Proposal

The Case for Change

Climate science provides the quantity of CO₂ emissions allowable under various emissions scenarios. The dramatic crossroads for humanity as outlined by the United Nations Intergovernmental Panel on Climate Change's 2022 report offers two ways forward: without concerted, rapid and unprecedented efforts to reduce CO₂ emissions, the effects of climate change will likely cause massive loss of life, property, and nature. Doing nothing but rely on technological developments to bring about the obsolescence of fossil fuels is a policy that forecasting scenarios show cannot keep global warming below 3.0°C. This will bring global economic recessions along with damage and adaptation costs in the order of trillions of US dollars. This may induce governments to shut down the fossil fuel industry in short order to limit further losses, regardless of the drastic, disorganised impact on the economy.

The Paris Agreement was passed unanimously. That in itself was a feat of international diplomacy. However the Nationally Determined Contributions are not enforceable. The 1.5°C limit to global warming imagined in the agreement is looking increasingly unachievable. The Climate Action Tracker currently shows most monitored countries have not made sufficient commitments in their NDCs to be compatible with the agreement.

The Policy Concept

Government

The UK Committee on Climate Change produced an extensive and wide-ranging document outlining a policy path to achieve net zero CO₂ emissions by 2050 and immediately realised 2 problems: were their recommendations plausible and are they even the best choice?

Already academic policy analysts predict that governments will be unable to rise to the challenge without fundamental organisational restructuring. This policy would allow decision-makers to focus on how much carbon emissions to allow, rather than how to implement those emissions cuts.

Individuals

The concept of a carbon allowance is similar to rationing, which is categorised by economists as a fundamentally progressive fiscal policy - in other words, it is fair. Studies looking at rationing in the 1940s and 1950s show this. The quantity of carbon tokens in the allowance should be allocated on a per capita basis to citizens.

In this framework, the carbon allocation would be paid regularly via a personal carbon account. Children and teenagers would receive a percentage of the adult quota. Governments would withhold a certain percentage of citizens' allowance like a tax, to pay the carbon costs of running public services.

To reduce CO₂ emissions to zero, the first allowance period would begin by allocating enough carbon tokens to cover society’s existing emissions. At the individual level, this would only impact those with an above-average carbon footprint. The allocation would then be steadily reduced over time. Reduction might need to be stepped up in circumstances of accelerating climatic instability, or the allowance might temporarily increase to stave off exceptional economic damage, but always with the additional guarantee that due to supply restrictions, reduction targets will be met.

To prevent anybody being unfairly affected by the system, the government would hold back a percentage of everybody’s carbon allowance. This can be used to supplement those in extra need of carbon tokens through no fault of their own.

If introduced, every citizen and every business would have to become adept at handling their carbon tokens in the same way as money. it allows individual citizens to make their own decisions on where to make savings. Few of us would be forced to cut down in all areas of consumption, most could make carbon savings where convenient for our lifestyle. No one would be imposing decisions on our behalf.

Business

Business ultimately plays by a set of rules defined in law and is typically only concerned only with profit and loss generated by its actions within that context. For business, UCC is relatively basic. It makes going green part of the rules.

Under this framework, businesses would charge customers carbon tokens, as well as money, for all products and services, which it would carefully manage to cover all of its own carbon expenditure.

Every product or service that is bought and sold would be subject to the system: every vendor, every merchant, every shopkeeper, every business person who sells anything must put the carbon price on their product or service next to the cash price, even if it is truly a zero emissions product. It provides a practical solution for difficult industry sectors like aviation, shipping, inbuilt or imported emissions, public services or the military.

The businesses use their carbon token income to pay for the goods and services they use in their supply chain. This method of pricing the carbon in everything in the supply chain goes back through the supply chain until the end source is reached, with the carbon producers (the oil/gas/coal extraction companies).

Carbon tokens would flow via every business transaction through the supply chain from the end-carbon-consumer (citizen) to the original carbon producer. So they would flow through the economy as a second parallel currency, affecting every product or service which exists and is for sale, from televisions to train tickets, and requiring two figures on the price tag – a price in local currency ($, £, €, ￥ etc) and a carbon price in tokens.

From the technological perspective, business would be compelled to introduce accounting software to account for carbon token income and expenditure. Key to the system and how it generates the carbon price for products and services is the rule that businesses, commerce and industry do not receive any carbon tokens as an allowance: the citizens create the market for the products and services, and their willingness or not to pay any given carbon price is the ultimate feedback in the process.

With modern supply chains, a product or service’s carbon price is kept up to date by the businesses involved, from manufacture right through packaging, freight, and storage. The final carbon price to the end consumer is simply the accumulation of carbon token costs that were added on and demanded in payment at each step in the supply chain. This establishes a direct link between the volume of carbon tokens allocated by the central carbon authority and the final CO₂ emissions produced in the economy in any one period.

One significant advantage of carbon tokens is the continual dynamic update of the UCC price charged for each product or service as business becomes more carbon-neutral. The price tag would display exactly how much CO₂ in total was generated in the manufacture and supply of the product. It would be reduced by the vendors to reflect environmental improvements as they take place. This real-time ‘green flag’ lends a dynamism to the decarbonisation process on a scale impossible to achieve by any bureaucratic mandates or carbon tax scheme.

Such a scheme would immediately push businesses to seek out the lowest emission options in their supply chain, so that their offerings have the lowest carbon price they can manage and the best chances against the competition. Products or services which currently sell at a high price due to their low CO₂ emissions, high sustainability or eco-friendliness will become much more attractive due to their low carbon price.

Fossil Fuel Industry

The other key actors in the framework are the carbon producers - the oil, gas and coal suppliers. Supply-side control of fossil fuel extraction rates is the sole policy that directly limits carbon supply and guarantees decarbonisation.

Every gas or oil well and coal mine operation would be subject to upstream metering by the carbon authority to measure the quantity of fossil fuels extracted, for audit and payment of carbon token income.

The carbon producers would charge carbon tokens on their fossil fuel sales, weight for weight in tonnes, kilos and grammes of carbon, which is how the carbon tokens are denominated. The corporate accounts would be subject to audit by this central carbon authority. All carbon extracted – gas, oil, coal – would require surrender of the equivalent carbon tokens.

