Personal carbon trading could enable consumers to reduce carbon emissions and make money too.

Marc van Dinther | April 2008 issue

Andy Ross and Shannon Moore think twice before hopping on a train or raising the thermostat. Their concerns aren’t limited to transport and utility costs though. Ross and Moore also worry about the impact their behaviour has on the environment.

The duo is part of a fast-growing group in the UK and U.S. aiming to reduce individual carbon emissions. Both are members of a “carbon reduction action group” (CRAG). Ross is the founder of the world’s first CRAG, in England’s Stratford-upon-Avon, and Moore set up the first U.S. version in Maryland. CRAGs are the economic equivalent of microgeneration, but instead of every person generating his or her own power through solar panels or wind turbines, everyone in a CRAG generates a carbonemissions portfolio, which they can use, sell for the purchase and sale of CO2 creditor trade as they see fit.

Government campaigns call on consumers not to leave their TVs on and to put on a warm sweater instead of turning up the heat. But Craggers go a step further: They want heavy energy users to pay fines, a portion on which would then go to those who use energy sparingly. CRAGs are part of a group of consumers working on private trading systems for the purchase and sale of CO2 credit. The system, known as “personal carbon trading” (PCT), is modelled on the European Union’s Emissions Trading Scheme (ETS).

The ETS was introduced in 2005, when some 12,000 industrial plants in 25 EU countries were given emissions quotas. The quotas are allocated as credits, representing the amount of carbon a firm is permitted to produce. If a company doesn’t use all its credits, it can sell them to other companies that have exceeded their own quotas. The idea is to make it expensive for corporations to emit the greenhouse gases that cause climate change, at the same time making it financially attractive for them to limit those emissions. Under the scheme, companies can trade their surpluses on a specially developed exchange and supplement their shortfall by paying a “fine.” In January, the European Commission announced plans for the next phase of the project. The most important change is that producers will have to pay for emissions rights, which were previously given away.

Under a PCT system like CRAG, individuals are given a particular energy allowance based on a calculation of their country’s national budget. Households that need more credit can purchase it on a public energy exchange, just as companies do under the ETS system. Meanwhile, consumers with a surplus can trade it on the public trading floor.

“Climate change is probably the biggest threat humanity has ever faced,” says Ross, from the Stratford-upon-Avon group.“And as a member of a CRAG, everyone will have the opportunity to contribute to reducing CO2 emissions.”

The number of CRAGs is growing steadily. The UK has 17 groups, each with a membership of between 40 and 230 people. In the U.S., Atlanta and Washington,D.C. are set to host groups. Plans are in the works to start CRAGs in Canada, Australia, France and India.

CRAGs are, in effect, mini-PCTs. Each group sets its own objectives, and trading can take place only between members of the same CRAG. Groups can’t yet trade with one another. Ross’ group was established last year with the aim of capping energy use at an average of 4.5 tons per person, 10 percent less than the British personal average. For 2008, the Stratford-upon-Avon CRAG is striving for an additional 10 percent cut. That represents a significant savings, particularly considering the British government has given itself 40 years to reach its goal of reducing carbon emissions by 60 percent.

Ross exceeded his limit in 2007 and had to pay a fine of about $240. The money was divided up among the group members who’d kept themselves within the consumption limits. “I spent most of the year living in a very drafty house and travelled quite a few kilometres to visit my family,” he explains. “I’ve now moved closer to my family so the number of ‘love miles’ has fallen drastically and my new home is much better insulated.”

The aim of the CRAGS is to provide insight into how—and how much—consumers use energy. More importantly,CRAGs help teach participants how to limit the number of kilometres they fly and drive as well as the fuel and energy they consume. Moore calls the CRAGs a step in the right direction, “particularly when you consider that private consumers in the U.S. are responsible for 30 percent of the world’s CO2 emissions,” she says. “American households would save an average of $1,000 a year if they cut their energy use by 10 percent. And if they did, greenhouse gas emissions worldwide would decline by 1 percent. In the grander scheme of things, that’s significant.”

Interest in private energy credits has increased sharply over the past two years. Carbon Limited, a U.K. trial project to determine to what extent PCT is practical, is one of the forerunners in Europe. “Everyone is allocated the same amount of carbon dioxide,” Carbon Limited’s director, Matt Prescott, explains. “A lot of low-income people are also low-energy users, so they can benefit from this system by selling their surpluses.” So far, more than 3,500 participants have signed up with Carbon Limited. A trading system is expected to be developed within five years that will enable every British citizen to purchase extra carbon credits or sell their surpluses.

The UK firm Design Stream is working on developing a carbon credit card known as “the emissary.” The idea is similar to a strategy put on the table by UK Foreign Secretary (and former Environment Secretary) David Miliband last year during a speech in Delhi, India: “We’ll have credit cards in our wallets that represent both pounds and carbon dioxide points. When we purchase electricity, gas and fuel, it will not only cost money, but will be deducted from our carbon balance.”

Design Stream wants to launch a credit card that shows the impact of all kinds of consumer purchases on the environment.“Organizations like Friends of the Earth say that a carbon credit system is still years away,” says Design Stream Director Chaz Nandra. “But new technologies are developing so fast now that it will be inexpensive enough to develop the idea for the credit card on a commercial basis.”

Some even suggest children could be given carbon credits at birth, which would then (hopefully) increase in value, so by the time they’re adults they could cash some of them in to fund education, professional training or health care. Now there’s an idea with some serious growth potential.