissions Divided by Source

Source: http://www.livesmartbc.ca/learn/emissions.html#Household

Based on the academic literature on personal carbon trading and on interviewees’ recommendations, this thesis recommends that a personal carbon trading system in BC cover the following sources of GHG emissions: gasoline consumption, space heating and cooling, water heating, appliances and lighting, and air travel. Waste could be covered on a voluntary and aggregated basis; waste prevention could be used as an incentive to obtain additional allowances. This will be further explained in the incentives section of this proposal. Also, consumption of food and other products could be treated as voluntary, but this would depend on the availability of carbon-labeled products in the future.

6.1.3. Distributing Allowances

Although some studies have proposed methods to distribute allowances based on a baseline carbon footprint (Brand & Boardman, 2006), the majority of studies of personal carbon trading have recommended equal per-capita distribution of allowances (Bird et al., 2009, Capstick & Lewis, 2009, Harwatt, 2008, Owen et al., 2008). In line with

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this recommendation and based on the preferences stated by participants in this study (see section 5.2.2.), the proposal for CHSS is that allowances should be distributed on an equal per-capita basis, with the exception of children, who would count for 50 per cent and whose allocation would be proportionally given to their parents. Removing the allocation for children entirely could reduce public acceptability (Bristow el at., 2010, Bird et al., 2009 and Owen et al., 2008).

Despite equal distribution, this research also found support for extra help for vulnerable groups (e.g. low income households). Similar findings have been supported in previous studies (Bird et al., 2009 and Owen et al., 2008, Dietz and Atkinson, 2009). Although a personal carbon scheme would be progressive in its overall impact, some lower income households could be negatively impacted (Thumim and White, 2008), including those with higher energy needs through disability, poor housing or location relative to work facilities. Several proposals exist to address this issue, including higher allocations, financial support or in-kind support. To provide a recommendation in this respect, further research on equality and fairness aspects would be required. Preliminary recommendations could include: 1) a reserve of allowances for eligible vulnerable groups; 2) in-kind support as in the example of the Energy Conservation Assistance Program in BC; or 3) excepting vulnerable groups from this policy. Beyond these alternatives, the general recommendation for an enhanced personal carbon trading system (CHSS) would be to facilitate the access to incentives especially by members of vulnerable groups; incentives could be used to compensate for any negative economic impact of a personal carbon trading policy.

6.1.4. Carbon Currency and Price

As proposed by other personal carbon trading academic proposals, one kilogram of CO2e would be the unit of measure for a carbon allowance. A carbon allowance would represent the right to emit one kg of CO2e. This carbon allowance, as a commodity, would have a monetary value when traded. The monetary value would be freely determined by the market, although the establishment of a floor price is recommended. This floor price could be equivalent to the current price of the carbon tax in 2014 (i.e., 30 dollars per tonne of CO2e equivalent to 7 cents per litre of gasoline).

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The new carbon currency would be administrated through a carbon account managed electronically and accessed on-line through a mobile device (smart phone) or an electronic card. Further details about these means are provided in section 6.3 of this chapter.

6.1.5. Incentives

Three types of incentives are recommended for CHSS: Incentives to opt into the program during a potential initial pilot phase, incentives for personal milestones achieved (e.g. carbon footprint reduction, energy conservation, social influence, health and fitness), and incentives in exchange for actions that benefit or support others in achieving their goals. Table 9 below provides an overview and examples of each group of incentives:

Table 9. Proposed Incentives under CHSS.

Type of Description Examples Incentives Opt Into the Both voluntary pilot and mandatory programs • Tax rebates. Program require public acceptability. In 2008 BC initiated • Fitbit Wireless Activity Tracker (see the carbon tax and granted a $100 dollars tax section 6.2 and Appendix D). rebate to every BC resident. A similar incentive • Power Smart Energy Efficiency Kit would be required for CHSS. A tax rebate is the (see section 6.2). most recommended option. The amount of the rebate can be determined in relationship to • Neurio WiFi power sensor (see projected revenue from BC2H2 or carbon tax. section 6.2). Accompanying a tax rebate, an in-kind incentive • A voucher for an energy efficiency could increase the likelihood of acceptability. This house rating certification. could consist of free access to health & fitness programs, or access to energy smart homes apps (and devices) that ordinarily have a cost. Private sponsors could also provide support for in-kind incentives.

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Type of Description Examples Incentives Achieving This category of incentives constitutes a core • Discounts in the price per gasoline Personal design feature of CHSS. As recommended in when individuals use their electronic Milestones section 5.2.3, positive incentives are the driver card or CHSS app to track that will motivate individuals to take the actions or transactions. behave as suggested by the program. In • Rewards for biking or running to designing the specific milestones that must be work, this can be tracked based on achieved to obtain an incentive, it is important to the hours, distance and frequency take into account the relevance of the milestone, or such action. adequate thresholds and simplicity. Milestones • Rewards for implementing can be diverse, ranging from the first step that recommendations after an energy individuals take in taking an energy assessment, assessment. promoting and encouraging a certain good behaviour within their circle of social influence, or • Rewards for influencing actions in reducing the amount of miles driven per week. other individuals, this can be This category of incentives must be directly linked tracked to social networks including with the personal goals set by the program and scores for social influence individuals to reduce their carbon footprint, developed by Klout (see section 6.2 improving their health and fitness or influencing and Appendix D). others in taking action. • Rewards based on gamification. For Incentives for achieving personal goals could be example, competing with delivered in the form of a discount or simply by neighbours to achieve the highest collecting a certain amount or points or rewards energy conservation rate (see that can be exchanged for cash or green products example of O-Power section 6.2 and services. This type of incentives could not be and Appendix D). used to pay for extra carbon allowances. • Rewards for a achieving a goal as a Personal goals and notification when a milestone community (monthly waste has been achieved would be set through the reduction goal in a certain CHSS application. The design of this type of neighbourhood). incentives will vary depending whether CHSS is • Rewards for specific campaigns set as a voluntary or mandatory program. (Buying fresh produce and local). Governments could finance this type of incentives from the reduction of operational cost in areas like health, energy conservation or transportation, or from the revenue of selling extra allowances to those individuals who exceeded their quota. Private sponsorship can be an option to fund special campaign incentives.

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Type of Description Examples Incentives In Exchange This third category also constitutes a lever for • Two hours of urban gardening for Actions public acceptability. It provides an alternative for services deposited in a time bank. that Benefit individuals who are unable to limit or reduce their • Performing green volunteering Others personal carbon footprints and could not afford actions promoted by local the cost of buying extra allowances. This solution governments, for example Green could be compared to the concept of offsets in a Volunteering Program promoted by cap-and trade scheme, since it offers an option to the City of Vancouver help reduce the emissions of other individuals. (http://vancouver.ca/green- However, it would have significant differences vancouver/green-volunteer- compared to an offsets system: 1) extra opportunities.aspx). allowances can only be obtained through a • Car Pooling Program in BC personal action, not through the payment to a (http://www.carpoolingnetwork.com/ third person; 2) it promotes the sense of index.asp). Payment to car driver community and strengths personal values. would be given through the CHSS Three types of programs can be included in this app and could be discounted from category: 1) Time Banks (see section 5.2.3.2), 2) the carbon account of the Sharing or Pooling programs that could be individuals sharing a ride. oversight by government, 3) Green volunteering • Carpooling apps such as the UK programs that could be also oversight and based Bla Bla Car regulated by governments. (http://www.blablacar.com/).

