Every citizen a carbon trader?

The idea for a carbon "cap-and-trade" system was first put into practice in the United States to tackle the problem of acid rain, caused principally by the sulfur dioxide and nitrous oxide emissions that are by-products of electricity generation from burning fossil fuels. In response, the U.S. Acid Rain Program was introduced in 1995, capping emissions from power plants, thereby creating a limit to the total amount of emissions that could be released nationally. The program was widely recognized as a success and has significantly curtailed domestic occurrences of acid rain.

Lately, however, attention on emissions has begun to focus on climate change, and therefore on carbon dioxide (C[O.sub.2]), considered the most threatening greenhouse gas. This is the focus of the European Union Emissions Trading Scheme (EU ETS), which began operation in 2005. The scheme caps emissions from heavy industry, such as electricity generation and mineral processing. Currently in its first phase, the scheme has been criticised for failing to cut emissions, due to an over-generous first wave issue of emissions permits to participants by individual governments. The scheme's second phase commenced earlier this year with the introduction of a tightened emissions cap.

As public awareness has grown on the need to stem climate change, personal restrictions on carbon emissions have been broached as a complement to industrial limits. The idea for personal carbon allowances is based on the fundamental principle that each citizen has an equal right to cause environmental pollution, and an equal responsibility for it. Developing a cap-and-trade scheme for personal emissions could be a politically and publicly acceptable means for individuals to contribute to compliance with emissions reduction targets.

In Great Britain, where the debate about applying emissions trading principles to individuals is the most advanced, the main approach under discussion is for equal allowances to be issued to all individuals. These "credits" would then be surrendered electronically when purchasing fuel and electricity, most likely using a "smartcard" that would compile the required information from home energy use and travel. (There is debate regarding the extent to which public transportation, including air travel would be accounted for.) People using less than their share could sell the surplus to people who require more than their allotted share through a new online "personal carbon market."

As a result, the cap-and-trade system would provide an incentive for every individual to take steps to reduce his or her personal emissions without explicitly prohibiting any particular lifestyle choices. For example, someone with a penchant for fast cars would have an incentive to choose a highly energy-efficient house. Encouraging these changes in purchasing, within a restricted budget, would help to identify the lowest-hanging fruit for the reduction of greenhouse gases by pinpointing the most readily adopted behavioral changes.

Since the introduction of the European Union Emissions Trading Scheme in 2005, there has been heightened interest in carbon trading as a potentially reliable method for controlling emissions. Unlike carbon taxation, which places a greater price on emissions and results in a higher price for fuel or electricity purchases without any certainty about the level of reductions it would achieve, carbon trading fixes the total volume of emissions permitted and lets the market determine the permit price. The result, if all actors behave rationally, is to find the most efficient emissions reductions. However, people do not behave rationally, which means that a body of empirical data is needed to understand the scale of its possible impact on behavior and lifestyle, and the extent to which it could have the unintended consequence of disadvantaging vulnerable groups.

There are few analogous examples of such a widespread public policy intervention against which to test these hypotheses. As such, the challenges are numerous; moreover, like so many new ideas, the devil will be in the details, with specific issues such as whether or not children should be in receipt of an allowance still to be worked out.