Tradable Energy Quotas: Petition - REFERENCES

Petitioning the Aotearoa New Zealand government to investigate

· degrowth,teq,policy

References for TEQ petition:


1. TEQs (Tradable Energy Quotas) is an electronic system for fairly reducing consumption of carbon-intensive energy, at the national scale.

2. There are two main reasons why introducing TEQs may be desirable:

a) maintaining a fair distribution of fuel and electricity during challenging times.
b) providing a method to guarantee achieving national carbon reduction targets.

3. TEQs (pronounced “tex”) are measured in units.

4. Every adult is guaranteed an equal free Entitlement of TEQs units each week. Other energy users (Government, industry etc.) bid for their units at a weekly Tender, or auction.

5. When you buy fuel or energy, such as petrol for your car, units corresponding to the amount of energy you have bought are deducted from your TEQs account, in addition to your money payment. This is the only time you need TEQs units, and transactions are generally automatic, using credit-card or direct-debit technology.

6. All fuels and electricity supplies carry a “carbon rating” in units; one unit represents one kilogram of carbon dioxide — or the equivalent in other greenhouse gases — released in the fuel’s production and use. This determines how many units are needed to make a purchase (thus giving a competitive advantage to low-carbon energy).

7. If you use less than your Entitlement of units, you can sell your surplus. If you need more, you can buy them. All buying/selling takes place at a single national price, which rises and falls in line with demand. Buying and selling is as easy as topping up an Oyster card or mobile phone.

8. The total number of units available in the country is set out in advance in the TEQs Budget. The size of the Budget goes down year-by-year — step-by-step, like a staircase.

9. The Budget is set by the Committee on Climate Change, which is independent of the Government. The Government is itself bound by the TEQs system; its role is to support the country in thriving on the available carbon/energy.

10. Since the national TEQs price is determined by national demand, it is transparently in everyone’s interest to help each other to reduce their energy demand — encouraging a national sense of common purpose in working together to keep energy available and affordable.

Overview - How it works in practice:

The full cycle of TEQs units through the economy (source - FAQ's):

The Market for TEQs

As illustrated above, then, the TEQs registrar is the only body that can create TEQs units. It does so in line with the country's carbon budget, and then issues these TEQs units into the economy, via the entitlement and tender.

So, an individual or family receives their free entitlement of TEQs units each week. Then, to take your example, they buy electricity from a power company, and in order to do so must surrender to that company a number of TEQs units. This number is determined by the amount of energy they buy multiplied by the carbon rating of that electricity (so it costs the family more TEQs units if that power company is fossil-fuel based, and fewer TEQs units if the company is renewables-based, giving a competitive advantage to the latter).

As you can see in the diagram, the power company then surrenders these same TEQs units to the mining/extraction companies when buying the coal or gas they need for their generator, and these mining/extraction companies then in turn surrender these units back to the registrar, in exchange for permits to extract these fossil fuels.

This completes the cycle, with all TEQs units having originated from the registrar, then flowing through the economy wherever energy does, and eventually returning back to the registrar in exchange for the right to bring more carbon into the economy. This is how the TEQs system regulates carbon economy-wide (note, by capping carbon in the economy, not by trying to make it more expensive - and thus unavailable to the poor), and also why it is able to operate in a largely self-monitoring way rather than requiring extensive policing.

A regular objection is that there appears to be a lot of potential for fraud with a system involving tens of millions of consumer transactions, meaning that TEQs would require heavy regulation and policing? In fact, a particularly elegant feature of the TEQs design is that it is largely self-monitoring.

This characteristic is a product of the fact that the very TEQs units surrendered by energy consumers at, say, a petrol station are then surrendered by the petrol station when it buys its fuel from a fuel supplier. And when the fuel supplier applies to produce or import fuel, it surrenders these same units back to the agency that they originated from. This cycle (illustrated above) means that every recipient of TEQs units needs to surrender those units later. The units flow through the economy just as energy does.The Market for Tradable Energy Quotas - from TEQs FAQs

Consequently, it is in no-one’s interest to ‘let someone off’ surrendering their TEQs units, just as it is now in no retailer’s interest to let someone off paying them in cash for their fuel or electricity. We know that the police are not required to watch every cash transaction in the present economy to ensure that money has changed hands, and individual TEQs transactions will go on in just the same bureaucracy-free, surveillance-free way.