6.1.6. Reserve of Allowances: New Entrants and Visitors

A reserve of allowances could be established to be released to the market in different circumstances including: to mitigate persistently high allowance prices; to help address persistently low allowance prices by retiring allowances available for sale; or to make allowances available to new entrants or visitors that opt to participate in the system. The government may designate parts of the reserve for particular purposes. The initial size of such reserve must be determined in the allowances distribution plan. In providing new entrants or visitors with free allowances, the overall carbon budget should not change. If the reserve is not large enough, then the government could reduce the quantity of allowances that can be allocated or sold to existing regulated individuals.

New entrants would be considered as individuals reaching the age of majority or immigrating to BC. Visitors could be mandated to participate in a mandatory system as in the design proposed for Norfolk Island. This could represent an additional source of revenue for the BC government; however, it might introduce unwelcome complexity to a tourist’s experience of the province.

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6.1.7. Options to Buy and Sell Carbon Allowances

Individuals will obtain a certain number of allowances for free, accessible through an electronic card or web-based or mobile app. Individuals would be able to buy extra allowances through the same card or app. A statement account would be sent monthly indicating the amount of allowances owed and payments could be made by credit card, cash or check, using the banking system and the electronic card number.

Individuals would be also able to sell un-used allowances on line or through the banking system. The price of carbon allowances would be determined by the market, although the establishment of a floor price (e.g., equivalent to the current price of the carbon tax) is recommended. As part of the design of a CHSS app, algorithms must be designed to determine a market price or simulate an electronic auction.

6.1.8. Options for Compliance

Compliance with the system has different implications depending on whether it is a voluntary pilot program or mandatory. In a voluntary program there would be only incentives. Compliance with the system could be determined based on tracking transactions and achieving certain goals. A penalty in this case would be to cancel the access to incentives unless tracking and milestone metrics improve.

In a mandatory program compliance would occur through the use of an electronic card or web/mobile app to track transactions. Payments of an energy usage bill, a travel ticket, or gasoline would not be allowed without the use of a carbon card. Extra allowances would be provided in advance, but payments would be required periodically. Penalties for lack of payment could result in the inability to buy products and services regulated under the system. Exceptions could be granted in specific cases, such as vulnerable groups

An alternative path for compliance would be to obtain additional carbon allowances or incentives in exchange for actions that benefit others. This design feature of CHSS is described in section 6.1.7 of this study.

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6.1.9. Voluntary vs. Mandatory

The recommendation for a personal carbon trading system in BC would be to initiate with a voluntary pilot system with the intention of introducing a mandatory program at a later stage. A voluntary program could involve the participation of one or more local governments (e.g., Salt Spring Island). Local governments would be encouraged to act as hubs of innovation facilitating the implementation of such a system together with the provincial government.

As recommended by interviewee 29, the implementation of a personal carbon trading system in BC could follow the strategies of a Market Transformation3 approach used in Energy Efficiency. This would work by defining a longer term strategy between the policy obligation (stick), and the incentives (carrot). The intention to implement a ‘stick’ could be announced between 3 and 5 years in advance. This announcement should occur simultaneously with the announcement of the ‘carrot’. The carrot or incentives should be available at the time or soon after the announcement, encouraging individuals to participate in a pilot voluntary phase of the program that will serve to identify barriers and opportunities around the new policy. Government could also present a public plan to reach the 3-5 years target (i.e., implementing a mandatory system that is obligatory for all individuals). As part of that plan, the government could include: strategies for education and information, potential incentives, options to scale up the system, options to increase the level of commitment of the people involved, and technological aids to support the system. Over the 3-5 years period, the voluntary system and its participants (i.e., market) would reach a level of sophistication enough to transition to a standard and mandatory program at the end of the period.

Some of the reasons why people might opt to participate in a voluntary program are:

3 Market transformation refers to the strategic process of intervening in a market to create lasting change in market behaviour by removing identified barriers or exploiting opportunities to accelerate the adoption of all cost-effective energy efficiency as a matter of standard practice (ACEEE, 2014).

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• Potential exemption or tax rebate equivalent to the carbon tax; • Have performed substantial carbon footprint reductions and want to obtain an economic benefit for their actions; • Want access to potential free allowances and other incentives offered by the system; • Knowing that the system will be mandatory in the future, they prefer to comply at an earlier stage; • Are attracted by the technological features of the system; • Are interested in pursuing parallel goals to carbon footprint reduction, such as health or fitness improvement; and • Are influenced by other individuals.

For those individuals who opt into the system, there would be a minimum stay of 3 to 5 years period (e.g., from 2015-2018), time required to incorporate the learnings from the pilot program into the design of a mandatory program. The 3-5 years period recommendation is based on market transformation research establishing that performance incentives based on market effects must allow sufficient time–in some cases several years–for the markets effects to occur (Eto, 1996, and York, 1999). Three years is also the common period of time that emissions trading programs have established for every compliance phase (see section 4.1).

6.1.10. Avoiding Double Regulation

One of the main challenges faced by any new carbon pricing policy in BC is avoiding double regulation4. In a scenario where two carbon pricing policies work together, the government would need to determine how the carbon tax and personal carbon trading would interact in order to avoid imposing a double carbon cost for individuals. When British Columbia joined the Western Climate Initiative, one of the goals was the implementation of a regional cap-and-trade system. BC designed a cap-and- trade regulation that was intended to complement the carbon tax. The design of the cap-

4 Double regulation refers to the duplication of a cost imposed by different policies on the same event or activity (e.g., carbon tax and cap-and-trade covering the same source of carbon emission).

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and-trade system took into account the risk of double regulation and proposed two different options to distribute carbon allowances within the industrial sector:

• Option 1: All facilities subject to cap-and-trade would be exempt from the tax: • Option 2: Leaving both mechanisms in place for industrial combustion, and providing free allowances to emitters in the amount of their combustion emissions:

In a similar way, to avoid double regulation if a personal carbon trading system is implemented, two potential options could be used to interact with the carbon tax. Each option would represent a different approach for allowances distribution:

Option 1: All individuals subject to personal carbon trading are exempted from the carbon tax: Using annual tax returns, all individuals would be eligible for a carbon tax credit independently of their income level; this carbon tax credit would also function as an incentive for increasing public support for the new policy, as well as to encourage people to opt into a voluntary pilot program. The carbon tax credit could be calculated in an equal per-capita basis for all individuals or determined by income level– this is assuming that higher incomes equal higher GHG emissions, which might be debatable. The preferred option would be equal per-capita basis, since this is consistent with an equal per-capita distribution of allowances.

Another alternative to avoid double taxation would be to offer a discount every time individuals use their carbon cards to track a transaction. For example, gas stations would discount 7 cents per litre of gasoline. People could see this as an incentive to use the carbon card, but it could also be seen as a confusing signal to consume more gasoline. This alternative was used by the NICHE program in Norfolk Island.

In option one, distribution of allowances could not be free for the total budget. Potential options would be 60 free distribution and 40 per cent available to be sold by government. The percentage would depend on the balance between carbon tax credit costs vs. expected revenue from allowances’ sales. This option could potentially increase public support for the policy. The drawbacks of this option would be:

• Potential loss of carbon tax revenue not recouped by sale of allowances. • Risk of unequal treatment for different individuals.

