Fee and Dividend or TEQs?  In the aftermath of Paris COP21, what *should* effective climate policy look like?

Fee and Dividend or TEQs? In the aftermath of Paris COP21, what *should* effective climate policy look like?

We just sent out our Fleming Policy Centre newsletter, with reflections on the Paris climate summit. Bottom line: it's not good. In the words of the author Naomi Klein, "Our leaders have shown themselves willing to set our world on fire." Meanwhile, the mainstream media seem to be doing their best to put the world to sleep again. One excitable front-page headline I noticed in The Observer proclaimed:
"World leaders hail Paris climate deal as ‘major leap for mankind’: Almost 200 countries sign historic pledge to hold global temperatures to a maximum rise of 1.5C above pre-industrial levels".
The same article concluded on p9, with a quiet mention that: "there will be no legal obligation for countries to cut emissions". In truth, the good news is found elsewhere, with the ever-swelling numbers of ordinary people realising that our future is being destroyed in our name. In the print edition of the paper though, one tiny voice of sanity did sneak in to a sidebox, as climate scientist James Hansen commented on the agreement: “It’s a fraud really, a fake”. But if we are so dismissive of what global politics is producing, then it is perhaps fair to ask what we wish to see instead. Hansen, a long-time hero of mine, argues for Fee & Dividend - a tax on carbon whose revenue is paid out to the population of the nation implementing it. And the recent peer-reviewed paper that I lead-authored on this topic (now the most read in the history of Carbon Management) instead advocates TEQs - a carbon rationing system with free rations for the population of the nation implementing it. Jim and I have in fact been discussing these alternatives via very occasional emails since I first wrote to him on it in 2008 (and Citizen's Climate Lobby UK opened the same discussion on Facebook earlier this year), but it feels the right time to broaden out the conversation. My hope is that we can either agree that one approach or the other is preferable or - perhaps more realistically - at least identify the circumstances/aims for which one or the other is preferable, so that we know when to reach for one tool, and when to use the other. So, below are the similarities and differences between the two approaches, for your delectation and deliberation. I will again be sending the link to Hansen and the Citizen's Climate Lobby for comments, and may edit it based on comments received, especially if any inaccuracies come to light.

So how are they similar?

Let's start with why both TEQs and F&D are excellent ideas that would represent a radical break from the status quo. Both are ways of ensuring that society finally gets serious about addressing our climate challenge, neither is open to the extensive corporate windfalls that characterise existing 'Cap and Trade' schemes (which have no effective cap, and thus are really just 'Trade' schemes), and both look to protect the poorest in society as energy prices rise to take account of the impact of the carbon therein (although I have a concern that dividends - delivered after energy purchases - may come too late for folk priced out of the fuel they need. TEQs, by contrast, delivers entitlements to energy up front, ahead of time). Both are also grassroots alternatives to the UN process of which the Paris COP21 summit is the latest expression. Instead of seeking global agreement on a global deal, both TEQs and F&D allow adoption by individual countries or groups of countries. Any countries doing so will necessarily introduce import tariffs alongside, to ensure that their manufacturers are not disadvantaged relative to international competitors (discussed here). And since these tariffs will generate revenue for the 'adopter countries' when they import goods, this will in turn provide a strong incentive for the exporting countries to themselves implement similar policies, so that they can collect this revenue, instead of letting it flow overseas. In this way, effective climate policy could spread around the world, without the necessity for the apparent impossibility of global agreement. Importantly though, both are also vulnerable to a lack of political ambition. Both require adoption at government level, and thus require defence against being corrupted and compromised by lobbying interests as they move towards implementation. And if F&D was adopted with too low a carbon price, or TEQs was adopted with too high an emissions cap, either could provide merely a useful means to inadequate ends.

And what are the essential differences?

Fee and Dividend & TEQs
Now let's look at where they differ. There are two fundamental design decisions here - the choice between a price-based framework and a quantity-based one, and the choice between an 'upstream' framework and a 'downstream' one. The essential difference between price-based frameworks and quantity-based frameworks, then, is which of two variables is adjusted. Price-based policy frameworks (e.g. F&D) act to raise the price of carbon-rich purchases in the belief/hope that consequent emissions reductions will be sufficient to avoid climate catastrophe, while quantity-based frameworks (e.g. TEQs) act to place a cap on emissions in the belief/hope that the price rises this is likely to cause will not cause economic catastrophe. The second difference is between ‘upstream’ and ‘downstream’ approaches. These widely-used terms draw an analogy between the flow of water in a stream and the flow of energy/carbon through an economy. ‘Upstream’ advocates (e.g. F&D) want to regulate the few dozen fuel and energy companies that bring carbon into the economy, arguing that this is cheaper and simpler than addressing the behaviour of tens of millions of ‘downstream’ consumers. 'Downstream' advocates argue that such engagement with the general populace is essential if we are to meet the climate challenge, with TEQs providing a way to deliver that without the need for downstream monitoring.

