This is a set of slides I use to explain Cap & Share. You are welcome to use some or all of them in any presentations you do. There are lots of slides here - just pick the ones you need. For your chosen slides, feel free to delete the words - you may prefer just have the pictures and to comment in your own words, so that the audience listens to you instead of just sitting there reading the slides! A printable version (a dozen pages of portrait A4) is also downloadable from This is a set of slides I use to explain Cap & Share. You are welcome to use some or all of them in any presentations you do. There are lots of slides here - just pick the ones you need. For your chosen slides, feel free to delete the words - you may prefer just have the pictures and to comment in your own words, so that the audience listens to you instead of just sitting there reading the slides! A printable version (a dozen pages of portrait A4) is also downloadable from Notes for presenters : Laurence Matthews capandshare.org Laurence Matthews capandshare.org

Cap & Share Chapter 1 - Basics diagrams

Carbon footprints We buy some fossil fuels (petrol, gas, coal) directly and burn them.

Carbon footprints The red line shows the flow of fossil fuels, from the fossil fuel suppliers (oil companies, etc) on the left-hand side of the diagram to us, the individuals, on the right. The flame indicates the burning of the fossil fuels, which causes CO2 emissions. For each of us, this accounts for half of our “carbon footprint”.

Carbon footprints Other emissions are caused by companies producing goods and services on our behalf. The black arrow represents the “embedded emissions” or “indirect emissions” built into the goods and services we buy. This accounts for the other half of our “carbon footprint”.

Carbon footprints Now, if we want to cap or limit the CO2 emissions, one way to do this is to use “emissions permits”. The total number of permits issued in the country would be equal to the national cap on emissions. These permits could be traded (bought and sold) without affecting the total number in circulation. So who gets these permits?

Upstream One way to cap emissions is to control the amount of fossil fuels going into the system at the left-hand side. This is called capping the emissions “upstream”. The fossil fuel suppliers would have to have emissions permits (indicated by the yellow rectangles) to cover the emissions caused by the fossil fuels they bring into the system.

Upstream Cap & Share is an upstream system. So is auctioning the permits to fossil fuel suppliers (as in the Sky Trust scheme). Both systems are simple because only a small number of companies (the fossil fuel suppliers) have to be policed. (We will deal later with the financial side of permits: whether they are distributed free of charge or not, etc.)

Downstream An alternative way of doing things is to cap the emissions “downstream”. This time the individual citizens have the emissions permits. This could work for our direct emissions (the lower red line). However, it is impractical for the indirect emissions (it would involve trying to calculate what carbon emissions are built in to all goods and services - every haircut, every pair of scissors).

Downstream So instead, downstream systems in practice are like this. They cap all emissions at the point of combustion - where the fossil fuels are burnt. So individuals have emissions permits - and so do companies - but everyone only looks at their direct emissions (your indirect emissions are somebody else’s direct emissions).

Downstream The two parts of this scheme are called Personal Carbon Allowances (PCAs) for individuals, and an Emissions Trading Scheme (ETS) for companies. (Under PCAs the allowances also include electricity. For simplicity these diagrams ignore electricity for now - but see later). ETS PCAs

Cap & Share Chapter 2 - Who gains or loses? diagrams

Two individuals Let’s look at two individuals, A and B, who have Above and Below average emissions respectively. For simplicity, let’s just look first at their direct emissions. A B

Downstream In a downstream system such as PCAs, individuals are allocated equal personal allowances. Individual A is not allocated enough to cover all his emissions, whereas B has some to spare. A B

Downstream B can sell some allowances to A. £ A B

Upstream Now let’s look at what the same thing looks like under an upstream system. A and B have above and below average carbon usages, as before. A B

Upstream In an upstream system the fossil fuel suppliers have to acquire permits to cover the fossil fuels they supply. The total amount of permits in circulation is the same as before. A B

Upstream Clearly the fossil fuel supplier will use more permits in supplying A than B. But this doesn’t matter to A and B. What does matter is that … A B