Compliance in the whole carbon currency system would take place at the carbon producers, who become the lynchpin for policing of fossil fuel extraction and thus CO₂ emissions. It is the extraction of fossil fuels that is monitored and audited rather than their sale, because the fossil fuel producers in many cases use their own products to power their operations, or even allow their escape, e.g. methane leaks or flaring.

Downstream companies in the petrochemical industry and beyond in wider industry which do not extract fossil fuels would, by definition of the framework, not be subject to metering or payment of carbon tokens to the carbon authority.

The Carbon Market

The ability to purchase extra carbon tokens from citizens or businesses would minimise problems when adaptation is slow or insufficient for whatever reason.

Wealthy citizens could buy extra carbon tokens to subsidise their carbon-heavy choices, but only what other people are selling, and that will decrease regularly as the carbon allowances are steadily reduced. Such a market for tokens is not a loophole that some observers might think prevents actual CO₂ emissions reduction from taking place, because firstly, not allowing the sale of tokens could encourage people who would otherwise be carbon-conscious to use up all their un-tradeable allowance on cheap high-carbon products. Secondly, the market for buying and selling carbon tokens represents a safety mechanism in the system that prevents people or businesses falling off a carbon “cliff edge” if they run out of tokens.

The Central Carbon Authority

A central carbon authority would be established, similar in function to a central bank, to administer monetary control of the carbon currency.

This carbon authority would oversee the allocation of carbon allowances to citizens.

It would run the carbon market where citizens and business come to sell surplus tokens or obtain extra requirement.

It would also process the payment, audit and verification of carbon tokens from the carbon producers.

Central banks across the globe are already putting in place the framework for an international digital reserve currency. This could be duplicated for the purposes of carbon allowances.

Carbon tokens would not expire, so the carbon authority would also monitor, manage and report on the carbon currency supply - the quantity of carbon tokens held by citizens and businesses. This information would feed back into the decision-making process for calculating the optimal quantity of tokens to allocate for each period.

The carbon authority would also mandate a negative interest rate on all carbon accounts to discourage stockpiling.

Implementation

The carbon allowance policy can be implemented unilaterally by any nation, not requiring unanimous approval from hundreds of nations at the United Nations.

The roll-out could be implemented by central banks using digital currency frameworks – unilaterally by nation or within trading blocs by the creation of carbon borders with non-implementing trading partners, where customs authorities act as proxy and impose the carbon price on the domestic importers at the border. It could also be negotiated multilaterally with agreements on national carbon allowances via the existing UNFCCC-compliant GCI Contraction and Convergence treaty model.

National Implementation

Any nation or trading bloc could immediately implement the policy framework, where the customs authority sets up a proxy at the trading border to impose the carbon price required on incoming goods (which is paid by the importer). A nation's national borders and customs agency would act as proxy for importers of foreign goods and services, collecting the required carbon tokens on imported goods from the buyers.

Other nations could join with the first nation at any point to form a larger trading block.

International Implementation

The ultimate goal and the most effective situation would be the implementation of the policy framework across the global economy. This would provide society with the best chances of meeting the growing challenges that climate change represents.

One solution to provide an international basis for carbon allocation would be the Global Commons Initiative's Contraction and Convergence Framework. This is the essence of decades of international climate diplomacy, as used by UNFCCC, UK Government, the Brazilian, Russian, Indian, and Chinese delegations and as a basis for proposals by various organisations and political parties ever since.

On an international scale ultimately all citizens from all nations would receive the same individual allowance of carbon tokens. This would start differently for different countries yet end up the same by global agreement, using a UN-brokered convention based on the Contraction and Convergence framework.

The chart below shows, at the top, the annual rates of carbon emissions allocated (tonnes carbon per capita per country), and below, in gigatonnes of carbon total per country (from 2000).

It illustrates how national allocations can be negotiated to the satisfaction of all countries by commencing at different per capita levels and then converging at an agreed point before contracting.

Cost of Implementation

Compared to the “free” option of doing nothing or “business as usual”, the carbon allowance policy has a large, up-front cost with manageable, contained, on-going running costs similar to VAT or German MwSt.

Compared to carbon tax policies, the large up-front cost comes as business, government and citizens prepare for its introduction. Studies in 2008 in the UK and more recent studies on projects such a road traffic in Kenya and local transport in Finland show that costs are not prohibitive.

But taxes, trading schemes, legislative bans or subsidy programs have significant running costs to maintain the level of carbon policymaking that rationing would make redundant:

• establishing what citizens and industry have to stop doing
• democratically agreeing on it
• legislating for it
• implementing the laws
• monitoring the effects
• constantly strengthening the laws in the face of political opposition

And all this would be repeated for each individual policy for every nation in the world.

So the carbon tax alternatives are initially cheaper, but they have higher legislative costs as governments manage decarbonisation, legislating year after year to keep up with economic and technological developments and unforeseen issues. The longer it lasts, the more likely it is that the carbon allowance policy turns out cheaper.

Advantages

No requirement for carbon labelling laws: the carbon price of every item creates itself via cumulative addition up the supply chain. The system results in a dynamic, responsive carbon price for everything with no requirement for government to research and label everything with a fixed, statutory carbon price.

Transparency in commerce: people and green businesses currently base their consumer choices on information that is often not on the label, is incomplete, or worse, is misleading or purposefully suppressed. Very few things have the same carbon transparency as buying a tank of fuel to drive somewhere. There are unexpected inputs, hidden subsidies and incalculable interactions which make some things' actual carbon footprint differ radically from the expected. This framework's cumulative supply chain carbon price irons out these issues and distributes the effort of setting the carbon price to the place where it is most easily done - by the people creating the product or delivering the service.

Transparency in the fossil fuel industry: the metering of fossil fuel extraction at source gives a direct measure of the carbon entering the economy and the CO₂ emissions produced. Progress would be clear to all. The significance of government or central carbon bank decision-making within this framework would also be readily understood.