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Option 2: Both mechanisms are in place for individual combustion emissions and a higher number of free allowances is provided: In this option all individuals would continue paying carbon tax for their combustion emissions without any discount or credit; however, 100 per cent of allowances could be allocated for free so individuals would receive a higher number of allowances (This could depend on the fiscal budgets and GHG reduction targets). The potential for those with an average carbon footprint, to have a surplus of allowances will also increase. The profit of selling the surplus allowances would replace or be equivalent to the current income tax rebate; it would also allow a potential higher economic benefit for low income families. In this option, those individuals with a higher consumption of electricity or frequent air travel would potentially have to buy extra allowances from individuals who have a surplus. As with cap-and-trade, the number of allowances available for free distribution would decrease every year, as would the potential for profit. Here is where the signal of scarcity would drive further emissions reductions.

In the absence of an offsets system, as in cap-and-trade, alternative mechanisms allowing individuals to obtain further allowances without paying a monetary cost could exist. These alternatives are described in the incentives section of this proposal.

Option 2 is recommended in the case of a mandatory program. Incentives as tax credits or discounts are better suited for a voluntary program. Alternatives from option one and option two could be combined depending on the stage of implementation of the program and available funding to provide further incentives. Both options could represent a greater administrative cost to government. This cost would have to be covered by the revenue of expanding carbon pricing coverage or potentially funded by the private sector in a coalition scheme described in section 6.2.

6.2. Creating a Coalition: Taking Advantage of What Already Exists

As discussed in section 5.2.1 of chapter 5, a key recommendation to facilitate the implementation of a Carbon, Health and Savings System in BC is the building of a

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coalition. A coalition is understood as a group of private and public institutions who together collaborate in the design, implementation and operation of a program or project.

One of the main challenges faced by a personal carbon trading is the complexity of designing and operating a new system. The main benefit of building a coalition is that the expertise, technology and infrastructure needed to develop a personal carbon trading system already exist – indeed, they are the core business of diverse institutions such as banks, loyalty management companies, software development companies, social networks, and health and fitness providers. It is not necessary to re-invent the wheel and design a brand new system from scratch; researching about who already does some of the activities needed and how those potential players and core activities could be integrated is a better strategy and the recommendation of this policy proposal. The following section provides an overview of who those players could be and what activities they could perform. However, further research would be needed to design a detailed business plan and an organizational strategy5, which would be essential to the design of a real-life CHSS program.

6.2.1. Potential Participants and their Roles in the CHSS Coalition

Provincial and Local Government:

Government always plays a leading role in carbon pricing policies. CHSS would require the participation of various government institutions working together with the private sector. In the specific case of BC, some of the core government players would be: the Ministry of Environment as the main authority with the capacity to legislate the implementation of personal carbon trading; the Ministry of Health to collaborate in the implementation of health and fitness improvement goals and to link existing programs and budget with a carbon policy (e.g., My Health, My Community initiative); the Ministry of Technology, Innovation and Citizen Services could collaborate and sponsor the

5 An organizational strategy evaluates the competitive advantages of the diverse members in an organization, and combines the knowledge and skill sets of the members in a team to achieve high performance and to accomplish desired goals.

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development of a platform and super application; the Ministry of Finance would play a leading role in the implementation of a new source of fiscal revenue through the sale of carbon allowances, as well as the correspondent budget to provide incentives. The Ministry of Finance could also promote the calculation of a carbon footprint when filing annual tax declarations. This could serve as a strategy to encourage participation in a pilot program (e.g., people could get an extra tax refund if they sign up to participate in a voluntary CHSS).

Participation at the local government level is also key in this proposal. In an initial phase of CHSS, it would be essential for the provincial government to partner with one or more municipalities to implement pilot projects. Many local governments have already several policies in place that could easily be linked or promoted under the umbrella of an enhanced personal carbon trading system (e.g. City of Vancouver Greenest City 2020 Action Plan).

Loyalty Management Companies:

Loyalty management companies provide computational technology and technological platforms to run a variety of incentive based programs. These companies have the ability to connect databases and transactions with retailers, gasoline stations, banks, air travel, hotels, restaurants, and NGOs, among others. Finally, loyalty management companies have the expertise to design the best type and level of incentives and the individual goals to promote desired consumer behaviour changes in a target group of individuals (e.g. BC residents).

Companies who could participate in a BC system include: Loyalty One, which operates Air Miles, and AIMIA which operates Aeroplan. Experts from both companies were interviewed in this study. Although they all recognized that many of the activities their companies promote encourage further consumption, they also have expertise in designing and operating sustainable and healthy consumption programs, for example, Air Miles for Social Change and Nectar Savvy Families. Social Change Rewards is based in the UK, and offers points-based incentive programs designed for public sector agencies to reward citizens for making healthier or more environmentally responsible lifestyle choices.

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Financial Institutions (Bank or Credit Union):

Most financial institutions have their own credit card brands, and many loyalty programs run on top of those credit cards, allowing multiple reward-earning layers on a single transaction or activity. The experience and infrastructure of financial institutions would be needed in the implementation of a rewards base program. A local or regional scale credit union could be more suitable for a pilot program stage, whereas a bank would be a better fit for a mandatory provincial program. In BC, two institutions are recommended as potential members of a coalition: HSBC and Vancity. Both financial institutions have programs promoting sustainable living: for example, HSBC sponsors worldwide charity programs such as the HSBC Climate Partnership. Vancity is a big supporter of investing in businesses, not-for-profits and sector initiatives focused on local and organic food to help promote a viable and sustainable local food system. They also sponsor events such as the Living the New Economy, which focuses on promoting economic activities that bring the human economy into greater balance with natural ecosystems.

Three main reasons could encourage the participation of financial institutions. The first is branding (e.g., marketing its image and values as green and environmentally responsible). The second is that some institutions have set voluntary goals to reduce their environmental impact and sponsoring CHSS could be translated as a contribution to reach their goals. The third reason is financial: if BC residents use their credit cards as a mean to track carbon related activities and to manage their incentives, this could increase their customer base and loyalty among their current clients.

Social Media Providers:

Social media facilitates not only access to information and knowledge, but comparison with other individuals, which are one of the main drivers to achieve behavioural change. Companies such as Facebook, Twitter or Klout have revolutionized the world of communication, marketing and social interaction. Younger generations have become dependent on social media to interact, and social media are increasingly perceived as more trustworthy sources of information and knowledge than traditional channels such as TV, radio and newspapers (Fraustino, 2012). In many cases, they can

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be more effective communications tools than websites or print materials. As a result, social media can be effective instruments to promote values like sustainability and social responsibility.

Social Media offer platforms for two-way communication, which can provide feedback for governments and private companies, who can gather information from listening to what their customers want. Existing applications to reduce personal carbon footprints have been already developed and delivered through Facebook. For example My Sollars is a Switzerland-based program that offers web/mobile gamified solutions for individuals to calculate, reduce and monitor their carbon footprint, and for companies to engage with consumers by sponsoring the rewards that individuals get for their efforts toward carbon reduction.

Health & Fitness Applications Providers:

Several studies have confirmed the benefits of keeping track of the food people eat and the physical activity they do. Many successful weight management programs suggest that participants keep a food diary and/or an activity log. Smartphones can provide a vast amount of information to facilitate such a task, from precise calorie calculations to GPS services that can calculate exactly how much distance was covered on a long run. Also, the simple act of using a smartphone multiple times a day and launching an app that tracks food intake or total exercise can serve as a reminder to stay the course.

