Tradable Energy Quotas (TEQs)
Posted by Chris Vernon on August 6, 2006 - 6:31am in The Oil Drum: Europe
Topic: Policy/Politics
Tags: coal, gas, oil, rationing, teqs [list all tags]
Looking forward it is clear that the business-as-usual energy policy is “not fit for purpose”. The current system is proving itself inadequate when faced with twin challenges of fossil fuel depletion and climate change. The energy markets are likely to respond to future shortages with profiteering, grossly inequitable allocation and globally destabilising financial flows.
A rationing system is required which can both facilitate equitable allocation of the diminishing resource whilst simultaneously reducing the carbon dioxide released.
Formulated by Dr David Fleming and first published in 1996 as Domestic Tradable Quotas (DTQs), Tradable Energy Quotas known as TEQs (pronounced “tex”) are just such a system. TEQs are an electronic rationing system that includes everyone, bringing citizens, industry and Government together in a single scheme with a common purpose. The structure of this scheme is detailed in Fleming’s excellent short book (available at www.teqs.net) detailed below.
Below is an overview of TEQs written for TOD by David Fleming, he will be reading your comments.
Tradable Energy Quotas are an electronic rationing system to reduce dependency on oil, gas and coal, in order (a) to cut the carbon emissions that cause climate change, and (b) to distribute access to these fuels equitably at a time of deepening energy shortages. All adults have an equal (electronic) ration of "carbon units" or "energy units" which are tradable; non-domestic users buy units on the market, into which they are issued by weekly tender. A year's supply of units is in the market at all times, topped up each week. There is a "Carbon Budget" which determines (subject to formal monthly revision) how many units will be released week-by-week over the next twenty years. The scheme enables everyone to plan ahead to reduce their fossil-fuel dependency, to achieve deep structural change in the whole political economy, and to bring forward the development of renewable sources of energy.
TEQs are "quantity-constrained", not "price-constrained". That is, it is the limit set by the Carbon Budget - not a high price - that does the work of reducing energy demand. There are no intrinsic reasons why the price of carbon units should be high; in a successful scheme, the demand for fuel would be reduced (tending to keep down the price of fuel) and the economy would be well-adapted to the Carbon Budget (tending to keep down the price of units); there is a reasonable expectation that the total energy price (the price of the fuel plus the price of units) would be lower than without a TEQs scheme. The expectation of lower energy prices applies especially at times of oil and gas scarcities, when TEQs-rationing will be the essential condition for fair and affordable access to fuel.
Each scheme is set up as a national scheme, with its own Carbon Budget, but each national scheme could be within a wider multinational framework.
TEQs are an economy-wide scheme for all users, including firms, institutions and the government itself. Applications of the principle for individuals only, excluding the rest of the economy, would be impossibly complex. If the energy-loop from original producer to final user were broken, the rating system (which sets the quantity of carbon units in the energy that is purchased) would break down. The existence of two markets - one for individuals based on unit prices, and one for everyone else using some other mechanism - would produce two prices with black market brokering between them. The need to distinguish between individual uses and commercial uses (e.g. midwives' or part-time window-cleaners' needs to travel to their clients) would lead to arbitrary decisions and encourage fraud. An integrated scheme covering the whole economy is self-regulating, and largely automated, requiring minimal administrative action by participants. An individuals-only scheme, of the kind described as "Personal Carbon Allowances", if it ever reached the point of implementation, would break down with such effect that it could be expected to rule out an effective carbon-rationing scheme of any kind for the foreseeable future.
As explained in the book and on the website (below) TEQs are based on the principles of "Lean Thinking", and especially on those of "flow" and "pull". The system is clearly the responsibility of energy users - industry and consumers - rather than of remote managers and taxation accountants. Everyone participating in it knows that by certain times ahead - 10, 20 years - they will have to be living and working within a defined, and much reduced limit on their consumption of fossil fuels. They will invent their own solutions; they will take advice; they will refer to guidelines and standards; they will follow the promptings of their neighbours; they will join together in local schemes which can do much more to improve energy-efficiency than any household can manage on its own. But they will not depend on regulations to tell them what to do. That does not mean that there will be no regulations; no doubt some will still be needed, but they will be ancillary, peripheral to the system, and not the motor which drives it along. That is, the system is set up in such a way that participants will have good, passionate reasons to achieve far more than they could ever have imagined is possible. The energy flows in the economy are made visible and explicit; the invention and ingenuity of everyone involved is stimulated and pulled along from observation to action.
