Hint: rationing is a better approach than markets.
( Foreign Policy in Focus ) – The burning of fossil fuels—oil, coal, natural gas—is responsible for nearly 90 percent of global carbon emissions. Despite almost-universal recognition of the need to reduce the use of those fossil fuels, the industrialized world is having the hardest time breaking its addiction. The economic rebound from the COVID-19 shutdowns generated the largest ever increase in global emissions from fossil fuels in 2021—around 2 billion tons. The increase in 2022 was considerably more modest—thanks to a surge in renewable energy investments—but it was an increase nonetheless. Meanwhile, subsidies for fossil fuel consumption rose to a record $1 trillion last year.
The prevailing approach to reducing dependency on fossil fuels has been price-based—either by way of a carbon tax or some form of emissions trading scheme. Around two dozen countries levy carbon taxes: establishing a price for carbon and making emitters pay that price per unit of carbon consumed. Meanwhile, under the various “cap-and-trade” systems in place in the European Union and other places, a “cap” on emissions is established through the issuance of permits. But industries can exceed their “cap” by simply paying a penalty, while those that don’t use the full value of their permit can effectively sell their allowance to others.
One problem with the carbon tax is that the price of carbon has traditionally been set too low, so that producers and consumers do not feel the economic push to abandon fossil fuels. The problem with the cap-and-trade mechanism is that it has generally moved carbon emissions around rather than substantially reduce them.
“As I’ve explored with colleagues in peer-reviewed work in the past, ‘cap-and-trade’ almost invariably contains no meaningful cap,” explains Shaun Chamberlin, an author and activist who has advised the UK government on carbon rationing and was involved with the Transition Towns and Extinction Rebellion movements from the outset. “It always has some form of safety valve mechanism, which basically means that if the price gets out of hand, the cap is ignored.”
Accordingly, the market has failed to guide the global economy to a fossil-fuel-free future in the time frame necessitated by rising temperatures and other effects of climate change. Scientists now estimate that the world will pass the critical threshold of 1.5 degrees over pre-industrial levels in the first half of the 2030s. Market-based approaches tend to reinforce the status quo rather than transform the structures that have created the problem in the first place.
By contrast, in crises characterized by scarcity, one common solution has been to ration valuable resources. During wartime, for instance, many commodities have been rationed, from food to energy. During natural disasters, water might be rationed. Such systems introduce a measure of equity to prevent the rich and the powerful from simply buying up the scarce items and the unscrupulous from engaging in price-gouging to make quick profits. In such circumstances the cap on consumption is obvious since more food, energy, or water is simply not available.
With fossil fuels, the urgency is not around scarcity—there’s still a lot of oil, natural gas, and coal under the ground and ocean (though it’s not limitless). Rather, the international community must act quickly because of the collective harm that fossil fuels produce. As such, the various plans put forward to ration fossil fuel use are not temporary measures that elapse when surpluses return. Rather, “the cap-and-ration” approach establishes a cap that declines over time to eliminate dependency “in a way that ensures sufficiency, equity, and justice for all,” observes Stan Cox, a research fellow in ecosphere studies at the Land Institute. “These policies would include, at a minimum, careful allocation of energy among economic sectors and fair-share rationing for consumers.”
Using rationing to reduce fossil fuel use—especially in the Global North—has already come close to political reality. The UK government commissioned a feasibility study of such a rationing system, Tradable Energy Quotas (TEQs), which reported positive findings in 2008, and a significant number of MPs supported the implementation of a TEQs system in 2011. The idea also attracted interest from the European Commission in 2018, because it offered the means to actually implement and achieve the carbon capping targets set by the politicians.
Since these caps are designed at a national level—based on internationally agreed-upon carbon reduction targets like those of the Paris agreement—they are subject to democratic decision-making. But they don’t necessarily reflect global justice.
“It doesn’t take into account the existing climate debt,” points out Ivonne Yanez, an Ecuadorian environmentalist and founder member of Acción Ecológica and Oilwatch international. “The richer countries have historically ‘occupied’ the atmosphere with their emissions. So, these carbon budgets are calculated without regard to this historic injustice.”
In a March 21 session sponsored by Global Just Transition, Chamberlin, Cox, and Yanez discussed the value of rationing fossil fuels as a method to address the worsening climate crisis.