What makes mobile apps successful in achieving fitness and health is that people typically have their smartphones them with them at all times. Examples of fitness apps available in BC are: Fitbit, Map My Fitness, and My Fitness Pal. Most of these applications can be used for counting calories, recording exercise, loosing weight, and tracking other personal metrics (including heart rate, glucose levels, sleep, and blood pressure). Many of these applications also use gamification to motivate people to reach a desired goal for exercising.

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Software Developers:

In the fall of 2010, the BC Government organized the Apps for Climate Action Contest challenging Canadian software developers to raise awareness of climate change and inspire action to reduce carbon pollution by using data in new applications for the web and mobile devices. Contest sponsors included government and eight private companies (e.g. SAP Canada Inc., Microsoft Canada Inc., Analytic Design Group and TELUS Corporation). Several developers designed fun and innovative climate action apps including some of the winners: Green Money: a personal offset calculator for the money and time people invest in environmental savings; VELO which uses gamification to enable organizations and individuals to monitor and compare their GHG emissions continually rather than annually; and MathTappers: Carbon Choices, an app designed to help students examine the effects of their personal choices on climate change. As students track their choices, their impact is assessed in terms of annualized kg of CO2e generated.

According to the BC Government, this initiative was very successful and got the attention of various developers at the provincial and federal level. My recommendation for the creation of a CHSS super application would be to follow the same model and to invite software developers across Canada to participate. Leading companies in the ICT industry, such as Microsoft or SAP could be again invited to sponsor a new contest. Some of the 2010 winner apps could also serve as components of a new super app. Section 6.3 of this study describes in further detail an initial conceptual framework for a super app.

Accounting and Tax Services Providers:

One of the interviewees for this study works with a Vancouver-based company called EcoTaxFile. Based on the notion that ‘accountants are now the most trusted profession out there’ (interviewee 6), EcoTaxFile was developed with the mission to provide accountants with the tools to educate and advise their clients on how their choices to reduce their carbon footprints can also save them money. EcoTaxFile is an accounting firm focused in environmental sustainability, based on the premise that the information collected to complete a tax return is similar to that required for an

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environmental impact assessment. At the same time that clients can take an annual snapshot of their financial wellbeing when they file their taxes, they could also get a picture of their environmental impact or carbon footprint.

With the carbon calculator on the EcoTaxFile website, people only need the information that is already required to file taxes. Once the tax return is complete, people receive an eco-report with advice on how to live a greener life. EcoTax File is a local example of how accounting services providers could serve as an effective channel to engage individuals in reducing GHG emissions while saving money.

Utilities and Energy Efficiency Companies and Applications:

Utilities and energy efficiency companies and programs accumulate knowledge about behavioural change. Energy savings have been required and promoted in BC since the early 1980’s, long before climate change became a policy concern. BC has set ambitious energy efficiency targets including: meeting 66% of all new electricity demand through conservation, and achieving a 20% reduction in energy consumed in houses by 2020 (BC Hydro, 2013).

Examples of energy efficiency specific companies and programs that could be integrated in a CHSS program are:

1) LiveSmart BC offers home owners various incentives and rebates for energy-saving improvements and equipment. The program is administered by the Province of BC in partnership with BC Hydro and FortisBC. 2) Power Smart is a BC Hydro-owned program that provides capital incentives to motivate customers to invest in conservation and efficiency. 3) FortisBC PowerSense provides financial incentives and advice on energy-efficient technologies and practices. 4) Neurio is a home intelligence technology launched in BC. Neurio makes ordinary appliances smart and homes more efficient. Using a WiFi power sensor and a cloud service with some smart pattern detection algorithms, Neurio monitors home's electricity and reports useful data for saving money on electrical bills. 5) O-Power based in California, sends home energy reports to residential utility customers comparing their electricity use to that of their neighbours. The company’s business model is premised on the

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understanding that people are more likely to change their behaviour when they receive feedback on their performance, especially when compared to that of their peers.

Industrial and Private Corporate Sector:

The potential role of the industrial sector in an enhanced personal carbon trading system is a controversial one. If industry is regulated in other ways, they might not be willing to contribute further, or if they feel any threat of a negative impact on the demand for their products, they may attack the implementation of such a system. However, private sector participation could be also encouraged in a voluntary basis. For example, Microsoft or SAP might sponsor a contest for the development of a super app, or the banking sector could use such programs to promote their brand and the use of their credit cards.

Defining the potential roles of the private sector in a personal carbon trading program would require further research beyond the scope of this study.

Non-Governmental Organizations (NGOs):

The role of NGOs is another controversial aspect of this proposal. Achieving the support of these organizations would depend on the potential for CHSS to be publically accepted and seen as a beneficial policy, not only in terms of climate change but in terms of social and economic development.

Academia:

As discussed in chapter 3 of this study, most of the research around personal carbon trading, including the pilot project in Norfolk Island (NICHE) has been led by academic institutions. The participation of academia in evaluating and designing a detailed CHSS program in coordination with policy makers would be also essential. In British Columbia an institution that could serve as a bridge between government and academia is the Pacific Institute for Climate Solutions (PICS). PICS works with four of the main universities in BC (SFU, UBC, UNBC and UVic) and has the mandate to bring together leading researchers from British Columbia (BC) and around the world to study the impacts of climate change and to develop positive approaches to mitigation and

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adaptation. Through PICS a proposal like CHSS could receive support for further study and outreach.

6.3. A Technology Platform for CHSS

Technology can make possible what few years ago was considered impossible or too complex. Technology has the capacity to transform the complex into simple: technology could integrate solutions to diverse problems of human concern that appear unrelated into a single and unified solution or application. Technology can make life easier, cheaper, more responsible and enjoyable. The proposed CHSS described in this study would not be feasible without the use of technology, in this case software developers in the area of sustainable computing, have the capacity to convert a highly complex system into simple, easy to use and highly desired application. Simplicity in delivering complex data and operate a system will be key in achieving success in a new proposed policy.

As explained in section 6.2, the fundamental idea of this proposal is to integrate solutions that already exist in the market to create a unified application that addresses various areas of human concern all at once. For CHSS, there are two main technological components that can serve as interfaces for residents in BC to participate in this program. The first component is a super app which can be delivered to users through the Web and/or a mobile smart device; the second component is a multiuse electronic card. The following sections provide a conceptual design for a super app and also recommend a specific solution for a multi-use electronic card.

A list of existing suggested applications is also provided and divided into five main groups; each group addresses different human concerns. All these concerns are interrelated, the success of a CHSS program would lie in the capacity of a super app and integrated technological platform to relate goals and solutions from each area of concern. The use of a dashboard that obtains, integrates and provides data from various sources is also crucial in the design of a super app. For example the simple activity of turning the TV off when nobody is watching it can result in energy savings, carbon reduction, economic savings, social recognition and rewards granting. Riding a bike to

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work can result in carbon reduction, economic savings, health and fitness improvement, social recognition and rewards granting. Driving a car to work while sharing the ride with other individuals (e.g., car sharing program).