See David Fleming, Energy and the Common Purpose: Descending the Energy Staircase with Tradable Energy Quotas (TEQs), London: The Lean Economy Connection, (2005), ISBN 0-9550849-1-1, price £5. Also at www.teqs.net
Media Coverage:
Guardian: Pay as you pollute
BBC: CO2: This time it's personal
Telegraph: Energy ration cards for everyone planned
We have to learn more for ecology to see that our world is governed by energy laws. If we as citizen don't find ways to work along them, they will in the end force us to comply with them.
As H.T. Odem stated:
"In time, through the process of trial and error, complex patterns of structure and processes have evolved...the successful ones surviving because they use materials and energies well in their own maintenance, and compete well with other patterns that chance interposes."
Now it's time to switch to a new energy paradigm; a dynamic steady state economic within the boundaries of our earth.
TEQ can provide the boundary for greenhouse gasses.
I spoke with two Icelandic executive/engineers at a Hydropower conference in Portland OR. I strongly urged them to blow the dust off of old plans for a HV DC link from Iceland to Scotland.
I think the UK will be in terrible shape from 2012/14 to perhaps 2020. Iceland could get VERY good prices for their renewable power, perhaps enough profit to pay for the plants & transmission line.
After ~2020, this power could be devoted to producing aluminum in Iceland with any summer surplus (max production, minimum demand) sold south.
I think we are going to endure a "terrible shape" for far longer than the six to eight year period you suggest. We are doing next to nothing to compensate for the loss of 15% of our generating capacity by 2012 (the last 5% by 2014, I believe). Our use of coal expanded by 18% last year with a commensurate fall in gas of 17%. Currently we are a net coal importer. We have squandered our oil and gas and are facing an ever growing level of imports. As for gas, we are next to last in the chain that streches from Russia to Ireland. We have a population of more than 60m in a space the size of California. Water is currently becoming an issue and will end-up in a traditional north-south divide, IMO. We're not a mineral rich nation. Our coal mines would require a significant effort to repair and make ready for mining. We are in the midst of a housing bubble that is every bit as significant to us as the one in the US. Debt is at record levels. There seems to be a general increase in prices overall. The economy is totally dependent on consumer spending which is slowing and yet the source of the spending has been primarily the housing bubble.
IMO the UK is headed for a period of deflation and instability it has never experienced. I would cut and run but my family seems wedded to the notion of remaining. I wish we would at least sell-up and rent, but Maggie's obsession with home ownership has completely brainwashed my spouse. So, here I remain while the London Olympic commitee is planning for a spectacular I suspect will be remembered only because it was the last Olympic's of any scale and was a fantastic failure.
There, I've said my piece. Thanks for listening.
I found this impossible to follow. In America, corporations are by law individuals and have the same "rights". They just happen to be sociopathic, narcissistic, extremely powerful and wantonly destructive individuals providing goods & services that apparently justify their insane behavour -- unless you are vested somehow and therefore profit from their behavour. They are going to participate in this complicated system -- how?
You really are proposing to individually control all of the energy use of 60 million people on a weekly basis.
You really want to stop people buying petrol regardless of need (or can you become overdrawn).
You really want to put individuals in the same system as Governments and Companies with their vastly disproportionate resources compared to individuals.
The whole principle is based on Coases Theorm, by Ronald Coase the Nobel Award winning Economist.
Carbon Trading - For Large organisations if you must, TEQ's for all is insanity.
David Flemming is been taken seriously by Government ?
This idea should have been killed at birth, it is far to fine a degree of control and totally disproportionate and impractical. This is a case of environmental facism. I cannot see how organisations like the BBC, Guardian, Telegraph, and the British Government can even give it any credability, nor individuals like Colin Challen, the Labour MP for Morley & Rothwell.
This is enviornmental facism.
Sorry to be so intemperate, but this concept deserves ridicule. The attempted justification is bizzare and value ridden.
I will re-read the leaflet and come up with more detailed comments. But I just wanted to express my initial discust and bewiderment at such draconian, impractical, and frankly dangerious proposals.
p.s.
It will be intresting to see if my comment is removed.
Its either new supply, voluntary reduced consumption, some macro policy like this, or resource wars, or some combination of the 4. Why wouldnt this work if implemented by the government - there were ration cards in world war II and we dont seem to hear that that was insane.. Its acceptable to take a small pain now instead of a huge pain later - the problem is that not everyone can visualize the future pain yet, so TEQs sound 'insane'
Given your reading(s) regarding human nature, do you think it possible such a scheme will work?
Regarding WWII rationing: I remember somebody on TOD explaining that was rife with cheating and corruption.