Tentative conclusions

It is undoubtedly true that current politics favours the price-based and upstream approaches, which present far less of a challenge to today's dominant thinking. Certainly in the U.S. political context, Jim Hansen has argued that TEQs are just too radical an option for the American public to swallow. I am not an expert on the U.S. political scene, so he may well be right. However, I do worry that a more radical shift in society *is* needed here. There is a rift between political reality and scientific reality, and they must be reconciled. To my mind, upstream price signals are not going to be enough, though a scheme like F&D would certainly be a step closer to sanity than current policy. To really achieve the change required, we will need TEQs. And since I believe that the economy is fully dependent on a functioning ecology, for me a hard cap on emissions must be primary, and the price of goods and services has to be secondary, which is why I favour a quantity-based approach. I also don’t believe a long-term emissions trajectory can be set effectively through a tax/fee alone. I do think that Fee & Dividend would be far cheaper and more effective than current carbon policy, but while upstream frameworks are clearly cheaper (and politically easier) to implement, I believe that this is partly because they don't bring about the fundamental changes that are needed in society. Of course it is more straightforward to pass laws that only affect energy suppliers, but Big Energy Companies alone are not going to be able to resolve climate change, even if they wholeheartedly wanted to. They supply what we demand, and this challenge requires that we all engage with the need to change the way we live, work and play. TEQs, accordingly, is built on the latest work in social psychology, and provides visibility to the intrinsic incentives that exist for businesses, government, communities and individuals to collaborate in working towards the shared long-term desires to retain both a benign climate and secure access to essential energy services. Upstream schemes can only provide an extrinsic (price) signal to encourage low-carbon behaviour. In the words of the UK Environmental Audit Committee (the UK government’s oversight body on the environment):
“We remain to be convinced that price signals alone, especially when offset by the [additional income from the dividend], would encourage significant behavioural change comparable with that resulting from a carbon allowance … A meaningful reduction in emissions will only be achieved, and maintained, with significant and urgent behavioural change.”
In summary then, in addition to their shared benefits, I see the relative advantages of the two schemes as: Fee & Dividend: Cheaper and faster to implement; less challenging to politics/markets; carbon price set by the Department of Energy. TEQs: Deeper engagement with the whole population based on principles drawn from social psychology; consistent, cohesive integration of a long-term perspective; stimulation of cross-sector collaboration in reducing emissions; a carbon cap set in accordance with climate science.
As ever, it comes down to that rift between scientific reality and political reality. To my eyes, Fee & Dividend represents the less challenging political path to policy change, and that is certainly attractive. However, while it is tempting to think of adoption of a carbon fee or cap as a solution in itself, the true political challenge is quickly getting and keeping the fee high enough (or cap low enough) to avoid destabilising our climate. Which in turn means the transformation of our society so that it can thrive within such a limit. Without such a fundamental transition to low-carbon living, society (and particularly the poorest) will hurt badly as any effective policy makes high-carbon energy less accessible. Such suffering is both inherently distressing and likely to lead to irresistible political pressure to loosen or abandon any such policy. Why then does that point me towards TEQs? Well, the full arguments and evidence are set out in the peer-reviewed paper I recently lead-authored. I believe it's worth a look - it has proved popular, perhaps due to the extensive efforts I made to keep it more readable than academia usually manages! But in short, I believe that TEQs is far better placed to support and facilitate the depth of decarbonisation required - and thus defend its long-term political feasibility - than an increase in the price of carbon ever could. This is because it has been shown to be more popular with the public (due to its fairness and effectiveness); because it most effectively protects the most vulnerable; because it destroys at a stroke the impossible political tension between needing to keep energy prices low and carbon prices high; and because it does not treat all emissions as equal (in recognition that while some are within people's discretion, others are not, and that these decisions should be left with the people in question), nor require the inherently uncertain and faintly absurd estimation of an 'appropriate carbon price'. Of course, with the current direction of politics, the catastrophic destabilisation of our climate looks far more likely than either alternative, but if we are to fight, it is important that we clearly identify the alternative course or courses worth fighting for.
We Are Not Drowning, We Are Fighting
Finally, for those who prefer a more visual layout, here is a quick comparison table (also including the existing EU Emissions Trading Scheme), with thanks to Nicola Terry for the idea and initial work: I look forward to hearing what you think, in the comments below. --- Long-time readers may note some similarities with this 2008 post on TEQs and Cap and Dividend (an older variant - a quantity-based, upstream system), or my summer piece on the dangers of carbon pricing. I do believe that carbon pricing is an inherently flawed approach, and that the World Bank/IMF/Big Oil's reasons for pushing it are not what they pretend - see this brilliantly straightforward explanation on that - but nonetheless, Fee & Dividend is certainly worthy of respect and discussion as the gold standard representative of that path.
Heroes and villains in Copenhagen, and beyond