Beyond Carbon Pricing
The United Kingdom has a carbon budget that is legally binding—at least theoretically— and that restricts the amount of carbon emissions the country as a whole can emit over each five-year period. It was the first country to enact such a measure.
“As our government never tires of telling us, here in the UK we’ve been ‘leading the world in carbon budgets since 2010,’” Shaun Chamberlin notes. “Our Climate Change Act said we would reduce emissions in the UK by 80 percent by 2050. What we don’t have—and don’t look to have anytime soon—is any reasonable plan for actually delivering on these targets. Instead, we have a Climate Change Committee that regularly puts out reports saying, ‘Actually, we’re nowhere near delivering on what the government promised in its legally binding targets.’”
According to its targets, the UK is supposed to cut its carbon emissions by 68 per cent by 2030 (relative to 1990 levels) in order to reach net zero by 2050. But the government has admitted that even in the best of circumstances—should all projected cuts be made and the latest carbon-capture technology actually work—the UK will still only hit 92 percent of its 2030 goal. In other words, their strategy based on carbon pricing continues to fail.
“There’s been such a focus, and rightly so, on agreeing to globally appropriate carbon budgets that are sufficiently steep to address the problem of climate change, but also not so demanding that that they destroy economies and lives,” Chamberlin explains. “But there’s been so little focus on the parallel question of how we actually reduce Global North emissions by 90 percent in 20 years, or whatever we consider to be radical emissions reductions.”
The plan the UK almost adopted more than a decade ago—Tradable Energy Quotas or TEQs—would have taken a very different approach. “TEQs emerged from a different paradigm to the whole carbon pricing approach,” Chamberlin explains. “There’s this impossible tension built into carbon pricing. We need to make carbon sufficiently expensive that it gets driven out of the economy. But at the same time, we need to keep energy affordable.”
According to the International Energy Agency, however, about 80 percent of global energy still comes from fossil fuels, a level that has remained consistent for decades. “So, if our energy is so highly carbonized, it becomes—unsurprisingly—impossibly difficult to raise the carbon price without raising the energy price,” Chamberlin points out. The carbon pricing approach has not been able to square this circle.
“What TEQs would do is turn that on its head,” he continues. “By removing any need to raise carbon prices, it would unify everybody in common purpose around genuinely shared and actually compatible goals—minimizing the destabilization of our climate while striving to keep energy services available and affordable. And it would make the economy exist within a carbon budget, rather than the other way around.”
The TEQs system, established by economist and cultural historian David Fleming in 1996, is a national-level system for capping and then reducing the fossil fuel-based energy consumption of all energy users—individual, institutional, and corporate.
“It’s a national system for implementing national carbon commitments agreed by the government of that country,” Chamberlin explains. “All individuals within that country receive an unconditional, equal, and free entitlement of what are called TEQs units, which you might think of as electronic ration coupons. To purchase any fuel or energy anywhere in the economy, these units have to be surrendered alongside the usual payment of money. So, you go to the gas station, you pay in cash or by credit card, and you also surrender some of these TEQs units.”
He continues, “Your entitlement will be an equal proportion of the national carbon budget. If you use less than that, if you are a below-average energy user, then you’ll have some spare left from your entitlement which you receive each week, and you can sell that spare back to the issuer. So, those who are energy-thrifty get a financial benefit from using less. Those who want to use more than their entitlement can buy those spare units, but of course they’re then effectively paying the more energy-thrifty people for the benefit of doing so.”
The system is administered by a registrar that issues the quotas. “In the UK, around 40 percent of emissions come from individuals and households, and around 60 percent of emissions come from industry and companies and non-household energy users,” Chamberlin says. “In line with those proportions, 40 percent of the budget goes to individuals while 60 percent goes via an auction to all other users. Only individuals and households get the free TEQ units; all other energy users need to purchase the units they need, which sets a single national price. The only place that anybody can get their TEQ units is from the registrar. There’s no trading between you and your neighbor directly. If you want to sell some units, you sell them to the registrar. If they want to buy some units, they buy them from the registrar.”
Since TEQs units are necessary for all energy use, and are only issued in line with the national carbon cap, the national carbon cap can’t be exceeded. “As such, carbon pricing is unnecessary—and without that artificial need to raise the price of energy, everyone’s focus can turn to keeping energy as affordable as possible and life as good as possible under the cap,” he continues.