Make sure to listen to the jazz piece about the rationing during WWII, very good:
[http://www.livinghistoryfarm.org/farminginthe40s/life_08.html]
Marco.
I recall hearing, in childhood, a story about a relative's well-buttered car engine. It seems butter wasn't rationed (or maybe was rationed more leniently) at Post Exchanges (PX's) on military bases. So he packed butter and other stuff into his car's engine compartment in order to smuggle it off base. And then got distracted and forgot about it. And eventually pulled into his driveway with the car reeking of butter, accompanied by gales of laughter when the rest of the family saw what had happened.
Most of the time, though, no one was laughing at all the corruption and arbitrary unfairness.
My first guess is that in any real world implementation of this awful scheme, the Al Gores and Ken Lays of this world will somehow be allocated quasi-infinite quotas, their constant private-jetting being obviously "essential". On the other hand, in order to support that, Joe Schmoe will be risking his neck on a bicycle to get to work at the local grocery store.
My second guess is that there will be an almost uncontrollable epidemic of forged and hacked ration cards, far more severe than the one we have with credit cards. In many respects, this scheme threatens people's economic, social, and as in the case of "non-essential" Joe Schmoe, literal lives.
No, thanks. As a citizen, I will perceive a need for Draconian action on GW only after I see all the big hub airports closed, and all physical academic conferences cancelled and moved to the Web or simply replaced by email and blog-like methods. This is of course symbolic, but in absolute terms, aviation is the fastest growing item out there, and one of the most profligate ways imaginable to consume fuel. I would accept such changes in elite behavior as indications that the preachers of GW gloom and doom actually believe what they say. I see not one shred of evidence for such belief at the present time.
While I believe that for socio-cultural reasons, it would be a good idea for most people to go overseas once or twice in a lifetime, a medium sized airport like McArthur on Long Island could easily fill that need for the entire Northeast, with no need for any of the others.
It is perhaps no accident that serious proposals of this sort are coming from Britain, land of George Orwell. He seems to have seen something in the British that they refuse to see in themselves...
Your point about airports and academic conferences is a good one. If you want to see some real mental gymnastics, ask a self-proclaimed environmentalist to rationalize his ownership and personal use of the car, the most environmentally destructive device ever devised!
He/she will likely say something along the lines of "well I drive it as little as I can" which in my mind is like a self proclaimed advocate of freedom saying, "well I work my slave less than most!"
Seems to me that you're reacting a bit too strongly to a market mechanism other than astronomical prices to allocate carbon quotas. Suppose every individual got the SAME quota, including corporations. "Tradable" means you can sell yours, so if you have an energy efficient home and ride a bike, you have a terrific source of income. Where's the draconian part? You still have choices.
or another dictator will rise up and challenge the dictator who puts the TEQs into place.
either way, we're right back where we are: energy war(s) and/or energy rebellion(s).
I say let's accept the fact we are heading full speed into total disaster and that due to human nature there just ain't much that can be done as far as society is concerned. Then let's just try to figure out how those of us who are aware of this situation can mitigate the effects in our own personal lives.
However, if you think that "It will be interesting to see if my comment is removed." you obviously know nothing about this website.
Although individual commenters can get very insulting when others fail to fall in with whichever party line, TOD has never, to my knowledge, edited any opinions.
So do "re-read the leaflet and come up with more detailed comments". We have discussed far more controversial issues than this one at great length, agreement not being a prerequisite.
I don't think rationing would work either. Although through taxes you might pull the same effect.
I had to of my posts pulled, I believe it was a discussion of how my drillship shut down before a hurricane. So there is some level of censorship everywhere.
Matt
Corporations and the rich would likely set up a handful of brokerages to purchases rations from persons willing to sell. Otherwise they would make capital investments in non-fossil energy systems. Efficiency improvements will become more important if corporations wish to maintain a competitve advantage.
yeah just like marriage is the only guaranteed way way to reduce infidelity!
Tony
A carbon tax would also take years to work its effects through the system. But it would be a certainty, instead of the impression many people had of the oil price spike being temporary. Accompanied by changes to building codes, requirements for PHEV plugs and the like, it would be one of the most effective weapons we could use against greenhouse gas emissions.
VS what other arragments do you think isn't 'totally insane'?
Are you a fan of
http://www.technocracy.org/
and thier idea
http://www.technocracy.org/?p=/documents/briefs/b29&TC=4d2c1f89b884308abd69286388ea3965
of energy accounting?
You really want to put individuals in the same system as Governments and Companies with their vastly disproportionate resources compared to individuals.
In the biggest user of hydrocarbons, the individual already bids against the governemtns/corps for oil and oil by-products.
