The challenge of climate change demands a response from all sectors of the economy. Importantly, action on the part of individuals will be required if greenhouse gas (GHG) emissions are to be cut to the levels necessary to avoid the worst
consequences of climate change. However, new challenges must be overcome to achieve a shift in individual behaviour. For example, the public must be engaged with any new policy and see it as a fair and worthwhile approach. Further, any measure
that engages with the public can also involve complexities associated with interactions on an individual level, which in turn can bring significant costs. To be successful, however, innovative solutions will be required and in recent years a
number of novel approaches to personal carbon allocation schemes have been proposed.

One such scheme, called Cap and Share, would require fuel suppliers to surrender tradable allowances relating to the emissions from the fuel they import. The allowances would be issued freely to individuals, who would then sell them via intermediaries to the fuel suppliers. This approach would engage with the public at a fairly simple level, whilst also shielding individuals from the impact of any fuel price rises occurring as a consequence of the scheme.

Comhar SDC asked AEA and Cambridge Econometrics to consider in more detail the design issues concerning the Cap and Share scheme, and to review the merits of the proposal relative to other personal carbon allocation approaches, and more traditional measures such as carbon taxes and regulation. They also asked for an assessment of the economic impacts of the
scheme in comparison with a carbon tax. The design issues were examined by AEA and the economic analysis was performed by Cambridge Econometrics using its E3ME model. This report contains a combined executive summary for the two project elements.