Designing an Emissions Trading Scheme Suitable for Surface Transport

The aim of this report is to review the possible ways to reduce carbon emissions from the transport sector through the application of an emissions trading scheme and make recommendations regarding the most appropriate methods and timeframes for implementation of such schemes. The main elements of emissions trading schemes are introduced, including the establishment of an emissions target, methods of permit allocation and temporal flexibility. Different scheme designs are also described, including baseline and credit, cap and trade, open and closed and voluntary schemes. Approaches to emissions trading are discussed, such as domestic tradable quotas, personal carbon allowances and the European Emissions Trading Scheme (EU ETS). These are then examined in terms of their compatibility with existing measures. As well as a general overview of approaches, those which have the greatest potential for the transport sector are covered in more detail, including tradable fuel permits in an upstream and downstream application, and trading amongst vehicle manufacturers. The strengths and weaknesses of each approach, in terms of equity, efficiency, effectiveness and acceptability, are evaluated. The challenges to the successful implementation of an emissions trading scheme are explored in terms of monitoring and enforcement, political and public acceptability and technological feasibility. Alternative approaches to emissions trading, including taxation and mandatory fuel efficiency improvements are discussed and compared in terms of their effectiveness and acceptability. Finally, recommendations for development of a trading scheme in the UK are made based on the available evidence. These were, in the short term, a mandatory trading scheme amongst vehicle manufacturers to improve vehicle fuel efficiency, and inclusion of aviation in the EU ETS. In the longer term, a system of personal carbon allocations and industrial carbon rationing were recommended.