This is enviornmental facism.
Fascism is sometimes definde as 'element X worlking with goverment. Who from 'the environment' is acting as 'element x'?
Perhaps this version of fascism is what you ment:
http://www.orwell.ru/library/articles/As_I_Please/english/efasc
How about Libertarian National Socialist Green Party
http://www.nazi.org/
What are you trying to say with 'fascism'?
It will be intresting to see if my comment is removed.
Why would you think that? Are you coming here from http://littlegreenfootballs.com/ or perhaps http://www.freerepublic.com/
Of course the devil is in the details, and I can imagine the specifics of how the rations were determined, especially concerning corporations vs. individuals, would be subject to political tampering (pronounced "lobbying"). Still, its an interesting idea.
People are concerned with setting overall limits on energy use. Well, this site is largely devoted to the concept that those limits on oil are here now or will shortly be. OPEC has been setting "artificial" limits on production for years. But somehow, that is fine while having our government set some sort of limit for the public good or the good of the planet is considered fascism. Apparently, there are those who would rather be subject to the proclivities of a whole host of foreign countries who hate us than subject to an upper limit set or negotiated by our own government.
One very good feature of this system is that those who conserve and plan ahead will be directly awarded for thier frugality and prudence. Every time I say home, it's money in my pocket over and above my transportation expenses.
TEQ gives every citizen the right to use energy. And it's a way to incorporate real wealth in our current money based system.
Thanks Msrs Fleming and Vernon, I'm curious if you've had any thoughts on the scales at which TEQ's might be implemented. National governments are timid and beholden to the status quo, it would be nice if system could be trialed at a regional or town scale. But thats not really possible without completely excluding other suppliers and consumers, correct? (forgive me if answer is in DF's book, have barely started it).
example 1) tree hugger wannabes and air travel
As with cigarette smokers lay on a guilt trip. Ask them pointedly whether they cycle commuted for 12 months to earn themselves the holiday (btw I think purchased offsets are largely bogus).
example 2) seniors and expensive home heating
As with teenage drinkers, ask for standard ID. Give old folks in all neighbourhoods a subsidised discount for a set amount of heating oil, natgas or electricity.
Abuses and inequities should be minor compared to the huge Cecil B. de Mille production needed for a carbon card. It's easier to carbon tax at major source points like refineries and power plants. Remember we don't yet know the carbon effects of the looming economic slowdown; even coal use could get dragged down.
Now do I get to take my family for a plane trip?
Rhetoric without justification. Non-renewable and polluting resource use should be regulated for the public good.
It is the "free market" which has created our current problems with energy security, as well as a host of other problems such as overfishing, high levels of pollution and soil degradation. What is best for multinationals' CEOs is often not best for the citizen.
Energy from renewable sources which doesn't produce net CO2 won't require carbon units to buy and will that much be cheaper.
If we had one world-wide legal system, those hurt by e.g. global warming could, as a class, sue all carbon-emitters as a class and recover damages (or pay offsets to carbon sequesterers). The award would amount to a carbon tax, but it would have a basis in law and science (or as much as any court award does). This isn't playing God either, it's doing the best we can as fallible humans.
And if that's wrong, tell me why [gG]od gave us the ability to determine the effects of these things if he didn't want us to make moral judgements on them.
TEQs are not a form of rationing, they are a way of increasing the marginal cost of energy above a certain consumption level. Imagine if we set the threshhold for the TEQs at infinity. At no point does anyone pay any more than anyone else for fuel. We essentially have such a system now, or worse. Someone who makes $300k a year pays the same per gallon as someone who makes $30k a year.
Now, imagine if we set the threshhold at 2k gallons of fuel per year. If you use less than that, you pay the fuel market price for that fuel. If you use more than that, you pay the market price for the first 2k of fuel, and have to pay the secondary market price for the excess. The secondary market is the TEQ market, where people who used less than 2k gallons sell their extra TEQs. So the profligate user pays market for the first 2k and market plus the secondary market price for any over that. The people who use less get to pocket the money their extra TEQs sold for on the secondary market.
You can consume as much as you want and can pay for, but above a certain threshhold you will have to pay extra for the fuel and below the threshhold you essentially pay progressively less for the fuel the less you use.
I don't really see the benefit in rationing oil out. Someone has caged it in intelligent sounding language which makes it sound good, but does it actually solve the underlying problem? I don't think so.
You also completely ignored the fairness. Many will be able to continue at current or increased consumption levels as the use by the more financially challenged is squeezed. This may be a concern if that squeeze results in unrest.
