How It Works
As described in the Overview, the basic model for how Carbon Share works is:
1) the jurisdiction sets a cap on GHG emissions,
2) the cap is divided into shares (allowances) that are distributed to the population,
3) people sell their shares to upstream regulated fossil fuel companies, and
4) those businesses return the shares, as permits, to the government, and the number of shares decreases each year.
Each of these steps is described in more detail below and on the following pages:
1 – Setting a Cap, Defining Boundaries
In order for a jurisdiction or institution to set a mandatory GHG emissions cap, they must understand that climate change is a serious problem, which must be solved in a matter of years, not decades. The cap provides a framework for a long-term goal, and is a mandatory, not voluntary, solution. Climate change is a global problem, but local jurusidictions can set local emission reduction targets, and even implement market-based systems such as Carbon Share. To do so, they must define the boundaries of their cap, and how fossil fuels are treated as they cross those boundaries.
2 – Distributing allowances: Auction vs. Giveaway
Once a cap is set, the allowances under the cap become valuable. The allowances may be given for free to companies, utilities, or people, or they may be sold (auctioned) by the government, generating revenues, which may be used in a variety of ways, including consumer compensation and dividends.
3 – Compensating consumers: how would you like your emissions allocation?
Reducing GHGs could raise prices for fuel and electricity, which would affect goods and services throughout the economy. The value of the allowances can be captured and returned to consumers in several ways, including dividends and Carbon Share. Consumers could be given a choice of how they would like their emissions allocation: dividend, rebate, or share.
Step 1 – Setting a Cap, Defining Boundaries
Setting a cap is the first step in creating a carbon price. The scarcity of emissions allowed under the cap is what gives value to the remaining emissions rights.
In order for a jurisdiction or institution to set a mandatory GHG emissions cap, they must understand that climate change is a serious problem, which must be solved in a matter of years, not decades. This can only be accomplished with significant political will.
The move toward a mandatory cap is often preceded by several years of voluntary action to reduce greenhouse gases. At a certain point, policymakers must acknowledge that they need to set a quantitative limit, within a specified timeframe (in climate policy this is called "targets and timetables").The cap provides a framework for a long-term goal, and is a mandatory, not voluntary, solution.
What is the appropriate cap? Pick a baseline year, and a target year. Examples include Toronto target, 20% reduction by 2020, etc.
Addressing Boundaries and Leakage: Climate change is a global problem, but local jurusidictions can set local emission reduction targets, and even implement market-based systems such as Carbon Share. To do so, they must define the boundaries of their cap, and how fossil fuels are treated as they cross those boundaries. A recommended approach is to set boundaries so that it is unlikely that people will cross it to fill up a tank of gas, and businesses will not be tempted to move their operations just outside the boundary. Examples include California's engagement with the Western Climate Initiative, which was important for their electricity imports.
During the cap setting process, some juridictions may also choose which types of regulatory measures they will be promoting and which they will not. Example: Climate Action Plans, RPS, other regulatations, CA decided to develop a Scoping Plan.
Upstream regulation (closer to the point where fossil fuels enter the economy - i.e. the mine, refinery - is superior to downstream regulation (where the fuel is combusted) - i.e. the tail pipe or smokestack -for the following reasons:
· Administrative ease: Carbon entering into the economy equals carbon emitted. Administratively it is easier
to limit carbon as it enters the economy in a few places (by boat or at the wellhead), than as it leaves through
millions of tailpipes and smokestacks.Fossil fuel imports are already monitored closely, which facilitates data
collection. Regulating the upstream companies greatly simplifies the reporting requirements, since there are
fewer companies upstream, making emissions easier to track.
· Comprehensive: AB32 calls for a market that is comprehensive. The easiest way to ensure a comprehensive
market is to regulate fossil fuels at the point at which they enter the California economy. The system
would regulate fossil fuel importers and producers.
Continue to Step 2 - Distributing Allowances
Additional issues about Carbon Share are discussed in the Frequently Asked Questions (FAQs) and Background section.