Heroes and villains in Copenhagen, and beyond

"Tell everybody Waitin' for Superman That they should try to Hold on, best they can He hasn't dropped them, Forgot them, Or anything, It's just too heavy for Superman to lift" ~ The Flaming Lips
We've all seen Hollywood movies in which humanity is threatened by an unstoppable force, powerful beyond comprehension, which is eventually, in the final climax, held back and thwarted by our hero straining every sinew and pushing really hard... Over recent weeks I have been in two meetings with Ed Miliband, our Secretary of State for Energy and Climate Change - one just before Copenhagen, and one just after. At the earlier meeting he told us to judge him on the results of Copenhagen, and (despite my previous comments, and the fact that the UK is one of the minority of countries who have not endorsed a 350ppm target) I do believe that he tried everything he knew to be that hero and bring back a passable agreement. Unfortunately, this Hollywood story isn't a useful one for our current predicament. Sometimes superhuman achievements really are beyond the grasp of mere humans. Trying to pull together a global agreement reconciling the fundamentally incompatible demands of unlimited economic growth and a limited physical environment is one such fool's errand. In interviews in Copenhagen Ed appeared somewhat bewildered by the lack of progress and, frankly, somewhat dejected. It was hard not to feel for him. For the technical details of what was eventually 'agreed' click here, for the text of the agreement itself click here, or for a more informal 'executive summary' see the clip below, but to cut a long story short, nothing was agreed that comes remotely close to addressing the scale of our climate challenge. Indeed, as I and many others have been pointing out for months, an agreement in line with climate science wasn't even close to the negotiating table, so there wasn't much point in hoping for it. When we heard from the beginning that “talks are progressing more slowly than expected”, part of the explanation was that some of the smaller countries were stubbornly refusing to sign their own death warrants this time, no matter what they were offered to do so. Bloody inconsiderate of them.
"We're dying here, we're drowning; and some of us know that they don't really care, because we have to beg them. Actions speak louder than words. If they really do care, please have a little listen to us." ~ Jerome Esebei Temengil from Palau's delegation
(In an idle moment I did wonder whether the negotiations would have proceeded any differently had a volunteer Palauan family locked themselves in a transparent box in the middle of the conference hall, set to gradually fill with water and drown them unless they released themselves upon hearing that the 350ppm agreement demanded by their delegation has been signed...) Of course there were many reasons why various countries and other interests strove to undermine any meaningful agreement, but I think Algerian envoy Kamel Djemouai, who speaks for 53 African nations, outlined the worst-case scenario well: "No deal is better than to have a bad deal, particularly for Africa." Indeed, even the White House admitted before the talks that:
"An empty deal would be worse than no deal at all"
Yet we ended up with what the Financial Times described as "the emptiest deal one could imagine, short of a fist fight".
Christopher Monckton 350(The greatest success of the talks? A bit of childish humour adorning the back of lying climate change denier Christopher Monckton)
Still, by the time of our post-Copenhagen 'debrief' Ed Miliband appeared to have decided (or been told) to put a positive spin on the outcome. Despite looking as depressed as anyone in the room, he described the Accord as a "critical first step", and proceeded to argue that expectations of Copenhagen had simply been too high. Yet of course those lofty expectations were based squarely on the science, which remains stubbornly unchanged by the recent political manoeuvrings. I suppose Ed is virtually obliged to appear positive about the political process, because that is what he has invested his life in, and what he is giving all his efforts to. And when that many world leaders gather it is inevitable that the outcome will be spun as some kind of at least partial success. But Ed's comments in an article last Sunday are rather more telling:
"In the months ahead, (Copenhagen's) concrete achievements must be secured and extended".
I wonder if such 'unsecured concrete achievements' were what Connie Hedegaard (initial President of the Copenhagen Conference and soon to be European Commissioner for climate change) was hoping for when she declared:
"This is our chance. If we miss it, it could take years before we got a new and better one. If we ever do."
And what do these 'achievements' add up to? Well, if all the aspirational numbers in the Copenhagen Accord were actually fulfilled, they would lead to a CO2 concentration of 780ppm (double current levels) and a 3.9 degree warming by 2100. If political reality and scientific reality cannot be reconciled, there will be only one winner - Nature and physics simply do not negotiate. As George Monbiot put it,
"Goodbye Africa, goodbye south Asia; goodbye glaciers and sea ice, coral reefs and rainforest; it was nice knowing you, not that we really cared".
