What happens in practice

So what would C&S look like in practice?

Each year you get a certificate for your share of the country’s CO2 emissions allowance. As we’ve said, it might be for 10 tonnes of CO2, say. It’s free, it comes in the post, and every adult in the country gets the same. (It might be that instead of a single certificate, you get a booklet of monthly or quarterly certificates. This would smooth things out and would mean that you don’t have to worry about when to sell - cash it in now or wait until later in the year?). Here’s what a certificate might look like:

 

 

You can sell these at the bank or post office, and they are then sold on to the fossil fuel suppliers. By selling your certificate for 10 tonnes of CO2, you are allowing the fossil fuel company that buys it to bring in as much fossil fuel as will emit 10 tonnes of CO2 when it’s burnt (somewhere down the line). That is, you are giving permission to bring in the fossil fuel corresponding to your share of the country’s carbon footprint. (It's possible that there would be a 'market' in certificates too, and you could buy and sell them. But they are only worth money at the end, when sold to the fossil fuel suppliers).

Fossil fuels suppliers need these certificates. Behind the scenes, they have to 'surrender' their certificates to the government, and the government will make sure they have sufficient certificates to cover the fossil fuels they bring in during the year. This is what guarantees that the country as a whole meets its emissions target. The whole process looks like this:

 

 

But to get back to what it means for you personally, the fossil fuels suppliers have had to buy these certificates, 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.

Now this sounds like bad news - petrol, and other things, are costing more. But remember - although some prices go up, you’re compensated by the income from selling your certificates. Overall, it balances out, in that if you add up the income we all get from certificate sales, it is 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 the national average, you’ll come out ahead. (See the next section, “What it means for you”).

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!