Details

This page explains the basic ideas behind Cap & Share, and outlines what might happen in practice - and some of the implications.

The basic idea

Suppose you're watering your garden with a hosepipe connected to a sprinkler (this is the analogy used in the video on the homepage). If you wanted to save water, what could you do? One way would be to plug up the sprinkler holes, one by one. But wouldn't it be easier simply to turn the tap off a bit?

With fossil fuels it's the same. There are only a comparatively small number of companies with 'taps' - that is, they are bringing fossil fuels into the world economy (by getting them out of the ground). The 'sprinkler holes' are the millions of cars, houses and factories all over the world, emitting CO2 by burning these fossil fuels somewhere down the line.

It's much easier to cap the fossil fuels - coal, oil and gas - entering the economy (on the left-hand side of the picture), than to try to control the emissions they cause (on the right-hand side of the picture).

So Cap & Share is what is called an 'upstream system'. The cap is enforced by requiring the fossil fuel suppliers (oil, coal and gas companies) to have permits to bring fossil fuels into the economy. The size of the cap determines the number of permits issued.

And who's in charge of the permit system? WE are! So WE get the benefit from the sale of the permits.

The simplest way to achieve this is to auction the permits to the fossil fuel companies and share the money out equally. (See the Alternatives page for an alternative way to achieve the same thing, which was the basis of the original 'classic' version of Cap & Share).

In order to pay for the permits, the fossil fuel suppliers put up the price of fossil fuels. Petrol (and the other fossil fuels) would cost more, and the cost of capping carbon is built in to the price of all goods and services automatically (so carbon-intensive goods cost more, encouraging the use of low-carbon alternatives). There's no need for carbon-trading schemes (let alone rationing) - the cap's taken care of 'upstream'. You can get on with the rest of your life.

Some prices go up, but you're compensated by the income from the 'share'. If you have a lower than average carbon footprint, you'll come out ahead.

So what would C&S look like in practice?

Fossil fuels suppliers need to buy the permits (in order to introduce fossil fuels, the root cause of emissions, into the economy), and as a citizen you get your share of the resulting money as a 'carbon cashback' payment each year.

Behind the scenes, the fossil fuels suppliers have to 'surrender' their permits to the Trust or government (who make sure they have sufficient permits to cover the fossil fuels they bring in during the year). This is what guarantees that the overall emissions target (or cap) is met.

But to get back to what it means for you personally, the fossil fuels suppliers have had to buy these permits, and to cover the cost of paying for them, they will put up the price of petrol, oil, coal and gas.

So, you notice that you are paying more for petrol. But that's it - there is no other constraint on buying petrol: there are no allowances or rations to worry about, since the cap's taken care of, 'upstream'.

Meanwhile, manufacturers and transport companies are also paying more for petrol (and for gas, oil and coal). They also pass these costs on. So the cost of capping carbon is built in to the price of all goods and services automatically. 'Carbon-intensive' goods cost more, but 'low-carbon' goods don't. Once again, this happens automatically - you don't have to worry about the embedded carbon in everything.

All the same, this sounds like bad news - petrol, and other things, are costing more. But remember - although some prices go up, you're compensated by the 'carbon cashback' income. Overall, it balances out, in that if you add up the income we all get, it's the same as adding up all the extra money we are all spending on these higher prices. And if you have a smaller carbon footprint than average, you'll come out ahead (see the next section).

Carbon-intensive goods will cost more relative to clean goods, so there will be an economic tide flowing in favour of energy-efficiency. So not only does the country as a whole ensure that it reduces its total carbon footprint, but also at all levels of the economy there are the economic incentives in place to encourage the moves to a low-carbon economy. As part of this, you will end up buying less petrol, just as we saw people doing in the UK during high petrol prices in the Summer of 2008, and spending money on other things instead. But this time you'll be compensated for the price rises!

What would C&S mean for you?

What would it mean for you if Cap & Share were introduced? Would you be better off, or worse off?

It turns out that if you have a larger carbon footprint (than average) you will have to pay more, and if you have a smaller carbon footprint (than average) you will benefit; to see why, there's a numerical example below. This point is also illustrated in the 'equity' video on the 'Fleshing it out' page.

(A technical note: for a global system, the average we're talking about is the world average; if Cap & Share was operated as a national system for a country, it's that country's national average that would matter - see 'Global and National plans' on the Alternatives and Variants page).

This means that a majority of the population will benefit, because a majority have below-average carbon footprints - for the same reason that there are more people on below-average incomes than above-average incomes: a few very rich people 'balance out' many poor people (see 'Winners and Losers' below). In other words, there are many more gainers than losers, and the losers are the richer people who are most able to afford it. This is the second point made in the 'equity' video on the 'Fleshing it out' page.

And everyone will gain from the knowledge that their children and grandchildren will be inheriting a habitable planet.