The other key part of the system is a rating system. “The government will assess each energy retailer in the country for the carbon intensity of its fuel,” Chamberlin explains. “For example, if one oil company has a more carbon-efficient refining process than another, their petrol will require fewer TEQs units from the consumer at the point of purchase. This creates an incentive all the way through the economy for lower carbon processes. And of course, relative to any oil producer, renewable energy is going to require vastly fewer TEQs units. Not none, because there is still fossil fuel used in the production of wind turbines or solar panels, but vastly fewer.”
And because the carbon-intensity of energy/fuels is assessed and rated where they enter the economy, there is no need for impossibly complex lifecycle analysis of products. “We don’t need to figure out how much carbon went into every bag of crisps,” Chamberlin continues. “There’s no need to measure the emissions that come out of every chimney or every car exhaust pipe. Instead, the rating system applies upstream, and people engage with it downstream.”
Equity is also built into the system. “At any point, people can go to the registrar to purchase more TEQs units if they feel that they need them, and at any point people can sell,” Chamberlin adds. “Because the number of units issued into the economy is fixed by the carbon budget, the price at any given time is determined by the demand. If lots of people are really struggling to live under the carbon budget, there are going to be lots of people trying to buy TEQs units, which will drive the price up. This creates a very clear message to the whole society that it’s not adapting very well to the budget, which creates a common purpose and real political momentum behind decarbonizing the economy and bringing that price down for everyone. Equally, if the price is dropping, just about everybody’s going to welcome that. Everybody has access to units at the same price at any time. The national price fluctuates in line with national demand. And buying and selling is very straightforward, like topping up a mobile phone.”
“The system we have today is essentially rationing by wealth,” he notes. “There’s only so much energy available and the richest get it. TEQs would move us from this system in which you burn what you can afford, to a system which fairly shares out what we can collectively afford to burn, while facilitating the radical reductions that an understanding of climate science demands.”
TEQs would also generate money through the auctioning of the units to non-household energy users such as industries, which is then used to subsidize consumers who are hardest hit by the price of fuel or to invest in difficult-to-fund infrastructure projects like public transportation.
Gas stations and electricity generators would surrender their TEQs when they purchase from wholesalers. “When they buy their fuel from suppliers or from the drillers or the extractors or the importers, they have to surrender units,” Chamberlin continues. “No matter whether that’s all integrated into one company or whether it’s 20 companies along the line, eventually those units end up with the people who are bringing the energy into the economy, whether they’re extracting it within the national borders or importing it. In order to have their license to operate, they have to surrender those units back to the registrar. So, you have a circular system.”
Chamberlin enumerates the benefits of the system. “It doesn’t take money from people in the way taxation does, so it’s actually improving their situation,” he says. “It benefits the poorer in society, because they tend to use less energy, but also provides assured entitlements to energy for all. It addresses fuel scarcity as well as guaranteeing emissions reductions. It’s not cumbersome or difficult for ordinary people to deal with, but does actively integrate into our daily lives the importance of reducing energy usage. And it provides a new paradigm of leadership for the nation that allows us to actually achieve our climate change targets, by making the economy exist under a carbon cap rather than the other way around.”
The UK first funded research into the TEQs system in 2006. Two years later, the government enacted the Climate Change Act, and the government launched a full feasibility study into TEQs. The conclusion, however, was that the TEQs system was “ahead of its time.”
“The government decided instead to focus on what it called international abatement,” Chamberlin laments. “In other words, rather than actually reducing UK emissions, the government intended to pay other countries to reduce them on its behalf, because that was more economically efficient. That same year, 2008, the Parliamentary Environmental Audit Committee, which is the official body that reviews Parliament’s proceedings, was incredibly critical of this position, saying that the government should be looking at this much more urgently and pushing forward toward implementation.”
Three years later, an All-Party Parliamentary Group on Climate Change published a report on TEQs that garnered international media coverage, received the endorsements of a number of prominent people, “and again was essentially ignored by the government,” Chamberlin recalls. In 2015, Chamberlin teamed up with two academics to publish a peer-reviewed paper on TEQs in the journal Carbon Management. That year, and again in 2018, the European Commission took up the issue but failed to implement the system.
