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Cap and Share: a Fair Way to Cut Greenhouse Emissions

Introduction to Cap and Share Report

May 2008

Full Report Published by Feasta, Foundation for the Economics of Sustainability

Cap and Share was developed to meet the twin challenges presented by climate change and the  peak in the world supply of easily-extracted oil. It is a variant of cap and trade and would limit the use  of coal, gas and oil. It can, however, be used to share the benefits from using any scarce natural  resource. It works by placing a cap on the use of the scarce resource and charging the users whatever  price is necessary to balance their demand with the capped supply. The receipts from the resource users  are then shared on an equitable basis amongst all those with an interest in the resource involved.  This paper deals with the use of C&S to deal with oil peak and climate change. If it were to play that  role globally, C&S would cap world fossil fuel greenhouse emissions and then tighten the cap year  by year at a faster rate than oil production was decreasing. This would make the emissions tonnage  set by the cap a scarcer resource than the oil supply. As a result, the whole of the extra amount that  users would have been forced to pay the producers for supplies of the scarce oil would be captured in the price paid for C&S emissions permits.

The captured money would then be shared amongst those with a claim on the capped scarce resource and, since that resource is the limited capacity of the sky to act as an emissions dump,  everyone on Earth would have an equal claim and thus get an equal share. The emissions permits  would also be scarcer than the supply of coal and gas, so C&S would capture the extra that people  were prepared to pay to use them too.. This extra is what economists call the “scarcity rent”. After some  deductions which are explained in this paper, C&S would then share the total rent from the three fossil  fuels amongst everyone on the planet.

The first paragraph mentioned charging resource users for their use of a scarce resource. Under Cap and Share, these charges are collected indirectly. The emissions permits are not sold to fossil fuel users  – that would be difficult because there are billions of these. Instead, they are sold “upstream” to companies introducing fossil fuels to the global economy. As only a small number of firms produce most of the fossil fuel used in the world, this makes C&S easy to administer. Each producer is required to acquire enough permits to cover the eventual emissions from the fossil fuels they extract.  Of course, the fuel firms have to add the cost of the permits to their prices and this puts up the cost  of everything sold because all goods and services have an energy content. However, anyone who uses, directly or indirectly, rather less energy than is produced from the fuel burned when their share of each year’s capped emissions is released is likely to receive more money from selling their permits than their cost of living goes up. As a majority of people in the world manage on less than the average amount of energy used per person, most people would gain financially from the use of C&S. This would make C&S popular and therefore politically robust. The paper argues that C&S needs to be adopted urgently not just for climate reasons but because the scarcity rent being captured by fossil fuel producers is concentrating global wealth in a way that threatens to collapse the world economy. The payment of scarcity rent is already causing severe hardship for millions of poorer people around the world.

The paper describes the way C&S could be used as the operating system for the fossil fuel part of a global climate agreement. Other systems are going to be needed to enhance greenhouse gas sinks and conserve the stocks of carbon held in soils and plants. The various options that could be incorporated into the design of C&S are described and the paper looks at the changes that would be required in other systems, such as the money-creation system, for C&S to work well. The paper ends with an account of the steps being get C&S adopted internationally, and stresses that before this can happen, the concept needs to gain massive public support.

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