Security and privacy are two important issues that must be addressed while designing a technological integrated solution for CHSS. One of the potential concerns in terms of public acceptability of a new policy is the potential for privacy transgression. If government (e.g., tax collection agencies) has access to multiple sources of data from individuals and these data can be correlated, people would be afraid of the negative consequences of their actions. To ensure success and public acceptability of a CHSS system, it is very important to guarantee BC residents privacy on use and disclosure of personal information. In BC, this is regulated by sections 26 (c) and 33 of the Freedom of Information and Protection of Privacy Act.

Personal information collected through the CHSS app or the multi-use electronic card could only be used to confirm identity, providing information to the user, and granting incentives. Personal information can only be disclosed to the specific government agency or private services supplier (e.g., Fitbit) accessed, and records should not be shared across agencies or individual apps (BC Services Card, 2014). For example, a health care provider will not be able to see driving records, while a police officer or ICBC employee will not have access to health records. A lack of compliance with carbon reduction goals could not constitute a lack of compliance with fiscal obligations, unless it is determined by law.

6.3.1. Super App as an Integrated Technological Solution

A super app is either a web-based or mobile-based application that combines data and services from various resources or existing applications, super apps can be defined as applications which make use of all the resources (or other applications) available. The use of other available applications can vary from notification pop ups, context menu integration or access to any application from within anywhere on a mobile device or computer. Super apps are usually very simply to use and offer a one single window to access all available services. A web-or mobile based application offer important advantages:

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• Portability: Can be accessed from any computer that can connect to the Internet. • Mobility: A super app works with diverse mobile devices (e.g., Blackberry, iPhone, or any Android smart phone). • Collaboration: Individuals can access their applications privately, but also share with other people.

In the case of CHSS, it is recommended to develop a super app consisting of five main modules: 1) Personal carbon trading (i.e., carbon footprint reduction tools), 2) Health & Fitness 3) Money Saving Tools 4) Social Media and 5) Incentives. The first three modules will set goals for: 1) reducing carbon footprint and energy consumption; 2) improving health & fitness; and 3) saving money and adjusting to a budget. Each module will also provide tools to facilitate decision making, tracking and measuring progress on every goals. The fourth module will make use of gamification and social influence to promote actions towards goals’ achievement and to compare progress on the desired goals with other peers. The fifth module will calculate, provide and hold incentives obtained through the different options described in section 6.1.7. Incentives will be also hold and accessed through in the carbon allowances (multi-use) electronic card described in section 6.3.2 of this study. The following table 10 provides examples of diverse existing applications (and services) that could be integrated in every module of a CHSS super app. Not every module requires all the suggested applications to be effective; however, diverse options are presented because in a real life scenario, the development of a super app would require a profound technical evaluation to determine what the best apps to be integrated are. A super app could also allow users to select their favorite interface or app in every module. Many of the suggested apps exist in BC or could be developed for BC. In some other cases apps are globally used (e.g. Facebook) and in few of the cases apps exist in other countries but could be available for use in BC.

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Table 10. Proposed Apps for CHSS

Carbon, Health and Savings System Unique Electronic Card (BC Services Card)/ Credit Card Super App: Education, Information and Operation Platform for Personal Carbon Accounting and Trading, Health and Fitness, Money Savings and Social Wellbeing Carbon Health & Social Footprint/Energy Money Saving Rewards Fitness Influence Usage Car-pooling LiveSmart Program Carbon Currency and Carbon Fitbit Facebook Budget (CHSS) Calculator Green Volunteer Opportunities Social Change O-Power Fitsby EcoTax File Twitter Rewards

My Sollars Nectar ‘Savvy Map My Fitness Family’ Klout AirMiles For Social Competition Change/Loyalty One Zero Footprint Neurio MyFitnessPal Time Bank O-Power KloutPerks

As observed in the table, every module has different objectives that are specifically related to an area of human concern (i.e., environment, health, economy, society). Some of the suggested apps are repeated or could be repeated because they could influence change in more than one area (e.g., O-Power can help to reduce electricity consumption, but also to save money and facilitate social comparison). This clearly reflects the synergy and connection that achieving improvement in one of the areas of human concern (e.g., environment) has in the other areas (e.g., health & fitness). For example, through the action of biking to work; individuals could reduce their carbon footprints, improve their health and fitness, save money, receive social recognition and obtain incentives.

Delivering and integrating data from each of the modules included in CHSS is crucial to help the decision making process of individuals participating in the system. One of the main tasks of a CHSS super app would be to provide data on how a list of potential activities could positively or negatively impact the progress towards desired

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goals. For example, an individual could select from a menu a simple daily activity such as: turning on the TV for hour, or biking 10 km instead of driving. The super app would provide data about how each selected activity will contribute towards achieving a goal. In some cases the selected activity could have no impact in one of the modules, but a negative impact in one or more modules. Or it could also have a positive impact in every one of the modules. An individual could make better decisions or choose better options, by knowing what are the activities that have the best impact in every area of its concern.

All of the above could be done with the help of a dashboard interface; a dashboard used for decision making provides a consolidated view of different sources of data. A dashboard can also correlate those different sources of data to determine how one action or option could have an impact in any selected indicator or group of indicators. In the example of figure 7, we can observe a dashboard that on the left side presents different options for the creation of a new enterprise (green building contractor, landscaping company or training centre investment); on the right side, using the visual concept of a thermometer, the dashboard shows how every single enterprise option will impact the community in terms of job creation, revenue or people trained. One single view has the capacity to provide data about how one or more selected actions could contribute or not to reach goals in every area of interest. A similar type of dashboard could be used in developing a CHSS super app, in this case, the indicators shown in the thermometers would be: carbon footprint, health and fitness level, economic savings, social recognition/influence and obtained incentives.

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Figure 7. Example of a Dashboard for Decision Making

Source: Constructive Public Engagement (http://constructive.net/samples-and- examples/community-economic-development-impacts/)

6.3.2. Unique Multi-use Electronic Card: BC Services Card

In February 2013 the BC Government introduced the B.C. Services Card. It replaces the Health Services CareCard and can be combined with the B.C. Drivers’ License and other potential future services into one card. For most people the card is issued during re-enrolment in the provincial medical services plan when their driver’s license is being renewed. The B.C. Services Card serves as government issued photo ID. It also includes a contactless chip and passcode system that will allow the card to serve as a person’s authentication credential when accessing digital services. This technology provides a secure, inclusive, foundation for B.C.’s approach to digital identity management.

While the technology behind this solution is complex, it is being designed so that one card could potentially allow access to a variety of government services while limiting each service provider to only the information needed to authenticate each user. CHSS could be one of the services added to the BC Services Card.

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With the BC Services card, the provincial government can enable access to a wide array of digital services, without allowing any one of those service providers to have access to the private data held by another. In effect, this approach is no different than how citizens now use cards to access services that are not online. The service provider requests the card as proof of identity and the citizen provides it in exchange for service. This smart card approach allows citizens to access a potentially wider range of information and services online at their convenience. Government is now in the process of developing the systems and processes that will enable the first uses of the B.C. Services Card for digital services.

6.4. Minimum Viable Product and Coalition

As discussed in section 5.2.9, a minimum viable product (MVP) is the version of a new product which allows a team to collect the maximum amount of validated learning about customers with the least effort (Ries, 2009). A minimally viable team refers to the smallest groups of participants that are required to create and operate the MVP.