Numerical example

For simplicity, let's apply Cap & Share to a pretend country with just 2 people, A and B, where A has an Above-average carbon footprint and B has a Below-average carbon footprint. In fact let's say A's is 3 times the size of Bs. Suppose we want to meet a cap for the country of 10 tonnes of CO2 per person. Then we issue permits for 20 tonnes of CO2 (10 per person; remember there are only 2 people in this pretend country).

Fossil fuel suppliers bid for these permits, and let's suppose the resulting 'carbon price' is $10 / tonne. Together the fossil fuel suppliers can now to bring in the amount of fossil fuel as will emit 20 tonnes of CO2 when burnt. And the 'carbon cashback' payment to each of A and B is $100 (the money for 20 tonnes at $10 / tonne, divided equally between A and B).

If A continues to have a carbon footprint 3 times as big as B's, then A and B will have carbon footprints of 15 tonnes and 5 tonnes respectively. (This averages 10 tonnes, so that the cap is indeed met - which is has to be, as there were only 20 tonnes of certificates issued).

Since the fossil fuel companies pass on the cost of buying the permits, the cost of living for A and B goes up by $150 and $50 respectively. (This is the price of $10 / tonne embedded in the price of fuel - either directly in the petrol price, or indirectly in the price of goods which used fuel in their manufacture and transport).

So what's the end result? Well, A and B both got $100, so taking this and the price rises into account, B is now better off by $50 and A is worse off by $50.

This is what happens in general. If you have a smaller carbon footprint than the average, you will benefit. And this is actually the majority of the population: in a real country with millions of people, there are many more people like B than there are like A (the next section shows why). And the lower carbon footprint you have, the more you'll gain.

Winners and Losers

So there are winners and losers - but there are many more winners than losers. Why? For the same reason that there are more people with below-average incomes than above-average incomes. A few very rich people 'balance out' a large number of poorer people.

You can see this effect by pretending that the world has only 10 people (this is the example used in the 'equity' video on the 'Fleshing it out' page). Suppose the 10 people have carbon footprints as shown below: 7 have 1 tonne each per year, 2 have 2 tonnes each, and one rich person has a footprint of 4 tonnes:

Now the total carbon footprint for all 10 people is 15, and so the average is just 15 divided by 10; that is, 1.5 tonnes:

And look: there are only 3 people with emissions of more than this average of 3, but 7 people with emissions less than 3. There are more winners than losers:

This effect would make Cap & Share popular with the majority of the population: they are winners, and they would gain more the stricter the cap was. This would help to balance any opposition from vested interests like corporations and energy companies.

Moving the climate lever

Although Cap & Share delivers a global carbon budget, it is the very opposite of centralised top-down planning. The Trust (or other body) that operates Cap & Share does not make any plans or decisions on energy policy (or anything else); its only job is to set the position of a single lever, which we might call the 'climate lever'.

This is similar to the Monetary Policy Committee in the UK, which sets the level of UK interest rates. This is the only thing the MPC does, a single lever it has at its disposal. All debates, concerns and points of view boil down to views on the best position of this lever.

Similarly, our Trust has one lever which it can adjust: the size of the cap. This represents the strength of the bending downwards of the emissions curve. How much bending - how steep a reduction in emissions - is a matter for debate. There is scientific advice; there are economic consequences; there is special pleading; there is politics.

As with the MPC, this is a 1-dimensional argument about the setting of a lever. Remember this is a global carbon budget: there are no separate levers for different nations, any more than the MPC considers separate interest rates for different towns in the UK. Cap & Share bypasses the international game-playing (which would be inevitable if we were trying to coordinate national levers or national caps), by having a single, global lever. All arguments are now concentrated on a single issue: the setting of this single, global lever.

The setting of this carbon lever has two effects. The physical effect is to set the global budget for the extraction of fossil fuels (and hence the global emissions budget). The economic effect, through the supply/demand mechanism, is to determine permit prices, and hence the strength of the price signals in the economy and the size of the 'carbon cashback' payments to the world population.

A 'weak' setting of the lever achieves a slower reduction in carbon emissions, a weaker carbon signal, and lower carbon cashback payments. Supporters of weaker settings of the lever would presumably include fossil fuel companies and others with vested interests in high-carbon products; governments answering to such vested interests, or more generally anxious about disruptive change to the economy or loss of sovereignty; and a (rich and vocal) minority of the population who would lose out financially (from having to pay more for high-carbon products and services while only enjoying the same carbon cashback payments as everyone else).

A 'strong' setting of the lever, conversely, achieves a faster reduction in carbon emissions, a stronger carbon price signal, and higher cashback payments. Supporters of strong settings would include those most concerned about risks of severe climate disruption; those promoting low-carbon products and services; those concerned with world poverty; and the majority of the population, who would gain financially (from carbon cashback payments that outstrip any extra they have to pay for high-carbon products and services).

This discussion is important for thinking about establishing the Trust. People who support weak settings, once the Trust is operating, will also will be more likely to oppose the establishment of the Trust in the first place. Conversely, supporters of strong settings will be most supportive of the initial setting up of the Trust.