Direct control over fossil fuel supply: because there is a one-to-one relationship between carbon tokens and the all the oil, gas or coal that fossil fuel producers are permitted under the framework to extract from the ground, the government's control over how much fossil fuel is produced and how much CO₂ is emitted is direct, unlike the situation with carbon tax, where the impact on CO₂ emissions is dependent on the economy's reaction to the carbon tax.

Driver of green innovation: progress towards a zero emissions economy in any circumstances will only occur at a fast enough pace if inventiveness and innovation can be harnessed to create new methods and processes. Because every individual will develop a solid carbon literacy through their everyday use of their own personal carbon account, people will bring this into their work and drive the economy's adaptation to the system from the inside out. Compare this with the impact of carbon taxes: worldwide implementation of carbon taxes in 2020 covered only 16% of the economy, leaving the "carbon price gap" standing at 84%. The coverage of the proposed carbon currency framework would be practically 100%. So the inherent "price signal" for carbon under the carbon currency framework would be 5 times stronger than from carbon taxes as it stands. The stronger impact would accelerate business adaptation and innovation.

Cross-border trade: any nation or trading bloc using this system instructs its customs authority to set up a proxy at the border to impose an estimated carbon price on incoming goods, which is paid by the importer.

Facilitation and promotion of carbon drawdown: the government has a national budget for carbon allowances which it uses to allocate every citizen's allowance. It can pay in carbon tokens from this budget for atmospheric CO₂ removal, e.g. in soils via sustainable farming practices, rewilding, the protection of ocean carbon sinks or any kind of mechanical carbon drawdown. Recipients would be able to sell the carbon tokens they earn at the going rate. The higher the carbon token price, the more it would promote carbon drawdown.

Comparison with other approaches

Carbon tax is always criticised for its unfairness because those with lower incomes generally end up paying proportionately more of their income for it, but carbon allowances are allocated equally per capita, and allow those on low incomes who have on average smaller carbon footprints to profit from selling their excess.

The worldwide implementation of carbon taxes and ETS schemes in 2020 covered only 16% of the economy, leaving the "carbon price gap" standing at 84%. The coverage of the proposed carbon currency framework would be practically 100%. So the inherent "price signal" for carbon under the carbon currency framework would be 5 times stronger than from carbon taxes as it stands. The stronger impact would accelerate business adaptation and innovation.

It is also quite complex and difficult to construct a carbon pricing system and then to implement it using policies that can only implement partial coverage. Multiple issues occur, especially on a political level e.g. in British Columbia, Canada, in the EU.

Other attempts to control society's widespread and deeply rooted CO₂ emissions via the creation of a multitude of decarbonisation mandates in government have also not had the desired effect. The problem with regulation-based policies is the extended time horizons associated with such policies. The EU in 2020 displayed a particularly egregious example of this. The implementation of the 'EU Green New Deal' will only take force 10 years down the line in 2030 and it does not allow for greater ambition until 2035.

The carbon allowances policy has an advantage over every other kind of carbon pricing policy, because other policies attempt to guess the “right” price for carbon, without knowing in advance how great its impact will be, because they are not comprehensively applied to all sources of CO₂ emissions and they suffer from variations in the sensitivity of supply and demand. We roughly know the quantity of CO₂ emissions we can allow for various global warming scenarios, so it is more robust approach to use that figure to set a per capita allowance.

Many climate policy discussions would be solved by this policy's broad coverage. It's simpler, more efficient and more direct to control the quantity of carbon entering the economy than the carbon price, which is fundamentally a difficult policy making exercise, prone to failure and political intervention. They rely on inclusions and exclusions on a sector by sector basis and variation in carbon accounting practices dependent on national law. Carbon allowances on the other hand would provide comprehensive coverage of the economy and a comparatively small set of economic indicators, influences and unknowns. This would provide the backdrop for a reliable investment framework that gives a clear pathway for innovation towards carbon neutrality.

Shipping illustrates a typical problem businesses face. The International Maritime Organisation brokered a international agreement that shipping fuel must be used more efficiently by 2020, but despite 20 years preparation, it is on the verge of failure because of disagreement over who bears responsibility in the industry.

Appendix 1: the central carbon authority

By setting a CO₂ emissions reduction goal and distributing the carbon allowances that achieve this reduction, a nation has a policy tool that acts as an economic tuning mechanism allowing the rate of CO₂ emissions reduction to be balanced against any negative impacts it causes. The goal should be to keep reduction rates at the highest economically feasible level. Faced with deteriorating climatic conditions or sea level changes for example, or unexpected synergies appearing with the growth of the low carbon economy, adjusting the size of the next carbon allowances budget gives a straightforward lever to soft-pedal or step up decarbonisation

Old Text

To reduce CO₂ emissions to zero under such a framework, the first rationing period would begin by allocating enough UCCs to cover society’s existing emissions, so at an individual level it would only impact those with an above-average carbon footprint. The allocation would then be steadily reduced over time. Reduction might need to be stepped up in circumstances of accelerating climatic instability, or allocations might temporarily increase to stave off exceptional economic damage, as with any policy, but always with the additional guarantee that due to supply restrictions essential reduction targets will be met.

UCCs fulfil the basic rationing mechanism via a change in the point at which the UCCs are collected and controlled. Traditionally, retail businesses would collect rations (e.g. in war-time) for controlled products for audit by the relevant government authority.

Under the UCC framework, retail businesses would charge customers carbon credits, as well as money, for all products and services, but the businesses do not then surrender those credits to the carbon authority – instead, they use their UCC income to pay for the goods and services they use in their supply chain. This method of charging credits and paying them goes on back through the supply chain until the end source is reached, with the carbon providers (oil/gas/coal extraction companies).

At source, the carbon providers would charge UCCs on their fossil fuel sales, weight for weight in tonnes, kilos and grams of carbon. Their accounts would be subject to audit by a central authority. All carbon extracted – gas, oil, coal – would be monitored and the oil companies would surrender the incoming UCCs to the carbon authority at the end of each rationing period.

The Effects

Such a scheme would immediately push businesses to seek out the lowest emission options in their supply chain. This is not dissimilar to a carbon tax, but the price signal here would be far more obvious, not masked by other non-carbon costs. The ability to purchase extra UCCs on the open market from citizens or businesses would minimise problems when adaptation is slow or insufficient for whatever reason.