An MVP version of BC's Carbon Health and Savings Systems would be conceived as a trial or pilot project that could include the function of personal carbon tracking and reduction only, without any trading. Carbon emissions would be tracked through the use of a carbon card, potentially embedded in a driver’s license or a multi- services card. The main goal of the system would be to track and establish reduction goals for the consumption of gasoline, and the use of electricity and natural gas for space heating and cooling, water heating, appliances and lighting. Participants will be informed of their reductions in gasoline and household energy consumption, along with the equivalent carbon emissions reductions. Three types of participants would be required to operationalize this MVP CHSS: a core provincial government agency (e.g., Ministry of Environment), larger utilities providing electricity and natural gas (e.g., BC Hydro and FortisBC) and a regulated universal compulsory auto insurance provider and/or driver license provider (e.g., Insurance Corporation of British Columbia (ICBC), whose mandate covers compulsory auto insurance, driver licensing, vehicle registration and licensing services, and collection of fines on behalf of the provincial government at locations across the province).

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This MVP trial project would aim to encourage behavioural change through the tracking of carbon emissions with minimal disruption to individuals' lifestyle. Launching this trial program is recommended at a municipal level. As suggested in section 5.2.9, a policy innovation hub is described as a community where innovative policies can be researched, tested, promoted and supported with the objective of solving a problem affecting the community. Municipalities in BC that could be examples of policy innovation hubs and are best suited to implement an MVP trial include: City of Vancouver, Salt Spring Island, Eagle Island, and the City of Dawson Creek. Under the MVP trial program, the residents of the selected municipality will receive a carbon card, which could be the same as a driver’s license or a multi-use electronic card (e.g., BC Services Card). This card will contain a set number of carbon units. During the trial, residents of the selected municipality will have to use their carbon card when they pay for gasoline. Utilities will directly deduct carbon units from the carbon account when billing for energy usage. The incentive to use the carbon card on a voluntary basis could be an annual discount on the cost of their next compulsory vehicle insurance policy. Those who use fewer carbon units by walking or cycling instead of driving or by using less energy at home will be able to exchange any remaining units at the end of the year for cash or further discount in their vehicles insurance policies. Over time the number of carbon units in the card will decrease. Individuals will know this either through an on-line notification or a statement that will be sent out electronically each month specifying the carbon units deducted for the purchase of gasoline, as well as those deducted automatically by the utilities (e.g., BC Hydro). If all the available carbon units are depleted, participants will not have to pay to get more credits; however, they will no longer be eligible for additional discounts on their insurance policies and will be notified electronically.

During the MVP trial, the project will only provide incentives: participants will not have to pay to get more credits, although a negative balance might be shown in their statements. At this MVP stage, the technology for implementation will be based exclusively on existing databases, carbon calculators and digital multi-use electronic card services already available in the province. The development of a super-app to consolidate carbon tracking, health improvement, economic savings and carbon trading applications will depend on the success of the MVP. Carbon trading, as well as the

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incentives system described in section 6.1.5, would be recommended for the next implementation stage beyond the MVP.

6.5. Conclusion

This study investigated personal carbon trading and its relationship with behavioural change from three different approaches: economic, social and psychological; as well as its potential to complement other existing carbon pricing policies in British Columbia (i.e., carbon tax).

Personal carbon trading is a carbon pricing policy under which all individuals are allocated a number of free carbon allowances forming an annual carbon budget. Persons whose carbon emissions are lower than their carbon budget can sell their surplus to persons who have exceeded theirs. As distributed allowances are reduced annually, consumers are encouraged to modify their behaviour and reduce carbon emissions in order not to exceed their carbon budget. Currently, personal carbon trading has been only analyzed at the theoretical and voluntary-pilot level. At the time this study was conducted, none of the proposed personal carbon trading systems has been fully developed, regulated or implemented as a mandatory policy.

Since 2004, personal carbon trading has attracted ongoing interest in the academic world and academic research has proliferated. Motivations for this research include: the notion that all sectors of an economy must be regulated; the hypothesis that personal carbon trading could have greater potential to achieve emissions reduction at a lower cost compared to other policy alternatives such as carbon taxation; and the search for the optimal climate policy framework that has the greatest degree of social acceptability.

Other forms of carbon pricing mechanisms such as carbon taxes and cap-and- trade have existed since 1991. Carbon pricing mechanisms have been crucial in enabling global research & development of clean technologies that have reduced carbon emissions at the global scale. From an economic perspective, there are existing carbon pricing policies (e.g., cap-and-trade in California and Quebec) that already provide a price signal and set limits to reduce emissions at the individual level. This study does not

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intend to disregard existing systems and successes, but to build on previous experiences and behavioural research. Under the recognition that climate change is an extensive and complex problem to address, it examined ways to complement existing policies, focusing on carbon footprints at the individual level.

Personal carbon trading appears to offer a wider connection beyond the price signal with the factors that influence environmental behaviour at the intrapersonal, interpersonal and external levels. Personal carbon trading could provide an economic signal or constraint to limit carbon emissions, representing a behavioural response to an externally imposed penalty (i.e., carbon price). Personal carbon trading also provides a psychological signal that has the potential to modify intrapersonal aspects of behaviour: by requiring a regular accounting or tracking of daily activities that represent carbon emissions, and by providing interactive information about how these activities interact with climate change, personal carbon trading could have the potential to alter habits and values. Sociologically, personal carbon trading makes use of the power of interpersonal factors to motivate positive environmental behaviour either through the desire to co- operate or imitate others’ behaviour or through disappointment at others’ failure to co- operate.

Previous research on social acceptability indicated that when personal carbon trading is compared with carbon taxation or other policies, it is usually preferred (Fawcett, 2012). Personal carbon trading could establish a visceral connection between carbon pricing policy objectives and individual actions.

Policy development aiming to influence behaviour should be concerned with the full range of influences that underpin and motivate behaviour. Personal carbon trading as a policy addresses not only environmental, but health, economic and social concerns as well, and makes the interplay of intrapersonal, interpersonal and external factors more transparent.

Opinions offered during the interviews suggested that personal carbon trading could be a complementary policy to the carbon tax, and that it could also be a more equitable policy for individuals than carbon taxation. Personal carbon trading could achieve greater emissions reductions at the personal level than the carbon tax, and the

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technology for implementation is already available. Various challenges, including public acceptability and the complexity of implementation and operation, suggest that 2014 is not the right time to introduce a mandatory personal carbon trading system in BC, but 2014 could be the right time to submit this idea for consideration and deeper evaluation that could lead to the implementation of a pilot program.

This thesis presents a policy proposal that enables individual engagement, personal carbon budgeting and collective action in British Columbia. The proposal incorporates lessons from a review of the theoretical literature, the analysis of existing carbon pricing policies, and the data collected through the thirty-two interviews. This proposal recommends the implementation of an integrated platform and application that pursues environmental, health, economic and social objectives simultaneously. This integrated solution would facilitate, account for, and incentivize actions that have common positive impacts in all the mentioned relevant aspects of human lifestyles. This proposal also presented a vision for an incentive system, a description of recommended safeguards, a list of potential stakeholders and a conceptual framework for a technology platform.

6.5.1. Further research

During this investigation several aspects have been identified as suitable for further research. Examples of these aspects include: social acceptability (a survey would be required); fairness, equity and implications for low-income or vulnerable communities; and cost and technology for implementation. A business model would also be needed, which is an aspect that attracts my interest in particular.

