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Our Insights 20 Jan 2011

Tradeable Energy Quotas: Rational Action?

By Alicia Ayars

In a report commissioned by the UK Government’s All Party Parliamentary Group on Peak Oil (APPGOPO), published Tuesday, John Henning MP states, “We urgently need to have a system in place to mitigate the economic and social consequences of peak oil.” His answer to this need: Tradable Energy Quotas (TEQs) which, at its most basic, is a form of energy rationing.

The concept of TEQs was devised by Dr David Flemming, supposedly over a curry in 1986 (though sadly, his sudden death in 2010 meant he wasn’t able to see his hard work come to fruition). During an interview in November 2010, he described the rationale behind TEQs in very simple terms: “There [are] going to be huge energy scarcities [to] come, either because of peak oil, because of climate change, or because of both. [To operate within] these circumstances there has to be some entitling system, a rationing system so that people are guaranteed to get at least fair and equal access to energy, otherwise some people will have no energy at all and the rich will [monopolise] energy; a little bit like during the war.”

This war-time analogy resonates strongly throughout a Time piece written in response to yesterday’s report, which points out that the last time rations were issued in Britain was during WWII, from 1940 to 1954, and this “is largely remembered not as a time of deprivation but of plucky courage, solidarity and fortitude in the face of a dangerous adversary.” Britain succeeded in transforming its economy and infrastructure in an incredibly short period of time in response to the Nazi threat. Within months, factories were refitted and workers retrained to support entirely new types of production and rationing was quickly accepted as the norm. Clearly, transformational change is possible if we put our minds to it, and scientists would argue that the growing challenges associated with energy security warrant just such a response. Yet according to the Carbon Trust, the UK is failing even to take advantage of opportunities for green growth – let alone to proactively reduce the nation’s long-term dependence on hydrocarbons.

The threats posed by peak oil and climate change might be less tangible and immediate than the sound of falling bombs, but they are just as real, and the government has just as much of a responsibility to act in the interest of its citizens now as it did during WWII.

The introduction of energy rationing could serve as a clear sign to the rest of the world about the seriousness of Britain’s intent to meet its CO2 reduction obligations and protect its citizens from energy volatility. Whether TEQs would work is of course open to question, but the gravity of the issue and the novelty of the approach surely warrant serious debate.

Unfortunately at least one respected media outlet – the FT – has already dismissed the concept, arguing that rationing would leave the cash-strapped consumer paying “lots more” for energy use. Yet this misses the fact that higher energy prices will be a reality, regardless of how cost is passed on to the consumer. The FT article questions the APPGOPO’s main evidence for peak oil – namely 5 year flow rates – as inconclusive, but to reject the proposal on this point alone seems incredibly myopic, ignoring other factors such as the current volatility of oil prices and the corresponding rise in food prices. If evidence of peak oil is the only objection to serious debate around TEQs, one need look no further than the IEA, whose World Energy Outlook 2010 states that “crude oil output [will] reach an undulating plateau of around 68-69mb/d by 2020, but never regain its all-time peak of 70mb/d reached in 2006.”

What remains to be seen is how the implementation of TEQs can be progressed, or even discussed outside of circles like the APPGOPO, unless the government finally recognises – as it did in WWII – that a threat of this magnitude won’t go away on its own. Are we willing to face up to the need for transformational change, or – in the words of the Time commentator – will “Brits and Americans and everyone else in the rich nations end up deciding that they would simply prefer the good life now, even if it means continuing on this absurd and relentless march into a furnace of their own creation.”

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