The broad reach of the UCC framework means faster, cheaper and more efficient outcomes than any government carbon taxes, emissions trading scheme or pricing policy, because it would cover traditionally excluded business sectors like aviation, shipping, inbuilt or imported emissions, public services or the military.

For the public too, per-capita allocation of UCCs as opposed to a tax would be seen to be fair, in particular at the start when the carbon allocation should be high enough for all but the most profligate carbon users to adopt without hardship. A carbon tax is inherently unfair due to its burden falling disproportionately on those with lower incomes, but UCCs would be allocated equally per capita, and allow those on low incomes who have on average smaller carbon footprints to profit from selling their excess.

The UCC framework would also be democratically more popular than targeted CO₂ emissions reduction measures (frequent flyer tax, meat production controls, vehicle fuel duties) because it allows individual citizens to make their own decisions on where to make savings. Few of us would be forced to cut down in all areas of consumption, most could make carbon savings where convenient for our lifestyle. No one would be imposing decisions on our behalf.

As well as the doubts surrounding carbon tax, there are also major issues with purely legislative or statutory policies and whether it is even within the fundamental organisational abilities of current democratic power structures to design, legislate for and implement the huge range of regulations that would be required for deep decarbonisation of the economy by any other means than the UCC framework in the timescale available.

Feasibility

One significant advantage of UCCs is the continual dynamic update of the UCC price charged for each product or service as business becomes more carbon-neutral. The price tag would display exactly how much CO₂ in total was generated in the manufacture and supply of the product. It would be reduced by the vendors to reflect environmental improvements as they take place. This real-time ‘green flag’ lends a dynamism to the decarbonisation process on a scale impossible to achieve by any bureaucratic mandates or carbon tax scheme.

The UCC mechanism would at the same time facilitate and promote negative emissions – natural solutions, carbon sequestration – by providing UCCs as payment from the central carbon authority that administers the framework, neatly circumventing the contentious issue of ‘who pays?’ for the carbon drawdown measures.

The roll-out could be implemented by central banks using digital currency frameworks – unilaterally by nation or within trading blocs by the creation of carbon borders with non-UCC trading partners, where customs authorities act as proxy and impose the UCC price on the importers at the border. It could also be negotiated multilaterally with agreements on national UCC allocations via the existing UNFCCC-compliant GCI Contraction and Convergence treaty model.

Locally, the UCC framework offers every one of us a transparent, simple path to act on climate within a demonstrably fair system. Nationally, the framework allows governments a transparent, simple flexibility in implementing decarbonisation policy according to their political principles. Internationally, UCCs under the GCI Contraction and Convergence system could become the tool of choice as other policies likely continue to prove ineffective. Nations seeking robust collaboration on climate measures – in the light of worryingly slow progress – would do well to turn their Nationally Determined Contributions into Negotiated Contributions, to adopt the UCC framework and control of fossil fuel supply with willing partners in order to achieve the goals of the 2015 Paris Agreement.

Policy Details

Key Actors and Institutional Requirements

A central carbon authority would be established, similar in function to a central bank.

This carbon bank would oversee the allocation of UCCs to citizens.

It would administer the carbon ration post-allocation market where citizens and business come to sell surplus UCCs or obtain extra requirement.

The carbon bank would also process the payment, audit and verification of UCCs from the carbon producers.

Central banks across the globe are already putting in place the framework for an international digital reserve currency. This could be duplicated for the purposes of carbon rationing.

Carbon UCCs would not expire, so the central carbon authority would also monitor, manage and report on the carbon ration supply - the quantity of UCCs held by citizens and businesses. This information would feed back into the decision-making process for calculating the optimal quantity of UCCs to allocate at the start of each rationing period.

The other key actors in the UCC framework are the carbon producers. Every gas or oil well and coal mine operation would be subject to upstream metering by the carbon authority to measure the quantity of fossil fuels extracted and audit and payment of carbon ration income.

Compliance and policing of the whole carbon rationing system would take place through the carbon producers.

Downstream companies in the petrochemical industry and beyond in wider industry which do not extract fossil fuels would, by definition of the UCC framework, not be subject to metering or payment of UCCs to the carbon authority.

Combination of Universal Basic Income, Personal Carbon Trading and a Carbon Currency

Instead of collection and audit of UCCs by customer-facing retailers on behalf of the state, UCCs would flow via every business transaction through the supply chain from the end-carbon-consumer (citizen) to the original carbon producer (fossil fuel extractor).

The carbon providers would be subject to comprehensive monitoring of fossil fuel extraction. The carbon providers are the lynchpin in the UCC mechanism. For every tonne and kilo of fossil carbon extracted, the providers must surrender the same weight in UCCs to the central carbon authority.

The carbon providers would obtain the UCCs from their customers, charged on every transaction.

The framework's original name “Total Carbon Rationing” contains the word “Total” because every product or service that is bought and sold is subject to the system: every vendor, every merchant, every shopkeeper, every business person who sells anything must put the UCCs on their product or service next to the usual price, even if it is truly a zero emissions product.

Anybody or any business that burns carbon-based fuels would not be able to do so without paying the UCCs to the fuel supplier. The UCCs flow from citizens to energy companies in a direct chain of retail and wholesale commercial transactions.

This establishes a direct link between the volume of UCCs allocated by the central carbon authority and the final CO₂ emissions produced in the economy in any one period.

UCCs would flow through the economy as a second parallel currency, affecting every product or service which exists and is for sale, from televisions to train tickets, and requiring two figures on the price tag – a price in local currency ($, £, €, ￥ etc) and a price in UCCs for the quantity of carbon.

Practical Example of UCC in Commerce

For simplicity’s sake, let’s imagine that the UK has implemented Unilateral Carbon Rationing. The UK carbon authority will then work in tandem with the customs authorities (HMRC) to impose the carbon rationing system on all goods and services coming in from other countries. Now say you want to buy a television, for instance. How does UCC fit into the commercial process?