'Leaders' in Copenhagen So now the political focus shifts to the odd game of claiming that the Copenhagen Accord represents success while simultaneously blaming others for its failure. Thanks to the nationalistic, competitive nature of international politics, Miliband, Obama and all the other would-be superheroes are desperately trying to find their supervillain. Others before me have pointed out that if an alien invasion were swooping in to attack, with projected human mortality and other effects similar to those of climate change, we would have united against the threat long ago. That is the kind of external enemy we could really get to grips with (Hollywood stories have trained us well for that one), but for as long as politics is treated as a competition between nations, cooperative efforts for mutual benefit will remain beyond us. Perhaps this time the 'supervillain' we face is far more cunning than those movie aliens. He realises that in order to destroy the world with his dastardly plot he needs only to hide from view. As long as humanity perceives no hand but our own in any of these events, he can just sit back and calmly watch us destroy ourselves. It seems we can accept being killed by our own foolishness much more easily than being outsmarted. Unfortunately, taking a long hard look in the mirror and battling our internal supervillains remains deeply unfashionable... CopenhagenMarch So where does all this leave us? What are our chances now of avoiding unstoppable runaway climate change, with all that entails? 50%-50% ? 90%-10% ? (I don't need to say which way) Not even close. For years now, I have played host to a cordial internal conflict between the part of me that insists that there may still be a tiny chance left of maintaining a stable climate, and the part that accepts that unstoppable runaway climate change is now inevitable... I kept reading and researching, the information kept getting worse and worse, and then I recently stumbled across a quote that brought me up short. A 13th Century Islamic mystic by the name of Hajji Bektash Wali made the following pronouncement:
“For one who has perception, A mere sign is enough. For one who does not heed, A thousand explanations Are not enough.”
McSave Us
I confess that by now I may have had more than a thousand explanations of why it is too late, but it is still hard to give up hope on this one. In the article referred to earlier, Ed Miliband declared that:
"The challenge for all of us is not to lose heart and momentum. The truth is that the global campaign, co-ordinated by green NGOs, backed by business and supported by a wider cross section of the public, has achieved a lot... no campaign ever wholly succeeds at the first time of asking. We should take heart from the achievements and step up our efforts."
And of course it is not just the politicians pushing this message. The likes of Greenpeace and Friends of the Earth also spun the Copenhagen fortnight as "humanity's last chance" to avoid the horrific impacts of runaway climate destabilisation, which leaves their calls for (yet) "one more big push" sounding a little hollow. Even, I suspect, to them. Yet the repeated calls to redouble our efforts do retain a certain allure. Yes, in part because finding peace with our own impotence in the face of such large-scale suffering is a formidable task, but I think even more because it would be so terrible to look back and feel that we gave up while there actually was still a chance there.
Maybe there's still a chance that there's a chance...?
But what if we are on the Titanic and the iceberg has already been struck? Can we think of nothing wiser to do than to try to patch the hole as the ocean rushes in? Titanic Bali There are times when Hollywood heroism is just what is needed, but there are also times when superhuman efforts really are beyond us. And perhaps the perception the mystic spoke of whispers that one such time has come. A time to ponder the reasons why the latest political "last chance" wasn't taken, to accept that a scientific technofix ain't gonna save us either, and to look unflinchingly at the unpalatable, overwhelming realities of the period we are moving into.
Let's at least allow ourselves to really ask: "What does life look like in a world of unstoppable climate destabilisation?". What does my life look like there?
There are still lives to be lived in that world, choices to be made, love to give and suffering to alleviate. And only by allowing ourselves to explore that unknown realm can we see it for what it is, rather than what we might fear it to be. On that note, I would like to introduce you to The Dark Mountain Project, started by Paul Kingsnorth and Dougald Hine, which invites us to explore this very terrain. By way of introduction, this from their Manifesto:
"And so we find ourselves, all of us together, poised trembling on the edge of a change so massive that we have no way of gauging it. None of us knows where to look, but all of us know not to look down. Secretly, we all think we are doomed: even the politicians think this; even the environmentalists. Some of us deal with it by going shopping. Some deal with it by hoping it is true. Some give up in despair. Some work frantically to try and fend off the coming storm. Our question is: what would happen if we looked down? Would it be as bad as we imagine? What might we see? Could it even be good for us? We believe it is time to look down."
Why our cultural stories matter

Why our cultural stories matter

"A person will worship something, have no doubt about that. We may think our tribute is paid in secret in the dark recesses of our hearts, but it will out. That which dominates our imaginations and our thoughts will determine our lives, and our character. Therefore, it behooves us to be careful what we worship, for what we are worshipping we are becoming." ~ Ralph Waldo Emerson I have often written on the topic of cultural stories, but I am told I have never explicitly addressed on this blog why I feel they are so critically important in our struggle for a future. I am on record as stating that climate change and peak oil represent perhaps the most urgent and significant forces shaping our age, yet in an important sense even these trends are only symptoms of an underlying issue. They are consequences of the choices we have collectively made and continue to make, and these choices are formed by our understanding of the world – by our stories. It is the stories that we tell ourselves about life – both individually and in our wider cultures – that allow us to make sense of the bewildering array of sensory experiences and phenomena that we encounter. They tell us what is important, and they shape our perceptions and thoughts. This is why we use fairy stories to educate our children, why politicians present both positive and negative visions and narratives to win our votes, and why advertisers pay such extraordinary sums to present their perspectives. As John Michael Greer put it, "When people treat, say, fizzy brown sugar water as a source of their identity and human value, their resemblance to fairy-tale characters under an enchantment isn’t accidental" Our cultural stories help to define who we are and they strongly impact our behaviours. One example of a dominant story in our present culture is that of “progress” – the story that we currently live in one of the most advanced civilisations the world has ever known, and that we are advancing further and faster all the time. The definition of ‘advancement’ is vague – though tied in with concepts like scientific and technological progress – but the story is powerfully held. And if we hold to this cultural story then ‘business as usual’ is an attractive prospect – a continuation of this astonishing advancement. The problem with stories comes when they shape our thinking in ways that do not reflect reality and yet we refuse to change them. The evidence might support the view that this ‘advanced’ culture is not making us happy and is rapidly destroying our environment's ability to support us, but dominant cultural stories are powerful things, and those who challenge them tend to meet resistance and even ridicule. Yet as Richard Heinberg comments, "Once we lived with a sense of our own limits. We may have been a hubristic kind of animal, but we knew that our precocity was contained within a universe that was overwhelmingly beyond our influence. That sensibility is about to return. Along with it will come a sense of frustration at finding many expectations dashed." The developing physical reality of 'Peak Climate' will surely change our cultural stories, whether we like it or not, but we can choose whether to actively engage with this process or to simply be subject to it. If voting changed anything... The powerful cultural story that "real change is impossible" makes it seem inevitable that current trends will continue inexorably on, yet in reality cultural stories are always shifting and changing, often subtly, but sometimes dramatically. Given their importance, then, we should pay close attention when Sharon Astyk argues that there are certain key historical moments at which it is possible to reshape cultural stories rapidly and dramatically, by advancing one’s agenda as a logical response to events: "I think it is true that had Americans been told after 9/11, “We want you to go out and grow a victory garden and cut back on energy usage” the response would have been tremendous – it would absolutely have been possible to harness the anger and pain and frustration of those moments, and a people who desperately wanted something to do" As Naomi Klein highlights in her book The Shock Doctrine, this insight has until now mostly been used to advance cultural stories that benefit a few at the expense of many. Astyk though contends convincingly that as understanding continues to spread, there is no reason why we could not challenge those voices and ensure that we face the next 'threshold moment' with a dominant narrative linking it to the energy and climate context (to which it will almost inevitably be related) and so urging the kinds of attitudinal and lifestyle changes that reality demands. Our work in spreading awareness and understanding until then could give us that chance. Buy Consume Waste! This article is a slightly modified extract from my forthcoming book The Transition Timeline, produced in partnership with the Transition Network and set for publication in March 2009 and available now, published by Green Books.