SEI - Africa Institute of Resource Assessment University of Dar es Salaam P.O. Box 35097, Dar es Salaam Tanzania Tel: +255-(0)766079061 SEI - Asia 15th Floor, Witthyakit Building 254 Chulalongkorn University Chulalongkorn Soi 64 Phyathai Road, Pathumwan Bangkok 10330 Thailand Tel+(66) 22514415 Stockholm Environment Institute, Working Paper - 2010 SEI - Oxford Suite 193 266 Banbury Road, Oxford, OX2 7DL UK Tel+44 1865 426316 SEI - Stockholm Kräftriket 2B SE -106 91 Stockholm Sweden Tel+46 8 674 7070 SEI - Tallinn Lai 34, Box 160 EE-10502, Tallinn Estonia Tel+372 6 276 100 SEI - U.S. 11 Curtis Avenue Somerville, MA 02144 USA Tel+1 617 627-3786 SEI - York University of York Heslington York YO10 5DD UK Tel+44 1904 43 2897 The Stockholm Environment Institute Personal Carbon Trading as a Potential Policy Instrument SEI is an independent, international research institute. It has been to Reduce Swedish Greenhouse Gas Emissions engaged in environment and development issues at local, national, regional and global policy levels for more than a quarter of a century. SEI supports decision making for sustainable development by bridging science and policy. Annika Varnäs, Björn Nykvist, Åsa Persson and Vanessa Rauland sei-international.org Personal Carbon Trading as a Potential Policy Instrument to Reduce Swedish Greenhouse Gas Emissions Annika Varnäs, Björn Nykvist, Åsa Persson and Vanessa Rauland Stockholm Environment Institute Kräftriket 2B SE 106 91 Stockholm Sweden Tel: +46 8 674 7070 Fax: +46 8 674 7020 Web: www.sei-international.org Head of Communications: Robert Watt Publications Manager: Erik Willis Layout: Richard Clay Cover Photo: © Andreas Nilsson This publication may be reproduced in whole or in part and in any form for educational or non-profit purposes, without special per- mission from the copyright holder(s) provided acknowledgement of the source is made. No use of this publication may be made for resale or other commercial purpose, without the written permission of the copyright holder(s). Copyright © October 2010 by Stockholm Environment Institute Contents List of abbreviations iv Acknowledgements iv Summary v 1 Introduction 1 2 A consumption perspective on GHG emissions 3 3 Introduction to PCT and review of PCT schemes 5 Downstream PCT schemes 6 Upstream and hybrid carbon trading schemes 8 Concluding remarks 9 4 Assessing the effectiveness, efficiency and equity of PCT 10 Effectiveness 11 Efficiency 13 Equity 14 Concluding remarks 15 5 Overview of Swedish GHG emissions 17 Trends in Swedish GHG emissions 18 Sweden’s emission targets 19 Swedish emissions from a consumption perspective 20 6 Review of Swedish climate policy instruments and their potential effects 21 Taxes 21 Trading systems 21 Subsidies 24 Regulatory instruments 24 Assessment of the current policy instrument mix 24 7 Discussion and conclusions 26 Targeting Swedish emissions from housing 26 PCT as a way to address emissions from transport in Sweden 26 Influencing indirect consumer emissions from food and consumables 27 Limiting fossil fuel intensive consumption 27 Concluding summary 27 References 29 List of AbbreviationS CO2 Carbon dioxide DTQ Domestic Tradable Quotas EU ETS European Union Emissions Trading Scheme GHG Greenhouse gas HFC Hydrofluorocarbon IPCC Intergovernmental Panel on Climate Change ISO International Organisation for Standardisation MWh Megawatt hour N2O Nitrous oxide OECD Organisation for Economic Cooperation and Development PCA Personal Carbon Allowances PCT Personal carbon trading PFC Perfluorocarbon RAPS Rate All Products and Services SF6 Sulfur hexafluoride TEQ Tradable Energy Quotas UK United Kingdom UNFCCC United Nations Framework Convention on Climate Change ACknowledgemEnts This working paper is published as part of an internal SEI project. The authors would like to thank Professor Katarina Eckerberg for reviewing the working paper and for providing valuable feedback throughout the work. iv Summary The importance of household consumption as a contributor to greenhouse gas (GHG) emissions has lately been emphasised in Sweden. It has for example been pointed out that emissions from Swedish consumption are around 25 per cent higher than those caused by production in the country. Linked to this debate, the interest for policies targeting consumption is also growing. Personal carbon trading (PCT) is one such proposed policy instrument, where GHG emissions from household consumption would be limited by an overall emissions cap. Citizens would achieve emissions allowances which could either be sold in the trading system or surrendered when purchasing fossil fuels or possibly other products, depending on the scope of the scheme. While PCT has been discussed and analysed in the United Kingdom (UK), it has been less investigated