His experience of the details behind these headlines has made Chamberlin somewhat wary. “If we do again get TEQs anywhere close to political implementation, we’re going to again face a determination to undermine it,” he says. “Let’s imagine a global campaign for TEQs over the next five years that creates irresistible political momentum. There would come a point at which the people within some government department or corporate think tank would say, ‘Yeah, that’s fine but we just need to put in this little safety valve to make sure that prices don’t get too high.’ And the significance of that—essentially changing it back into yet another carbon-pricing policy—will be something that only us policy-wonks will understand. The danger here is that something implemented under the name of TEQs or rationing will not actually be either, and they’ll be able to channel all of that political momentum into something that just maintains the status quo. So, for me that’s a central challenge—how can we defend the core facets of the system as it gets closer to political reality?”
Who Makes the Decisions?
Despite many discussions of clean transitions and dramatic cuts in carbon emissions, the Global North remains a heavy consumer of fossil fuels. The United States, for instance, is the leading consumer of oil and natural gas in the world. (China and India, however, are the leading consumers of coal.)
These consumption rates have not only kept carbon emissions high but have shaped the conversation to focus on carbon budgets—how much is still feasible to emit—rather than simply slashing extraction and consumption as quickly as is feasible. TEQs could be put to work in support of either aim but, as Chamberlin points out, “TEQs offers no help with political agreement on how rapidly nations should cut fossil fuel use—rather it offers the means to make it possible to achieve more radical and rapid energy use reductions in the Global North, when or if that aim is deemed politically acceptable.”
Ivonne Yanez works for Acción Ecológica in Ecuador, which has “worked on climate change for more than 20 years,” she points out. “Also, for more than 20 years, we have supported the idea of leaving fossil fuels in the ground. This is the most important premise that we have to take into account in defining any policy regarding carbon dioxide reductions, regarding energy, or any energy transition or transformation.”
Chamberlin agrees: “Absolutely the priority should be to leave fossil fuels in the ground. Then, the question becomes, how do we get that to happen? One of the things we need to do is for people in the Global North to learn to live without using as much energy as they do, which is where TEQs comes in.”
Yanez points out that carbon budgets are established by national governments. The budgets that count, in terms of having an impact on oil and gas production and consumption, are those of Global North countries. These are the same countries that are responsible for fully half of global emissions since the start of the Industrial Revolution. “So, when a commission establishes the UK carbon budget, is it taking into account the current consumption of energy in the country or the 50 less percent energy that the UK should be consuming according to a fair calculation of climate justice?” she asks.
“I agree that the idea of a carbon budget is itself problematic,” Chamberlin replies. “To my point of view, there is no acceptable carbon budget left to burn. We’re already at a point where the climate has been destabilized and is having profoundly undesirable effects. We’re torn between the physical reality and the political reality: if I could click my fingers and transform both of those, I would. But the reason why countries aren’t willing to say, ‘Yes, we’ll just stop emitting carbon tomorrow’ is because their whole economy is dependent on the fuel that contains that carbon. And hence we’ve got this huge and very dysfunctional UN process of countries trying to negotiate among themselves over what would be an appropriate carbon budget.”
Fossil fuels are quite cheap to use—because governments use subsidies to keep prices low for consumers and because the environmental costs of extraction and use are not factored into the price tag. This means that an increase in fuel prices disproportionately affects the consumers who can least afford to buy solar panels or switch to an electric vehicle. It also means that increasing the price of gas is politically unpopular.
“TEQs and other cap-and-ration systems have solid potential to gain broad political acceptance,” Stan Cox says. “As long as it’s clear that the majority in society under these systems would have guaranteed access to affordable energy to meet their needs and with greater economic security than they may even have today.”
Cox and his colleague Larry Edwards, an engineer and environmental consultant, have developed a system similar to TEQs that they call “Cap and Adapt.” The difference is that the caps and the rations are measured in terms of barrels of oil, cubic meters of gas, and tons of coal, rather than carbon units.
The rationing in these systems, Cox explains, doesn’t put the burden of emission reductions on individuals in households by limiting their consumption. Rather, it’s the declining cap that ensures the reductions in total emissions. “Such a straight-ahead rationing program is meant to ensure that everyone has enough and that access is equitable,” he says. “In these systems, rationing is not the bully, rationing is your friend. It’s something to make society fairer and ensure sufficiency.”