In any public or private investment project there is always the question of the total cost of implementation and operation, compared to the potential for revenue generation – in other words, the rate of return of the total investment. CHSS would be no exception. The scale of costs involved in developing and implementing a CHSS application is variable: it depends on the degree to which private companies could sponsor and accept the free integration of their existing applications into a new unified super app. The cost of providing incentives is also variable and highly uncertain: incentives could be funded by private sponsors, by the revenue generated within the system, by the allocation of

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operational savings, or even by sources such as energy efficiency programs or other carbon pricing policies (e.g., carbon tax). The potential for revenue is also variable depending on whether the system is voluntary or mandatory, the scope of emissions covered, as well as geographic coverage.

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Appendix A: Sample Interview Guidance

Introduction:

The purpose of this interview is to evaluate personal carbon trading (PCT) as an alternative or supplementary policy to the British Columbia carbon tax (BCCTax). PCT and carbon tax are both carbon pricing instruments that, using different policy framings, aim to reduce greenhouse gas emissions. In 2011, a comparative experiment was done in the UK to test the hypothesis that “due to economic, pro-environmental and mental accounting drivers PCT would have greater potential to deliver emissions reduction than taxation” (Parag & Capstick, 2011). The results showed that “it may be possible to encourage people to save further emissions, given a low price signal, by altering the [policy] framing. While a higher price signal is likely to bring greater emissions reduction, it would be less publicly supported, especially in times of economic decline” (Parag & Capstick, 2011). A comparative analysis between the British Columbia carbon tax and personal carbon trading policy frames can provide valuable input for policy makers in BC.

This interview is aimed at key opinion leaders (KOL) in the low carbon economy, climate policy and sustainable energy sectors. On an anonymous basis, this interview will survey KOL opinions about the potential of a PCT scheme to increase people’s willingness to shift carbon emitting behaviour in BC. The results will provide a comprehensive analysis of the two carbon pricing policy frames and their effectiveness in modifying behaviour and reducing greenhouse gas emissions. Recommendations will be made regarding the policies that can support, promote and enable personal engagement, carbon budgeting and collective action in the province.

Background of Personal Carbon Trading:

Personal carbon trading (PCT) is a scheme under which all individuals are allocated a number of free carbon allowances forming a carbon budget (usually on an annual basis). In order to manage this budget and be able to benefit from carbon trading, individuals need to practice carbon budgeting and accounting. Persons whose carbon emissions are lower than their carbon budget can sell their surplus to persons who have

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exceeded theirs. As distributed allowances are reduced annually, consumers are encouraged to modify their behaviour and reduce carbon emitting activities in order to not exceed their carbon budget. The net impact is an overall reduction of carbon emissions across society. The objective of PCT is to engage citizens in a process of managing and trading carbon allowances on a personal level. Due to the complexity in accounting for personal carbon emissions, PCT schemes usually focus on household energy use and personal travel. PCT proposed schemes vary in their inclusiveness, the scope of emissions covered, the level of individual engagement, and the rules and procedures for allocating, surrendering and trading carbon allowances.

The operation of a PCT scheme typically involves the following steps:

1) The government sets an annual limit on carbon emissions. This limit is reduced over time. 2) The carbon budget consists of carbon allowances which are usually allocated equally to individuals at no charge (diverse studies have been done to determine the optimal rules for allowance allocation. These studies evaluated factors such as age, income level, geographic location, carbon footprint, etc., and most of them have determined that equal per capita and free distribution is the best approach). Usually each permit represents one kilogram of carbon dioxide equivalent (CO2e). These allowances function like an alternative currency and can be distributed and utilized through electronic means similar to debit cards. 3) Individuals are required to submit these permits when they purchase products or services involving CO2e emissions within the scope of the scheme. 4) Individuals who emit more than their initial allocation will have to purchase allocations from those individuals who have allocations remaining. Individuals with a lower carbon footprint can profit in this scheme. Allocations are tradable in a carbon market with an established clearing price similar to the cap and trade scheme. Public and private financial institutions, post offices, gas stations, grocery stores and online services are usually facilitators of personal carbon trading systems.

The following tables 1 and 2 provide a comparison between some of the characteristics, advantages and disadvantages of the BC carbon tax (BCCTax) and the proposed personal carbon trading (PCT) schemes:

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Table A.1. Comparison of BC CarbonTax and PCT policy frames

Proposed Personal Carbon Trading (PCT) BC Carbon Tax schemes In UK, the Climate Change Act 2008 grants powers to the Government to introduce PCT Status Operating since July 1st of 2008. without further primary legislation. Norfolk Island is trialling the world's first PCT program since 2011. What Fixed rate revenue neutral tax. Market oriented carbon price mechanism Primarily individuals. Some proposed schemes Who Industry and individuals. cover industrial emissions as well. A direct tax is applied on the carbon Carbon allowances are allocated to individuals How (CO2e) content of fossil fuels. (broadly to adults on equal per capita basis). Fixed and scalable. Currently (Q1 PCT allowances price is market determined 2013) $30 per tonne of CO2e that is according to supply and demand. Uncertainty Rate/Price translated into tax rates for each type and scarcity affects how individuals operate of fuel (e.g. 6.67 cents per litre of within PCT. gasoline). Purchase or combustion of fossil Personal travel, household energy and any Scope of fuels within the Province (industrial product were carbon can be accounted. emissions process and upstream emissions are Upstream emissions originating in other not currently covered). jurisdictions can be covered. Cap on Does not require a cap or a carbon An annual carbon budget and cap is initially set, emissions budget. this cap declines annually. Revenue is used to provide: income A number of allowances are allocated for free to tax credits for low income individuals, Individuals. Individuals can profit from selling business taxes and first two personal Incentives surplus of allowances. Allowances can be also income tax rates reductions, and a obtained through qualified activities that reduce benefit of up to $200 annually for emissions. northern and rural homeowners. Point of combustion for industrial Point of emitters only. Point of sale for Point of sale. Application individuals and industry. An electronic card similar to a bank debit card is No instrument is required. Carbon tax Operation usually provided. There are other technologic cost is fixed and pre-determined per Instruments alternatives (finger prints, social insurance unit of CO2e emitted. numbers driver licenses)

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Table A.2. Potential Advantages and Disadvantages of BC CarbonTax and PCT Policy Frames

Advantages Disadvantages • Simplified Operation • Does not set a limit on emissions • Lower transaction cost • Requires a higher price signal to achieve BC Carbon • Does not requires people’s emissions reductions Tax (BCCTax) awareness to operate • Incentives are not directly given to people • Tax revenue could be higher and who reduce emissions more certain • Offers lower carbon visibility • Engage people on measuring and • Cost of implementation could be higher managing their emissions • Operation involves higher complexity Proposed • Sets a limit on emissions Personal • To be more effective, it requires • Incentives are directed to those who Carbon individuals willingness to account and reduce emissions Trading reduce emissions • Requires a lower price signal to Schemes • Government revenue could be lower than reduce emissions (PCT) taxing revenue • Could provide a more positive • spillover6 effect

Questions: Section 1: Assessing the Effectiveness and Challenges of British Columbia Carbon Tax (BCCTax) 1. What do you think is the level of understanding that the average BC resident has about the BCCTax including aspects such as objectives, scope of emissions, costs, point of application, revenue neutrality and use of the revenue?

