Reducing consumption-based personal carbon footprint
Voluntary bike-share riders promote low carbon lifestyles on Aug 25, 2021, in Zaozhuang City, Shandong Province. Photo: CFP
As a country’s economy grows while its people attain wealth, personal consumption-based carbon emissions also increase. Carbon emissions linked to consumption take up approximately 40%-50% of many developed countries’ total domestic carbon emissions, among which carbon emissions for transportation, food, and accommodation are the top three sources of emissions.
In the United States, carbon dioxide emissions generated by travel for households and general family life have taken up as high as 41% of the total volume of emissions. In recent years, direct carbon emissions generated by households in China have increased within the proportion of the total volume of carbon emissions. It is expected that the Chinese people’s per capita energy consumption will continue to increase, leading to continuous growth in energy consumption and relevant carbon emissions related to household living. As a result, carbon neutrality costs and obstacles to reduction will increase. Consumption behaviors play an important role in dominating the market’s supply-and-demand relationship; therefore, if consumers do not proactively pursue a low-carbon lifestyle, it will be extremely difficult for production enterprises to make true breakthroughs in reaching the low-carbon transformation goal.
Goal of ‘carbon neutrality’
The goal of carbon neutrality has brought rather high standards for carbon emission reduction in China, requiring comprehensive formulation and improvement of carbon emission policies and design, making overall plans while taking into consideration both the production side and the consumption side. Due to the limitations of the gap between economic development stages and technological conditions, currently, “carbon neutrality” has put a greater emphasis on carbon emission reduction from the production side. Primarily, the national carbon-trading market covers the electric power industry, and it is estimated that the plan will expand to incorporate other high-energy-consumption industries, such as cement and construction industries. However, with the annual increase in consumption-side carbon emissions in areas including family housing, transportation, and travel, and with increasingly more rigorous carbon emission reduction policies as the backdrop, a consumption-side carbon emission reduction policy design should be implemented as soon as possible.
Therefore, it is necessary to compare and analyze carbon-trading tools from the perspectives of efficiency, effect, and equality, and combine the realities with possible obstacles to consumption-side carbon emission reduction in China, to eventually put forth policy options for consumption-side carbon emissions reduction. In early stages, local pilot projects which carry out Personal Carbon Trading (PCT) are recommended, with the main goal of encouraging consumers to actively take part in pilot projects for surveying purposes. In later stages, the purpose of pilot projects will shift to improving carbon trading plans, and then policymakers should decide upon, and select, the most efficient carbon emission reduction plan.
Tools for reducing carbon impact
In comparison to tools used for production-based carbon emission reduction, tools for consumption-based reduction mainly include carbon taxes and low carbon subsidies, as well as emission trading plans that are on trial in some areas. The concept of carbon trading in consumption was raised a long time ago, yet it still remains in the exploration stage. Since the policies have just been introduced, and public acceptance needs improvement, the existing PCT systems are mainly participated in voluntarily by citizens.
For example, since July 2015, seven cities in Guangdong Province, including Guangzhou and Zhongshan, have initiated a voluntary emission reduction pilot plan named “Guangdong Tan Puhui.” By encouraging citizens to reduce their carbon footprint, the project quantifies participants’ environmental acts and transforms these into credit which they can use to exchange for products or discount coupons.
To reduce consumption-based carbon, whether the government will levy a carbon tax or utilize PCT is determined by three factors. The first factor is the cost. These two methods differ greatly in their total cost. Regarding implementation costs, a carbon tax is less expensive since it can be collected using the existing tax system, whereas PCT costs more in terms of market construction, since it involves more participation. PCT plans also have higher operation costs, since they involve more business accounting, supervision, and transactions.
The second factor is the policy’s effect. The two methods differ in their economic effects and their effects in reducing carbon emission. The emission reduction effects of a carbon tax are related to the price elasticity of product demand. It remains uncertain whether or not we can meet the set goals for reducing carbon dioxide emissions and other emissions. In contrast, the mechanism for carbon emissions trading can effectively quantify emission reduction goals. Also, the total emission reduction goals can be determined as soon as the total emission quotas are determined. Therefore, carbon trade may prove to be more effective in reduction effects.
When it comes to economic effects, a carbon tax can be directly attached to products, which has a direct impact on both consumers’ shopping behaviors and enterprises’ production decisions. In contrast, consumers of PCT are less sensitive to signals in carbon pricing, and therefore the mechanism has a relatively smaller impact on the production side.
The last factor is policy acceptance. Both carbon taxes and PCT plans stipulate that consumers have equal rights to emission. PCT is relatively more flexible, since consumers’ income redistribution is the optimal decision made based on their constraint conditions. In addition, similar to production-based tools, the application of a carbon tax is equivalent to raising products’ prices, which directly constrains citizens’ purchasing power and will naturally induce more resistance. Furthermore, a carbon tax tends to have flat rates and is likely to be regressive—meaning the tax will disproportionately burden low-income groups—which, to some extent, reduces the feasibility of the policy.
In comparison, carbon trading quotas are usually distributed for free, and therefore are more readily accepted than a carbon tax. This mechanism gives consumers stronger decision-making rights and more flexibility in reducing their carbon footprints. It also means a fairer income distribution and less resistance.
The journey of carbon emission reduction is one with great uncertainty as we march towards carbon neutrality. Adjustment will be difficult once the carbon tax rate is set, and it is difficult to reflect the changes in the actual emission costs in a timely manner. Even if the rate can be adjusted in a timely manner, there will always be a lag, making the mechanism inflexible. In contrast, price fluctuations in the PCT market can rapidly reflect signals such as market supply and demand, as well as market expectations. Meanwhile, the government can flexibly adapt its projects to the changing carbon reduction situation.
Advancing PCT
China is a developing country that requires large consumption growth to sustain its economic growth. Therefore, it is necessary to encourage low-carbon consumption while heading towards carbon neutrality. Carbon reduction policies need to balance both production and consumption. Specifically, we need to test the PCT pilot mechanism to see if it reduces consumption-based carbon emissions.
A key challenge to carrying out PCT is whether or not the carbon emission reduction earnings can cover the costs of institutional improvement.
In the early stages of implementing pilot plans, it is suggested to engage consumers on a voluntary basis, with free distribution and material rewards. This will help consumers better perceive their personal carbon footprint while establishing an effective incentive system for carbon emission reduction. As the projects advance to later stages, we can consider compulsory participation in projects like tradeable carbon permit auctions—in a limited area.
As PCT mechanisms further improve, price signals in the carbon market will reflect actual carbon reduction costs more accurately. Based on this, the government can choose the mechanisms that are more effective and plausible.
Running a PCT system takes extensive project design, which includes factors such as coverage areas, quota accounting, allocation plans, emission monitoring, and exchange mechanisms. Any improper setting could result in a malfunctioning market trading system. However, as long as there is sufficient consumer participation, PCT can be continuously improved.
PCT also helps offset the negative effects of price adjustments on the vulnerable. Under the current tiered pricing mechanism for electricity, cross-subsidization has occurred due to widespread deviation of power prices from the optimal cost.
As a result, those who use the most electricity are given the most subsidies. Since electricity consumption is in positive correlation to income, low-income residents end up subsidizing high-income residents, which does not make sense. Simply raising the total power price would make low-income residents even more susceptible. The only way to allow high-income residents to bear the effects of price adjustments would be to widen the price variance of the tiered pricing mechanism.
China’s residential electricity service has strong public functions. This is why, when designing the tiered electricity mechanism, the government ensures that the penetration rate of first-tier basic-need electricity reaches 80%. Trying to reduce the total amount of cross-subsidization while fixing first-tier power prices would mean big adjustments to second and third-tier prices.
However, massive adjustments to the tiered pricing system may face push-back from residents. This is where complementary mechanisms like PCT can be brought in, to indirectly implement price control over big electricity consumers, while also passing some of the consumer welfare to households that consume less electricity. PCT can not only help solve problems brought by energy price adjustments, but also offer a more flexible and practical solution to consumption-based carbon reduction.
Lin Boqiang is the dean of the China Institute for Studies in Energy Policy at Xiamen University.
Edited by WENG RONG