1. The UK carbon authority has allocated all citizens an equal amount of UCCs, reflecting absolute tonnes and kilos of carbon. When you choose a TV in a retail outlet, the price tag will show both the price in sterling and the price in UCCs, and in all the preceding business transactions leading to the TV arriving in the shop, there will have been these joint costs – money and UCCs.
2. The TV is made from component parts, some originating in the UK, others from abroad. The plastic casing, in this example, was made in the UK so already has incurred a UCC cost which the case-maker will need to recoup when the TV manufacturer buys it. Making the case used a lot of energy, so the maker worked out the carbon cost on (a) the UCCs paid to the energy provider, and (b) the UCCs paid for the petrochemicals it used to make the plastic.
3. The energy provider might be using gas or coal, wind or nuclear, but let’s say it’s North Sea gas from BP, so the provider had to pay BP the UCCs per tonne of gas bought. BP is one end of this production chain, and will be paying the UK carbon authority a tonne of UCCs for every tonne of carbon in the gas it pumps out of the North Sea.
4. Other components of this TV have been imported from outside the UK, from countries not yet in the system – the flat screen, for example, has come from China. The UK HMRC has an estimate of how much carbon was emitted in the making of the flat screen, and levies this amount at the border. Delivery to the TV manufacturer only occurs on payment of the required UCCs to HMRC.
5. The TV manufacturing business has now bought the component parts, paying the required UCCs, and makes the television, using more energy. So the final calculation for the TV manufacturer = the UCCs needed for parts, plus UCCs paid for energy per quarter, divided by the number of televisions produced per quarter. All UCCs expended must be recouped from its customer, the retailer.
6. Now the retailer purchases the television from the manufacturer, paying the UCCs required, and prices it for sale, slightly increasing the UCCs demanded of the final customer because it has to keep its shop warm in winter, and pay to transport the televisions.
7. Finally you, the customer, go to the retailer and choose the television, gauging the price as usual, and paying both money and UCCs in one transaction.
8. So the four-step cumulative UCC cost of the TV looks like this:
   • A for the initial carbon cost of North Sea gas extracted by BP, bought first by the energy provider and sold to the plastic case manufacturer
   • plus B for the added carbon costs of the imported screen and other component parts, paid for by the TV manufacturer
   • plus C for the energy costs of production, added by the TV manufacturer
   • and finally D for the extra energy costs of storage and transport incurred by the retailer.
   • All four costs are eventually met by the customer’s UCC purchase price.
9. Costing UCCs in this way makes the primary carbon producers (in this case BP) the ultimate recipients of UCCs, and the key audit point – annual audits will be carried out by the carbon authority to assure compliance between the quantity of fossil fuels extracted from the ground and the UCCs that they procure via their sales of those fuels. 

If any actor in the process runs out of UCCs for whatever reason, they would have to purchase the extra UCCs on the open market, which will be regulated by the carbon authority, but whose price level is set by supply and demand in the market.

Impact on the Supply Chain in Business and Industry

The introduction of carbon rationing would not be a totally unprecedented introduction. In 1971, the United Kingdom decimalised its currency and dropped the non-decimal shilling. Then in 1973, it introduced VAT, and in 1978 started mandating metric measurements. In 1990, the sovereign nations of East and West Germany reunified, completely replacing the Ost-Mark with the D-Mark. In 1999, Germany did it again with 10 other European nations to introduce the Euro.

If introduced, every citizen and every business would have to become adept at handling carbon ration weights in the same way as money. Just as income and expenditure of money is key to good financial management, the same would be true of income and expenditure of UCCs.

For citizens, each would receive a personal allocation at the start of each rationing period and must ensure they live within their budget.

Business on the other hand would be required to charge and procure all UCCs from its customers, which it would carefully manage to cover all of its own ration expenditure. From the technological perspective, business would be compelled to introduce accounting software to account for carbon ration income and expenditure.

The banking industry would undoubtedly understand the need for dual transactions where money and carbon ration transactions are carried out in parallel.

Methane Control under the UCC Framework

CH4 is a highly potent greenhouse gas, 28 times greater than CO₂ over 100 years (or 84x over 20).

To control it under UCC, businesses wishing to emit CH4 would need to be licensed for the quantity emitted in C0₂e (CO₂ equivalent) weight, paid for in UCCs.

Methane leakages from fossil fuel extraction and mining for minerals such as copper represent another problematic area. Based on experience with past mining or drilling operations and including geological data indicating potential methane leakage from oil or coal beds, average methane leakage at any extraction site could be calculated and the appropriate UCCs added to the final bill at the carbon producer's audit by the carbon authority.

Oil and gas wells and coal mines would be metered as described above under a UCC regime to measure the UCCs due to the carbon authority for CO₂ emissions, but the direct release of CH4 into the atmosphere would be 28 times more damaging than the CO₂.

Third party monitoring operations led to the detection of the massive CH4 leaks from Exxon wells in Ohio and from Texas. Such monitoring would need to become the norm.

Methane emissions from livestock is another big source globally. A farmer with a dairy or beef herd would be required to pay license fees in UCCs per head of cattle.

Methane emissions from solid waste management and composting are also a significant global source of anthropogenic CH4. Remote sensing is already used in California, USA as part of pollution control research.

Preservation of Natural Carbon Sinks and Prospects for Negative Emissions

The continued destruction of the globally significant carbon sinks, such as the rainforests of the Amazon, Borneo and the Congo, represent a large risk to any attempts to control CO₂ emissions globally.

The agreement and introduction of UCC could provide a UCCs-based income to the owners or guardians of every standing forest. The forest carbon sinks sequester about 15 per cent of anthropogenic carbon dioxide emissions, although that rate is falling. From the opposite perspective, deforestation for economic gain would have to be monitored and audited by the carbon authority, which would then demand the equivalent UCCs from the agent carrying out the deforestation. The UCC principle maintains that carbon usage in the economy must be paid for in UCCs, weight for weight.

The obvious culprit here is the palm oil industry with its extensive oil palm plantations, along with timber production, soya or beef farming forest clearance methods, and other drivers of deforestation. Unsustainable agricultural practices by indigenous farmers though would still be a problem.