in the Swedish context. This working paper explores the idea of PCT and assesses its potential for reducing GHG emissions caused by household consumption, specifically in Sweden. The main PCT proposals to date are reviewed, and the effective- ness, efficiency and equity of PCT are assessed. To analyse the potential role for PCT in Sweden, the paper further reviews the sources of Swedish GHG emissions and the current policies to combat these emissions. The findings suggest that, given the expected costs linked to PCT, the existing set of Swed- ish policies, as well as the sources for heating and electricity supply in Sweden, a PCT scheme similar to those suggested in the UK would not be an efficient approach to reduce GHG emissions in Sweden. However, PCT-like suggestions as an attempt to address emissions embedded in supply chains or to distribute mitigation burdens between countries could be further explored. v vi Stockholm Environment Institute 1 IntroDuction Voices arguing for a stronger consumption perspective within international and national climate policy are increasingly heard in the policy debate. It has been suggested that, in the very long run, equal per capita carbon dioxide (CO2) emission rights within nations and across the globe is the only fair and justifiable alternative (e.g. Wicke et al. 2010). Not only does this reflect the call for equity between developed and developing countries, but also the need to shift the focus from emissions arising from production to emissions caused by individual consumption. Our lifestyles and individual choices are what ultimately drive the world economy and give rise to the emissions. The need for a consumption, rather than production, perspective in climate policy has also been emphasised by for example China, which is a large net exporter of CO2 emissions (Hallding et al. 2009). However, such a shift represents a significant paradigm shift in international, as well as national, climate politics and discussions have only just started. A concrete policy instrument that has been proposed to start translating the consumption perspec- tive into practice is personal carbon trading (PCT), which would target the emissions of CO2 caused by individuals. A PCT scheme would resemble production-oriented emission trading schemes, such as the European Union Emissions Trading Scheme (EU ETS), but apply to individuals instead of compa- nies. The basic idea of a PCT scheme is that an overall emissions cap would be set according to some principle for the relevant jurisdiction, and the rights, or allowances, to emit CO2 would be divided across the population. Emission allowances would be tradable, so that people who consume less than their allowance could sell their surplus to others and those who emit more would purchase emission allowances, at market prices. The overall emissions cap would be set by an independent body, and could be decreased gradually to meet the emission targets. To date, PCT schemes have mainly been debated and assessed in the United Kingdom (UK) and Ire- land. The concept has received attention as an instrument which offers several advantages compared to the existing repertoire of climate policy instruments. First, it potentially offers certainty in emission reductions, by specifying an overall emission cap, as compared with CO2 taxes with more uncertain effects on emissions. This means that international and national emission targets could theoretically be more easily complied with since annual carbon budgets could be calculated. Second, by targeting individuals directly in a very visible and tangible way, it could more easily lead to changes in personal consumption behaviour than with more indirect instruments. If near zero emission targets are to be fulfilled in the long term, not only increased efficiency and technological improvements are needed but also changes in personal behaviour. Third, it has been seen as an equitable instrument, at several levels. Within the jurisdiction where it applies, citizens would obtain equal allowances (unless some other principle applies) regardless of income and purchasing power. By allowing for trading, individu- als could also opt to increase their incomes by reducing emissions and selling surplus allowances. Globally, the adoption of a PCT in a country could mean that a consumption perspective on emissions is approached, if the allowances would not consider whether CO2 was emitted domestically or abroad in the production of the consumed good or service, in a scheme where also goods and services were included. This is considered more fair by many. However, at the same time, PCT schemes are associated with several critical disadvantages, which means that the political will and interest to adopt them is currently limited.