Tony
I will say again. IF YOU INTERFERE WITH THE MARKET IT WILL END IN DISASTER. If you mandate that only a certain amount of oil can be sold then oil companies would instantly stop expanding production (ie stop developing new projects) and stop exploring. IT WOLD MAKE THE PROBLEM WORSE NOT BETTER.
You mentioned electric cars but it will take years, if not decades for that to become a viable option for many, ignoring the extra power generation requirements for a fleet of 800 million electric cars. I know that was just an example but the problem is that it's impossible to think of anything that will make a significant difference to the situation.
The market works well in a fairly unconstrained energy environment. When we are talking about the lifeblood of our developed societies, the market is a very poor mechanism for altering our use of that lifeblood or for switching to another blood supply. The added problem is that there is no blood supply (that we know of) that could be used for a complete transfusion. No, if there is any kind of solution for powering down, government intervention is needed and tradeable quotas is the only idea I've heard that comes close to helping.
If you think it might stop exploration/production of the really difficult stuff, then you could be right. However, that would not necessarily be a bad thing. The idea is to wean us off oil, not desperately try to extract every last drop we can.
I think he disagreement comes to this; you want us to power down, I want us to retool and repower. If you want to power down rationing will do it. Restrict/Ration everyones use so that the total consumption is capped and oil companies will have no incentive. It would work. However I want us to retool and I firmly understand that the best way to do this is for people to suffer higher prices now so that incentive is built in for people to retool. As in our example above, over time, electric would become more economic than oil as the oil supply dwindles. Yes it would take time, but I still argue that it is better that we take some time to retool than we "power down" and start living like stone age man.
On the question of repowering, I take it that you have a belief that there is some wonderful energy source out there just waiting to be discovered? If not, then we certainly need to repower, but to a lower level.
Let's try to fix the incentive thing. Let's ration individuals and businesses to a level lower than the supply. Then have governments buy the excess oil to build the sustainable infrastructure we'd need for a lower power, zero growth, sustainable society. It will be a big job, it will require lots of energy, lots of oil and gas. Maybe there could even be an element of free market in that portion of the oil?
Tony
So I guess the disagreement can be further refined; you believe that none of
- nuclear fission,
- nuclear fusion,
- effeciency gains,
- methane gas,
- coal,
- biodesiel,
- ethanol,
- geothermal,
- wind,
- solar,
- wave,
- hydrogen,
- recycling,
- tar sands,
- gas
or
- anything else I can't think of right now
can provide an alternative in the fullness of time, or infact that even no combination of some or all of these can provide a solution. However I firmly believe that there is not only a solution amongst those, but actually several possible solution. I also believe that the market will be the most effecient way to sort out which.
Regards.
Fusion is a pipedream right now. I'd love it to be realisable but it's 40 years away, if it can be made to work. Fission has been addressed many times, it's unsustainable. Efficiency gains will be a winner. Methane gas, coal and tar sands are unsustainable. Recycling is not energy but it might conserve some energy (the calculations need to be done), as well as resources. Biodiesel/ethanol are unsustainable, unless in very limited quantities and not increased. Hydrogen is not an energy source. Solar and wind are probably the only sources that can sustainably power our societies, provided we limit the energy we consume.
So taking only the sustainable energy sources, we still need to power down. Of course, it may be that all the little bits together might get you, I and maybe our kids, through our natural lives. In which case, bring it on! However, I'm still dubious of that and dread the world it would leave for my kids' kids (if they have any).
I'm well aware that you believe in a "solution"; that much is obvious. And consequently, it's clear that you would never support any rationing scheme (other than by market forces). However, I don't think your beliefs have a rational basis, so I'm trying to see what might have some chance of giving us some kind of soft landing. TEQs look like a good option, in that respect. Market forces don't.
If you think that these few flipant comments are sufficient to convince any serious thinker that we can't switch into a combination of the above then I think you are sadly mistaken. To just say it something is unsustainable or bla bla bla isn't enough. You are missing so much.
Hmm, I'm afraid you did. Probably an attempt to build up a long list in the hope that quantity alone will convince you (since it doesn't convince me). I did look at the article on nuclear; it is wrong on the lifetime of the resource base. It looks like a short term risky enterprise.
"That implies you accept that they represent a big part of the solution. You seem to be contradicting yourself?"
No, I think it's the interpretation of the word "solution" that needs explanation. We need to power down. I can't see a solution in terms of keeping our society pretty much ticking along as it is now, and growing. As far as I can see, solar and wind (hydro can also make a contribution but it is limited and has already had adverse consequences) are the only sou