The demand for biofuels would also be channelled into sustainable practices. Industrial biofuel agriculture would need to budget for payment of UCCs for CO₂ loss due to soil degradation. Large woodchip-fired power stations would pay in UCCs for woodchip from forestry operations, who would be subject to audit and ration payment to the carbon authority for the forest clearance. Future developments with current 2020 policies could otherwise lead to unchecked deforestation.

In parallel to the requirement for keeping forests standing, UCC offers a huge potential as a mechanism to pay for negative emissions. For instance, all deforested land across the globe could be reforested. As trees grow, they absorb CO₂ from the atmosphere. Reforestation projects should be able to claim this weight of absorbed CO₂ as UCCs from the carbon authority.

Obviously under the rationing mechanism, forest stewards of both intact primary forest and regrowing secondary forest would have to be subject to stringent control to the same degree as the gas/oil/coal carbon producers.

The forest condition and the amount of carbon absorbed (or lost through felling) would be monitored by remote sensing in the same way that forests are currently monitored.

The Whole is Greater than the Sum of the Policy Parts

Superiority over Carbon Taxes and Carbon Pricing Mechanisms

There is little discussion of carbon rationing as a macro-economic policy, compared to the attention given to carbon taxes or carbon pricing policies. There is an implicit assumption that the reach of carbon rationing is restricted to consumer-citizens and that a large part of the carbon economy would be not be impacted, e.g. aviation, shipping, imported emissions, in-built emissions, government services, the military. UCC as an enhanced rationing mechanism produces an impact comprehensively across these sectors.

In the UK in 2008, the British Government Home Office began developing plans to bring in carbon rationing to combat rising CO₂ emissions. The plans were abandoned after the then Home Secretary David Milliband changed roles within government.

Carbon taxation and pricing schemes aim to influence economic carbon demand via increases in carbon-related costs to commerce and industry. This layer of indirection based on the artificial manipulation of supply prices is also far from perfect because it is not comprehensively applied to all carbon outlets and it suffers due to the uncertain sensitivity of supply and demand.

It is also quite complex and difficult to construct a carbon pricing system and then to implement it. Multiple issues occur, especially on a political level e.g. in British Columbia, Canada, in the EU.

The measure of the inefficiency or the not-yet-internalised costs of climate change-induced damage is known as the carbon price gap. As of 2019, this stands at a massive 87% of all carbon emissions.. See also the World Bank carbon pricing dashboard.

Redundancy of Many Carbon Regulations under UCC

The UK Committee on Climate Change produced an extensive and wide-ranging document outlining a policy path to achieve net zero CO₂ emissions by 2050 and immediately realised 2 problems: were their recommendations plausible and are they even the best choice?

UCC would allow decision-makers to focus on how much carbon emissions to allow, rather than a thousand other things. Already academic policy analysts predict that governments will be unable to rise to the challenge without fundamental organisational restructuring.

A further problem with regulation-based policies is the extended time horizons associated with such policies. The EU in 2020 displayed a particularly egregious example of this. The implementation of the 'EU Green New Deal' will only take force 10 years down the line in 2030 and it does not allow for greater ambition until 2035.

So many of the discussions in the field of national and consumer climate policy would be rendered redundant by the automated ration setting mechanism of UCC in all supply chains. See the next section.

Implementation and Running Costs

Compared to the “free” option of doing nothing or “business as usual”, UCC has a large, up-front cost with manageable, contained, on-going running costs similar to VAT or German MwSt.

Doing nothing but rely on technological developments to bring about the obsolescence of fossil fuels is a policy that research shows cannot keep global warming below 3.0°C. This will bring global economic recessions along with damage and adaptation costs in the order of trillions of US dollars.

Compared to carbon taxes and carbon pricing strategies, UCC has a large up-front cost as business, government and citizens prepare for its introduction. Studies in 2008 in the UK and more recent studies on projects such a road traffic in Kenya and local transport in Finland show that costs are not prohibitive.

But taxes, trading schemes and legislative bans or subsidy programs have significant running costs to maintain the level of carbon policymaking that rationing would make redundant:

• establishing what citizens and industry have to stop doing
• democratically agreeing on it
• legislating for it
• implementing the laws
• monitoring the effects
• repeating the process, constantly strengthening the laws in the face of political opposition

And all this would be repeated in all 192 nations of the world.

So the carbon tax alternatives are initially cheaper, but they have higher legislative costs as governments manage decarbonisation, legislating year after year to keep up with economic and technological developments and unforeseen issues. The longer it lasts, the more likely it is that UCC turns out cheaper.

There are other costs associated with policing UCC, for instance satellite monitoring of forests. This is already carried out by space agencies, which is how the world became aware of the 2019 Amazon fires. Much of these costs exist already.

Transparency via Automatic Generation of Carbon Price on Price Tag

The New York Times bestseller "How Bad are Bananas?" picked out a highly diverse mix of 100 articles or activities, giving an analysis of the carbon footprint of each. It demonstrates the challenge faced when trying to gather this sort of information.

Very few things have the same carbon transparency as buying a tank of fuel to drive somewhere. There are unexpected inputs, hidden subsidies and incalculable interactions which make something's actual carbon footprint differ radically from the expected.

UCC would make the carbon producers the ultimate recipients of UCCs, for which they are audited by the carbon authority to assure compliance between the quantity of fossil fuels extracted from the ground and the quantity of UCCs that they procure via their sales of those fuels.

There is an example given above of how UCCs would flow through the economy. To demonstrate the point regarding information on CO₂ emissions produced per product/service even more simply, here is a example describing "widgets" carbon ration valuation:

1. A business manufactures widgets. It has to calculate the carbon ration per widget.
2. It produces widgets from components.
3. Component A has a carbon ration of 0.3kg
4. Component B has a carbon ration of 0.5kg
5. The business has to pay its energy supplier per quarter with UCCs and money, which both must be obtained from its customers.
6. The calculation is: the UCCs per widget = the UCCs needed for components plus the UCCs paid for energy per quarter divided by the number of widgets produced per quarter.
7. The energy supplier purchases fuel for power generation from the carbon producers, paying UCCs weight for weight according to the fuel required. It demands UCCs from its customers proportionate to their energy usage.
8. The widget company also has to pay for the diesel for its delivery lorry at 0.1kg ration per widget.
9. The diesel supplier pays the UCCs direct to the carbon producer.
10. As a result the carbon ration for each widget is set at 1kg.
11. The costs of components A and B were calculated similarly by their manufacturers.