Such systems would ideally dovetail with “a comprehensive industrial policy that directs energy and other resources toward the production of essential goods and services and away from wasteful and unnecessary production,” he adds. “Such policies, for example, could divert resources away from military production and toward development of green infrastructure and retrofitting buildings. Or away from aircraft and private vehicles and toward public transportation. Or away from the construction of McMansions toward affordable, energy-efficient, durable housing. Or from the production of feed grain for cattle and toward grains and legumes for food. Or, overall, away from luxury goods and towards basic necessities.”
Cox also proposes a more comprehensive approach that goes beyond price controls and rationing: “a system of universal basic services that guarantees every household sufficient access to essential goods and services, including such things as public water and energy supplies, medical services, public education, and transportation, good quality food, affordable housing, green space, clean air, and public safety without repression.” He is quick to clarify. “I don’t mean that everything would be free. But there would be some guarantee that people, no matter what their income, would have access. Could all of this be feasible? Yes, by focusing energy supplies on essential goods and services rather than on wasteful, solely-for-profit production. It would also mean the sacrificing of growth for growth’s sake.”
Movements in the Global South have also been addressing the problem of unrestrained growth. Yanez points out that the term “degrowth” has little resonance “because how can we ask the indigenous people to degrow? I’d rather talk about post-growth or this idea of living well: buen vivir in Spanish or sumac kawsay in Quechua.”
“The degrowth movement is centered mainly in Europe,” Cox concedes, “but it has been very valuable in envisioning what a degrowth or postgrowth society would look like, and pointing out the differences between economic growth and the growth of human well-being. The movement purposely has not gotten into mechanisms to achieve degrowth. But I think it’s important for society to see that we have to choose between growth or survival, and that if we do what’s necessary for survival, we won’t have growth. We in the affluent societies would be better off with less, and in the meantime, there are going to be other solutions in non-affluent societies.”
Although a rationing system for fossil fuels has yet to be implemented by any national governments, several states have joined together to end their dependency on oil and gas. Led by Denmark and Costa Rica, the Beyond Oil and Gas Alliance members have pledged to end new exploration for oil and gas. Under the new leadership of Gustavo Petro, Colombia too wants to join their ranks, which is significant given the country’s economic dependency fossil fuel exports. In 2018, Ireland became the world’s first country to divest from fossil fuel funds.
The Pacific island nations of Tuvalu and Vanuatu, meanwhile, are leading an initiative at the UN level to pass a Fossil Fuel Non-Proliferation Treaty that would end the expansion of fossil fuel production, phase out existing fossil fuel infrastructure, and accelerate a just transition to clean energy.
There have also been many initiatives from below to reduce fossil fuel use. One path has been to stop extraction. “For decades, movements of indigenous peoples, campesinos, and fisherfolk have been fighting against climate change,” Ivonne Yanez points out. “And how? They do not talk about carbon emissions or reductions. They just want to stop oil, gas, and coal extraction. Here in Ecuador, for example, there are so many communities resisting oil extraction and being criminalized because of this.”
Yanez also notes that acting together means not only solidarity among peoples but establishing stronger links with the rest of nature. “It would be good to incorporate in the TEQs proposals and debate the point of view of non-humans, including the stones and the spirits,” she proposes.
Chamberlin strongly agrees on both points. “I myself have been arrested in trying to shut down fossil fuel extraction sites, and I was one of the first arrestees with Extinction Rebellion,” he relates. “TEQs is an attempt to translate some of the wisdom of restraint and absolute limits into the language of a sick empire. This is an attempt from within an omnicidal culture to limit some of the damage that it’s doing.”
He continues, “Ultimately, it’s not about the growth or degrowth of the market economy. It’s about getting ready for the moment when the system collapses under the weight of its own unsustainability. We have inherited a system that depends on growth; that growth will end by accident or by design, and soon. After this system fades into history, future systems will again be based on informal relationships between beings on the planet just like they always have been in the past before these few centuries of madness. The older cultures on our planet know how to live in that world and we should absolutely be listening to them more.”
“In the meantime, we would doubtless be wise to slash emissions as drastically as we can,” he concludes. “And it is surely beyond time to move from the endless debates over ‘fair’ carbon budgets to the actual work of reducing fossil fuel consumption in the Global North, in solidarity with the indigenous-led resistance in the Global South working to stop fossil fuel extraction. For this, cap-and-ration—whether TEQs or other closely-related proposals—appears the only policy paradigm suited to cut the paralyzing Gordian knot that carbon pricing has tied us into.”