Upstream … the fossil fuel supplier builds the cost of buying the permits into the price of fossil fuels. So the prices of petrol and gas go up. So A and B will pay more for fossil fuels. The extra money they have to pay out is proportional to the amount of fuel they use. £ £ Pay A B

Upstream However the rebates are equal - the rebates are the same for A and B, regardless of their fuel usage. Under C&S the rebates come from selling the certificates; under Sky Trust the rebates come from the auction proceeds. £ £ £ £ PayGet PayGet A B

Upstream The outcomes, as far as A and B are concerned, are as follows: A pays out more then he receives so is worse off. B pays out less then he receives so is better off. £ £ £ £ PayGet PayGet A B Lose Gain

Upstream The gains and losses are exactly the same as if B had sold allowances to A. In other words A and B are exactly as well off as they would have been under a downstream system. £ £ £ £ PayGet PayGet A B Lose Gain

Indirect emissions Back to the full story. What we have just been talking about was the lower line, the direct emissions. What about the indirect emissions, the upper line? ETS PCAs

Let’s look at the indirect emissions of the two individuals A and B. Once again, assume that A and B have Above and Below average indirect emissions. A B Indirect emissions

This time let’s look at the upstream system first. The fossil fuel suppliers must have permits to cover the fossil fuels they sell, as before. A B

The costs of buying these permit are built in to fuel costs for the company, which passes these costs on to the final consumers A and B. The amounts of money paid by A and B depend on the embedded emissions in the goods and services they buy. These amounts are offset by rebates (from C&S or from an auction) as before. A B £ £ Pay £ £ Get Indirect emissions

Now for the downstream system. Recall this works by having the companies in an ETS. The companies trade permits just like individuals did for their direct emissions. Under many ETS systems the companies are given an allocation of permits for free. The initial allocation may be based on previous fossil fuel use (‘grandfathering’), and these are then traded. A B Indirect emissions

As the permits are traded, they have a price, which is passed on to A and B. So again, costs passed through to A and B. But this time, A and B lose out, as they are not compensated for these price rises. Meanwhile the companies get a windfall profit from selling the grandfathered permits, which they got for free. A B £ £ Pay Indirect emissions

This problem only arises if the permits are given free to the companies. An alternative is for the permits to be auctioned (with the companies bidding for them) with the proceeds of the auction rebated (‘recycled’) to the individuals. (Beware of companies who advocate ‘an auction with proceeds recycled’: they often mean recycled to the ETS companies). A B £ £ Pay Indirect emissions

Summary Putting it all together, with both direct and indirect emissions... Upstream systems are neutral overall: Below-average emitters gain, Above-average emitters lose. There is no overall ‘tax burden’ or ‘giveaway’.

Summary For a downstream system, it depends on the allocation of ETS permits. If these are auctioned with the proceeds given back to the citizens, then we have a neutral system. If the permits are given free to ETS companies (grandfathering), then it’s still neutral for direct emissions (Below-average emitters gain, Above-average emitters lose); but for indirect emissions, everybody loses out to ETS companies (and Above-average emitters lose most). ETS PCAs

Cap & Share Chapter 3 - C&S and the ETS diagrams

Downstream Recall that we had this diagram showing how a downstream system might work. The two parts of this scheme are called Personal Carbon Allowances (PCAs) for individuals, and an Emissions Trading Scheme (ETS) for companies. But not all companies are in the ETS... ETS PCAs

The ETS Not in ETS In ETS In practice, an ETS only includes a few large companies. All other companies, including hundreds of thousands of small ones, are not in the ETS. So we have two sorts of company: those in the ETS and those that are not.

Downstream Not in ETS In ETS The companies not in the ETS do not have emissions permits, so their carbon emissions are not captured by the cap. Notice that the middle line has no emissions permit straddling it. So the PCA/ETS combination does not cover all CO2 emissions.