General TEQ background info:

NZ context:

NZ context - some Q&A from correspondence with the TEQ approach co-developer Shaun Chamberlain (his responses in green):

  • From a behavioural perspective, giving a full year's energy rations in a single block is likely to lead to mismanagement, especially for the impoverished. I would suggest more regular and smaller allocations might be better suited
    Yes, this is already the case, for exactly this reason. TEQs units are issued weekly. See e.g. TEQs at a glance.
  • Is there some mechanism by which we could differentiate between clean and dirty quotas (from renewables and direct from source, vs from non renewables/stored in non-renewable energy storage)?
    Yes, this is already at the core of the TEQs design, via the rating system.
    See e.g. p.14 of the Parliamentary report for a good, quick explanation of this (or p.21 of Energy and the Common Purpose for more detail)
  • I think it is likely that allowing the quotas to become financialised by the banks would likely lead to asset speculation and inflate the price beyond its useful value - is this a consideration that could be/has been factored into the exploration of the policy?
    Absolutely. All trading takes place at a single national price through the registrar. There is no third-party trading between individuals, banks or anyone else. The worry of speculation artificially driving up prices (i.e. banks or anyone else buying far more TEQs units from the reigstrar than their energy use requires) is addressed in this FAQ.deg
  • Would you consider a price cap to ensure that the market remains equitable? - risk would be the formation of black market, but the harmful effects of a black market are lessened when they do not come to dominate the mainstream market.
    If I understand rightly what is proposed (a cap on the price of TEQs units) then this question appears to be based on a few misunderstandings of the TEQs system:
  • Such a cap could not create a black market, since there is no way for anyone to trade in TEQs units besides buying them from the Registrar or selling them to the Registrar. The infrastructure for such a black market simply does not exist, and the single always-available national price (even if - notionally - capped) means that nobody would anyway wish to buy at a higher price, nor sell at a lower one.
  • The TEQs system is already intrinsically of great benefit to the poorest in society and would make society substantially more equitable than it is, as numerous studies have confirrmed (see FAQ). Hence there appears to be no need for a further intervention to "ensure that the market remains equitable".
  • A price cap would actually destroy the functioning of the TEQs system. It is important to understand that TEQs is not a carbon-pricing system - it does not aim to reduce carbon consumption by making it expensive.
    Rather, it is the quantity of carbon emitted nationally that is capped (via the carbon budget). The whole design of TEQs then flows from the aim to keep the TEQs price as low as possible in that context. Nonetheless, the price must be able to go high in order to indicate how well (or poorly, in that case) society is adapting to its carbon realities. You can't cap both price and quantity (life would be very easy if one could!) so capping price would also remove the guarantee of achieving the carbon budget.
    Remember though that no matter the TEQs price, people still have their weekly free entitlement of TEQs units.
    For more discussion on how TEQs in designed to keep prices low (without a cap, by necessity) and other elements core to this question, see pp.12-13 of our response to the UK govt feasibility study, which addresses a related question. 
  • Finally, on the idea that we would need to supplement further taxes to make up for lost revenue in this case, it is beneficial to note that central spending is inflation-constrained and not income-constrained. Thus, despite not creating tax revenue, this policy if effective would be deflationary by nature and negate some or all of the need for taxes elsewhere.

I might add that TEQs does generate revenue, via the tender of TEQs units to non-household consumers. Based on the UK government feasibility study, here this might be in the order of £6bn/year. The 'Allocation of auction/tender revenue' section of this supplementary discussion on our 2015 peer-reviewed paper discusses what best to do with that revenue.

News Articles:

2011 launch articles: