Updated on 2023-08-09 by Adam Hardy

Personal Carbon Trading or PCT is a mechanism for increasing flexibility and efficiency in a carbon allowance or cap-and-trade scheme. It is a component in our policy for a carbon currency and carbon allowances.

Where each participant receives a regular allowance of carbon tokens that allow the emission of a certain amount of CO₂, personal carbon trading is the platform that gives participants the chance to buy more or sell excess tokens to or from others. There are two problems where personal carbon trading helps:

participants with an already low carbon footprint are not incentivised to take any more action if they can’t sell tokens they don’t use
participants, especially businesses, who manage their carbon budget badly or suffer unforeseen issues impacting their carbon spending, fall off a cliff edge, known as “carbon bankruptcy”

Allowing people to sell their excess carbon tokens or buy more when they run out solves both of these problems. It also creates an independent carbon price for business and industry to use in strategic planning. Third, it creates a type of universal basic income for those with lower than average carbon footprints.

Doesn’t personal carbon trading mean the restrictions of a declining allocation are less effective?

There are many reasons to view buying and selling of tokens with suspicion. It’s true that without a market to sell their excess tokens, many participants would have tokens that go unused, so reducing CO₂ emissions further than planned. They may well make extra efforts to use them up though, on emissions-producing purchases that they don’t need.

But that extra win in CO₂ emissions reduction through people being stuck with tokens they don’t use would rarely be used as a key part of any emissions reduction policy.

Our carbon allowances and carbon currency framework should guarantee clarity, intent and results, and it allows citizens and businesses an extra but costly convenience and flexibility, should they run into issues managing their carbon budgets. “Carbon bankruptcy” is obviously not desirable and the threat of it would raise resistance to the introduction of the scheme in the first place. Disallowing personal carbon trading would likely result in the creation of an extra facet to the policy for the state to bail out such bankruptcies, reducing its simplicity and transparency.

The rich will always buy their way out of the restrictions – surely?

Only to a limited extent. The carbon token supply is limited – when no-one is selling, the price will go up until some people find it attractive enough to sell. Some people who aren’t “carbon literate” might be tempted to sell what they have and end up in difficulties later. Shortening the allowance period would alleviate this problem. Carbon allowances could technically be allocated on a daily basis.

In the first place though, carbon allowances on a per capita basis are inherently fair. People buying extra rations to enable their lifestyle will be compensating the more carbon-neutral people – and the more they do so, the higher the price they will pay.

The distribution of carbon footprints as well as financial income is both nationally and globally inequitable. The flow of income to the less well-off through the sale of their carbon tokens would provide what is essentially a universal basic income. We plan to model such scenarios as a part of our research program.

Like any market, there is a danger of cheating and exploitation, but how that is managed is a question of implementation. There are numerous other social impacts to be taken into consideration too. Perhaps the most appropriate way forward if this policy were implemented would be to base implementation details on the outcomes of a citizens assembly, where people rich and poor, businesses, industries and government spokespeople can put their case to a cross-section of society.