Downstream Not in ETS In ETS Supporters of the ETS want to extend it so that more and more companies are included - but this will always leave most small companies outside the scheme (and thus outside the cap). An ETS can never work properly with a downstream system like PCAs.

Upstream / ETS hybrid Not in ETS In ETS An upstream system, on the other hand, can work with an ETS. So that if for political reasons we want to keep the current ETS, introducing an upstream system is easy and can be made to dovetail with the existing ETS perfectly. To do this, start with the upstream system as shown here....

Upstream / ETS hybrid Not in ETS In ETS.... and simply allow the ETS companies to remain in the ETS, trading emissions permits. Notice that in the top line the emissions permit has moved “downstream” to the ETS company.

Upstream / ETS hybrid Not in ETS In ETS Fossil fuel suppliers must acquire permits for all fossil fuels as before, except that now any fossil fuels supplied to ETS companies are exempt. Notice that all three lines have an emissions permit straddling them, so this hybrid system has complete coverage of emissions.

Upstream / ETS hybrid Not in ETS In ETS Although this system gives complete coverage of emissions, we still have only a small number of companies involved (namely, the fossil fuel suppliers and the ETS companies).

Upstream / ETS hybrid Not in ETS In ETS At any point an ETS company can easily opt out of the ETS - in which case it can forget all about carbon trading and carbon accounting. It simply buys fossil fuels at the going rate (with the permit price included automatically).

Cap & Share Chapter 4 - Electricity diagrams

Electricity The ETS and PCAs include electricity as well as fossil fuels. This makes sense, as electricity can be a substitute for gas in heating and cooking, and vice versa. So how does this affect things?

Electricity Using electricity causes indirect emissions, as the emissions are caused at the power station. We can depict this as above. Each green line indicates electricity, with these embedded or indirect emissions built into it.

Electricity There are now 4 lines instead of 2, and to apply an emissions cap we need to see where to put emissions permits to straddle all 4 of these lines.

Electricity - upstream An upstream system like Cap & Share works like this.

Electricity - downstream In theory, a downstream system (TEQs or PCAs plus an ETS) works like this. In practice, the ETS causes complications, as we will see in the next slide.

Electricity - downstream Usually the electricity generators are in the ETS, and there is a potential for double-counting. The 2 lines through the power station each have two permits straddling them.

Electricity - downstream So the downstream picture should actually look like this. But we also have to remember that the ETS is only a partial system. So we also have to look at the companies not in the ETS.

Electricity - full ETS diagram In ETS Not in ETS This is the full diagram. It looks complicated, but we just need to put emissions permits to straddle 6 lines instead of 4.

Electricity - downstream In ETS Not in ETS A downstream system. (To avoid double counting, the electricity generator is not in the ETS). Households and ETS companies trade permits in fossil fuels and electricity.

Electricity - downstream In ETS Not in ETS This downstream system has incomplete coverage of emissions. (For example the red line through the non-ETS company is not capped).

Electricity - upstream In ETS Not in ETS By contrast an upstream system like Cap & Share simply captures everything upstream as before.

Electricity - ETS / upstream hybrid In ETS Not in ETS An upstream system can embrace the existing ETS as shown here. Check that there is an emissions permit straddling each of the 6 lines.

Electricity - ETS / upstream hybrid In ETS Not in ETS Fossil fuel suppliers need permits for all fossil fuels - with two exceptions:

Electricity - ETS / upstream hybrid In ETS Not in ETS Fossil fuel suppliers need permits for all fossil fuels - with two exceptions: Firstly, fossil fuels supplied to ETS companies are exempt.

Electricity - ETS / upstream hybrid In ETS Not in ETS Secondly, fossil fuels used to generate electricity for ETS companies are exempt.

Electricity - ETS / upstream hybrid In ETS Not in ETS In both cases these fossil fuels are capped by the ETS instead, here.

Electricity - ETS / upstream hybrid In ETS Not in ETS Again this gives complete coverage, but only a small number of companies (the fossil fuel suppliers, the electricity generators and the ETS companies) are involved.