A further benefit is that the business can update the UCCs demanded for their product as soon as component A or component B changes, or when they sign up to a carbon neutral energy provider, or exchange their diesel lorry for an electric vehicle.

Dynamic Stimulation of Low Carbon Industry

It's simpler, more efficient and more direct to control the carbon quantity in the economy than the carbon price, which is fundamentally a difficult policy making exercise and prone to failure and political intervention due to the inherent lack of certainty, flexibility, and stringency in such policies.

Climate policies that don't restrict supply (taxes, legislation, sector-based emissions trading schemes) are demand-based measures that only impact certain aspects of the economy while leaving others untouched, with no guarantees about consumer behaviour and progress of decarbonisation.

In 2020, worldwide implementation of carbon taxes covered only 16% of the economy, leaving the "carbon price gap" standing at 84%. The coverage of the proposed carbon currency framework would be practically 100%. So the inherent "price signal" for carbon under the carbon currency framework would be 5 times stronger than from carbon taxes as it stands, and even under an ideal carbon tax policy implementation, it's reasonable to assume the carbon currency price signal would be at least twice as strong. This stronger impact should accelerate the speed and efficiency of business adaption and innovation.

While one business catalyst is obviously the higher carbon costs due to the reduction of the carbon ration supply, both private citizens and commercial interests would benefit significantly from the boost to their "carbon literacy", as everyone educates themselves about the complexities surrounding CO₂ emissions in the economy and the ways and means of reducing their dependence on costly UCCs. Higher levels of knowledge are the driver of innovation.

Fairness and Equitability

Rationing is categorised by economists as a fundamentally progressive fiscal policy. Studies looking at rationing in the 1940s and 1950s show this.

To prevent anybody being unfairly affected by rationing, the government would hold back a percentage of everybody’s carbon ration allocation. This can be used to supplement those in extra need of UCCs through no fault of their own.

On an international scale, all citizens from all nations would receive the same individual allocation of UCCs. This would start differently for different countries yet end up the same by global agreement, using a UN-brokered convention based on the Global Commons Institute’s Contraction and Convergence framework.

Wealthy citizens could buy extra UCCs to subsidise their carbon-heavy choices, but only what other people are selling, and that will decrease regularly as the rationing continues. Such a market for UCCs is not a loophole preventing actual CO₂ emissions reduction from taking place. Firstly, limiting trading could encourage people who would otherwise be carbon-conscious to use up all their untradable allowance on cheap high-carbon products. Secondly, the market for buying and selling UCCs represents a safety mechanism in the system that prevents people or businesses falling off a carbon ration “cliff edge” by running out of UCCs.

A More Robust Future for Carbon Drawdown, the Carbon Offsetting Industry and the Voluntary Carbon Markets

The harsh reality of CO₂ emissions and prospects for their reduction means any realistic plan must include removing CO₂ from the atmosphere, or global warming will overshoot 1.5°C.

This chart displays the Global Carbon Budget. It shows annual global CO₂ emissions on the Y axis in gigatonnes. As of writing, the thick black curve has risen every year up to 2019 on the X axis. The cumulative effect of all emissions to date has resulted in a global temperature rise of 1°C above pre-industrial levels.

The 2015 Paris Climate Agreement between all nations in the world targets a 1.5°C limit to global warming, with initial commitments to keep the temperature rise "well below 2°C".

According to the latest climate science, to achieve a limit of 1.5°C warming, society must restrict further CO₂ emissions to less than 420 gigatonnes. The downward-arcing black line on the chart displays how annual emissions must decline if we adhere to the 420 gigatonne total. In other words, with current emissions at 42 gigatonnes per year, if we carried on for another 10 years, we would then need to completely stop all emissions or global warming would exceed 1.5°C.

As the chart text states, such sudden emissions reduction is practically impossible. The only way to keep the total extra anthropogenic CO₂ added to the atmosphere below 420 Gigatonnes from 2020 is to pull CO₂ out of the atmosphere - "negative emissions", in the appropriate huge quantities.

Under UCC, the central carbon bank would promote “negative emissions” by awarding UCCs to people or businesses capturing CO₂, e.g. growing trees or building futuristic Saharan solar power stations that generate power to turn CO₂ from the atmosphere back into carbon or salt crystal or methanol and oxygen.

This branch of industry is already well established as summarised by Carbon Brief in their report 10 Ways Negative Emissions could slow Climate Change

However as of 2020 the whole industry is not without controversy, in fact it is difficult to draw the line between this and the carbon offsetting industry. It is in these sectors that the rigour and robustness of UCC would be transformational.

Not only would it promote research and investment into reforestation and carbon sequestration, but because the central carbon authority awards UCCs, it circumvents the problem of who should pay for it. The main issue would be calculating how UCC payments affect the global UCC supply and therefore the global carbon budget.

Causes for Optimism

Democratic Plausibility

To a citizen considering which political manifesto to vote for, immediate threats to living standards, personal income and well-being in political manifestos generally trump more rational but long-term environmental advantages in the future.

The Australian general election of May 2019 was widely considered a climate election that was "unloseable" for the Australian Labor Party pushing a climate action agenda. The Labor Party did lose though, beaten at the polls by the incumbent Prime Minister who used every opportunity to highlight the short term financial impact that the proposed climate action would cause.

Why would the public be interested in political leaders who adopt UCC as climate policy?

• At least in the short term future under the UCC framework, the introductory level of UCCs allocated on a per-capita basis would be adequate to bring about familiarity with the carbon currency without entailing an immediate change in the average person's lifestyle choices.

• Only the most profligate carbon emitters would actually find themselves restricted during the first years of the framework. This tends to be a small number of wealthy people who constitute only a tiny proportion of the electorate. Most would agree such people should rein in their activities.