Extensive Moderate Somewhat Slightly Not at all Aware Understanding Understanding Understanding Understanding (1) (5) (4) (3) (2)

○ ○ ○ ○ ○

6 An spillover effect is said to occur when engagement in particular pro-environmental behavior increases the motivation to adopt other related behaviors (Thøgersen & Crompton, 2009; Whitmarsh & O’Neill, 2010)

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2. Do you think that the average BC resident knows how much carbon tax money they pay for every litre of fuel they consume? And what behavioral change, if any, do you think would occur if, for example, gasoline pumps would have a label warning drivers of the climate change effects of fossil fuels and of the BCCTax cost that they will pay to charge their vehicles? 3. For the following aspects, please qualify what, in your opinion, is the level of effectiveness of the BCCTax in reducing CO2e emissions through the following actions:

Very Somewhat Neutral Mostly Very Effective Effective Ineffective Ineffective (3) (5) (4) (2) (1) a) Establishing a price of $30 per tonne of CO2e emissions ○ ○ ○ ○ ○ (Q2 2013). b) Achieving personal engagement with climate ○ ○ ○ ○ ○ change mitigation. c) Providing incentives (e.g., ○ ○ ○ ○ ○ income tax rebates). d) Forecasting future CO2e ○ ○ ○ ○ ○ emissions reductions.

4. Where you rated the above BCCTax’s aspects as ineffective, neutral or somewhat effective, can you suggest other means to make the BCCTax more effective?

Section 2: Assessing Features of Personal Carbon Trading (PCT) Schemes. 5. Both, the BC carbon tax (BCCTax) and PCT schemes aim to reduce the overall level of CO2e emissions. As described in Table 1, these instruments operate in different ways and offer diverse advantages and disadvantages (Table 2). For example, the BCCTax does not set a limit on total emissions, while PCT sets a limit which is gradually reduced over time. Could you describe what, in your opinion, are the strongest levers of each instrument in reducing CO2e emissions? 6. Could you comment on the advantages and disadvantages described on table 2? And, if any, could you provide additional advantages or disadvantages of a PCT scheme compared to the BCCTax? 7. Do you think that PCT could be a potential policy option in BC?

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8. What do you think are the different obstacles and barriers PCT needs to overcome in order to roll in the policy decision making process? 9. In your opinion, which issues would need to be addressed in order to make PCT an acceptable option for BC? 10. What kind of impact do you think PCT could have on low income households in BC? If you think there might be a negative impact. Could you recommend something to reduce this impact in terms of distribution of allowances, price ceilings or other? 11. Would you recommend one of the schemes over the other for BC? Do you think these schemes could coexist in BC? Or do you think they could both be used in a combined portfolio of emissions reductions policies in BC? 12. If both policies coexist in BC, and the government gives you the option to choose between paying a carbon tax or participating in a PCT system, which one would you prefer? 13. If PCT was implemented in BC, would you recommend to be initiated as a voluntary or as a mandatory program? 14. If you could design a PCT system for BC, what features, of the following options, would you incorporate in your design? Features can be combined from the different options.

Option 1 Option 2 Option 3 Personal travel, household Scope of Personal travel and Purchase of fossil fuels energy, and other products emissions household energy and services such as food Based on carbon footprint (an Equal per capita basis Distribution of Based on income initial assessment can be (children receive 50% of Allowances level made linked to annual tax adults allocation) returns) Free of cost for the 100% 60% for free, 40% Initial Allocation All allowance have a cost of issued allowances auctioned Freely market determined Market Price Floor price Ceiling price (no floor or ceiling price) Sectors of the Individuals and Individuals, Small Business Individuals only Economy Small Businesses and Industrial Emitters Multiuse electronic Operation Separate and unique cards (e.g., Care Finger prints Instruments electronic card Card, SIN, driver licenses)

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Option to exchange unutilized Option to donate or allowances for services or Economic profit on Incentives cancel unutilized products (e.g., car co-ops, unutilized allowances allowances bicycle rent, organic local food) In kind-payment (e.g., Paying with money at Borrowing from volunteering at a local urban Options to buy secondary market (from future years’ garden, participating in car- Allowances other individuals) and/or allocations pooling programs, donating a government auctions bicycle)

15. Are you aware of the existence of any program or policy (public or private, mandatory or voluntary), either in BC or anywhere in the world, that could be a good example to incorporate in the design of a PCT system? (e.g., green loyalty programs). 16. Would you like to provide any further comments?

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Appendix B: Generic Description of the Roles and Expertise of Interviewees

 Interviewee 1: Energy and climate policy expert and consultant based in BC

 Interviewee 2: Senior sustainability executive with one of the local governments in Oregon, US

 Interviewee 3: Sustainability, cleantech and renewable energy project manager and business development professional in BC and UK  Interviewee 4: Director with the BC Government, advisor in carbon management, industrial GHG emissions reductions and climate policy.

 Interviewee 5: Advisor to business, major projects and sport events on CSR and sustainability based in BC

 Interviewee 6: Accountant and social entrepreneur based in BC

 Interviewee 7: First Nations Community Green Projects Director based in BC

 Interviewee 8: Specialist in corporate environmental sustainability and carbon management based in BC

 Interviewee 9: Researcher and professor in behavioural economics based in US

 Interviewee 10: Executive and entrepeneur with experience in company creation and development, business analysis, raising capital and technology development based in BC and Australia

 Interviewee 11: Senior Policy Analyst at BC's Health Government Organization

 Interviewee 12: Management consultant with experience in clean technology, clean energy, carbon markets, and investment banking

 Interviewee 13: Director at an energy efficiency government-sponsored organization based in Oregon, USA

 Interviewee 14: Senior Economic Advisor to the BC Government, specialist in carbon pricing

 Interviewee 15: Professor Emeritus and scientist in renewable energy based in Madison, US

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 Interviewee 16: Entrepreneur with senior executive management experience and an in-depth understanding of the clean tech sector in BC and USA

 Interviewee 17: Managing director at a leading advisory group on energy and green economy subjects in Canada

 Interviewee 18: Business Development Director at one of the global leading companies in loyalty management

 Interviewee 19: Manager at one of BC's utilities, expert in energy efficiency

 Interviewee 20: Manager at one of BC's utilities, expert in energy efficiency and residential programs

 Interviewee 21: Chief Technology Officer at one of the leading global companies in loyalty management

 Interviewee 22: Executive at retail industry focused on sutainability and food security

 Interviewee 23: Post Doctoral Fellow and sustainability strategist focused on transportation (BC based)

 Interviewee 24: Graduate student specialized in Energy and Climate Policy based in BC

 Interviewee 25: Expert in innovation-based economy and in connecting research capabilities and discoveries with industry, businesses and investors in BC

 Interviewee 26: Professional in community based social marketing. Advisor to senior executives and boards on matters including business strategy, policy, capital investments, and finance.

 Interviewee 27: Canada's leading social entrepreneur speacilized in loyalty management and sustainability

 Interviewee 28: Senior Policy Analyst in the BC government, specializing in vulnerable groups

 Interviewee 29: Executive at a global financial institution in charge of credit cards business

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 Interviewee 30: IT security specialist and mobile apps developer based in US

 Interviewee 31: Consultant in computational sustainability based in BC

 Interviewee 32: Entrepreneur specialized in software development for fitness applications based in US

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