• It is probable that the progress of green technologies in the future will reduce the required UCCs in many sectors, cushioning the impact on consumers when rationing starts to cause real impact, e.g. the automobile industry

• The costs to the state and increase in taxes required to implement UCC would be small in comparison to the billions proposed for climate-related subsidies and government spending programmes.

The clarity and transparency of UCC - how effective it is in CO₂ emissions reduction and what effect it was having on the economy - would be effective right down to the individual level. This visibility would empower citizens, arguably a majority of citizens, to press their elected representatives to reduce the carbon ration supply to a greater extent as they perceive how fairly the system commands effort and forebearance across society.

Destigmatisation of Fossil Fuels

A widely-held public perception is that the extraction of fossil fuels is inherently immoral because of CO₂-induced climate change and the resulting impacts. BP's corporate image for instance has suffered at the hands of public disfavour, resulting in the company losing key sponsorship deals, being the target of divestment campaigns, and even being pressured off university campuses when trying to take part in recruitment fairs.

Commentators speak of a loss of 'social licence' but the reality of the situation is citizens are quite prepared to ignore their own part in the process as they continue to create demand in the marketplace. Either consumers with a large carbon footprint are oblivious to the simple laws of supply and demand, or they believe the moral obligation lies with the government to resolve all CO₂ emissions-related problems, but they also refuse to vote for such action.

However, when citizens go to pay for products or services using UCCs, they have in their hands the undeniable evidence that their actions result in CO₂ emissions. The only other option is to 'retire' those UCCs. A new social contract under UCC would re-legitimise the extraction of fossil fuels and recreate the social license, bearing in mind the context of a steadily reducing carbon ration supply.

This change in attitude is likely to feed into the more general climate debate to reduce the polarisation and lack of broad political agreement. Because the ethics of the capitalist market economy almost by definition allow business-as-usual, increasing numbers of citizens believe that the supply of fossil fuels is morally wrong. With a carbon rationing system in place, the ethics of the market place can be brought back more in line with society's general moral standards regarding continuation of our way of life, impacts of our actions on people in other parts of the world and so on.

Business, Entrepreneurial and Industrial Attraction

Business ultimately plays by a set of rules defined in law and is typically only concerned only with profit and loss generated by its actions within that context. The personal environmental motivations of directors and managers may often be expressed in their business models but many such business practices can be summarily swept aside by a change of leadership.

For business, UCC is relatively basic. It makes going green part of the rules.

While carbon pricing mechanisms and carbon taxes in general can integrate some 'environmental information' via price discovery in the market, UCC actually creates a new parallel market.

Due to the relative simplicity of carbon rationing, it brings more dependability and certainty. Carbon pricing policies usually have highly inconsistent track records. Being smaller, more regional and more targetted than UCC, they are highly prone to uncertainties of political intervention in a way that a blanket, comprehensive framework like UCC would not be.

Carbon pricing policies rely on inclusions and exclusions on a sector by sector basis and variation in carbon accounting practices dependent on national law. Carbon rationing on the other hand would provide comprehensive coverage of the economy and a comparatively small set of economic indicators, influences and unknowns. This would provide the backdrop for a reliable investment framework that gives a clear pathway for innovation towards carbon neutrality.

Businesses also complain that any attempts to go carbon-neutral result in a loss of competitiveness and market share as their customers switch to cheaper imported high-carbon alternatives. In a unilateral implementation, since UCC imposes the UCCs on imports at customs, the playing field is level and it prevents free-riders.

Other business problems also arise with a piecemeal approach to carbon policy. Shipping illustrates a typical problem businesses face. The International Maritime Organisation brokered a international agreement that shipping fuel must be used more efficiently by 2020, but despite 20 years preparation, it is on the verge of failure because of disagreement over who bears responsibility in the industry.

Starting Nationally, Thinking Globally

UCC can be implemented unilaterally by any nation, not requiring unanimous approval from hundreds of nations.

A nation's national borders and customs agency would act as proxy for importers of foreign goods and services, collecting the required UCCs on imported goods from the buyers.

The biggest challenge would be to avoid international legal disputes over any perceived violation of pre-existing trade agreements because of the introduction of rationing controls on the imported goods.

Other nations could join with the first nation at any point to form a larger trading block.

United Nations

The United Nations approached climate action from a top-down perspective until 2009 at the COP15 in Copenhagen, Denmark. Since then a bottom-up or 'pledge-and-review' framework has been the goal. Whatever the reasons given for this, the bottom-up approach is obviously easier if seeking a unanimous global agreement from the UNFCCC conventions. The bottom-up approach is what resulted in the 2015 Paris Agreement.

Whether the UNFCCC process turns back towards a top-down approach, or finds a middle road,, by the unilateral implementation of UCC and then the building of a UCC-based trading block, a unanimous vote at the UN is not a necessity.

The ideal solution to provide an international basis for carbon ration allocation would be the Global Commons Initiative Contraction and Convergence Framework. This is the essence of decades of international climate diplomacy, as used by UNFCCC, UK Government, the Brazilian, Russian, Indian, and Chinese delegations and as a basis for proposals by various organisations and political parties ever since.

The chart above shows at the top, the annual rates of carbon emissions allocated per capita per country, and below, in total per country (from 2000).

It illustrates how national allocations can be negotiated to the satisfaction of all countries by commencing at different per capita levels and then converging at an agreed point before contracting.

Conclusion

Universal Carbon Credits as a Carbon Currency (or Total Carbon Rationing) is a whole supply chain carbon rationing policy that covers individuals as well as companies, industries and government. While implementation would require substantial changes, there are strong reasons to believe it would induce an exponential increase in the rate of national decarbonisation and would be more likely to succeed that any other climate policy.

Supply-side control of fossil fuel extraction rates is the sole policy that can limit carbon supply and guarantee decarbonisation targets. The UCC system once in place would bring individual engagement and increases in carbon literacy from citizens. It would create various advantages in transparency, predictability, efficiency, innovation and separation of concerns for business. As well as the direct personal impact and the effect of this mechanism on business, the implementation of UCC would have further advantages covering political impacts, natural resources, international trade, the negative emissions and voluntary carbon market and financial systems in general as economies seek to accelerate decarbonisation.