Sci-fi carbon coins could actually save our planet
The new currency in the novel Ministry for the Future has real-world supporters.
(https://www.popsci.com/story/environment/carbon-coin-real/,March 1, 2021)
The real-life carbon currency used as the basis for the “carbon coin” in Kim Stanley Robinson‘s new science fiction novel is Delton Chen‘s Global Carbon Reward, an idea we’ve been supporting and contributing to for a number of years.
The great thing about the novel and the story in Popular Science is that it makes this concept more readily accessible to the general reader. The essence of the idea is to provide scalable, debt-free financial incentives for carbon mitigation and sequestration, by using monetary policy to provide a kind of “targeted financial easing.”
While the proposal for the real-world version is somewhat more complicated, the idea itself is one that on reflection seems an obvious one, rewarding what you want to encourage instead of (or as well as) penalizing (e.g., through a carbon tax) what we want to discourage, namely carbon pollution. Surprisingly, though, it’s one that seems to have eluded most economists’ responses to global warming, which have been focused on the right way to calculate a tax on carbon.
This may be because economists frequently disparage “subsidies” as misdirected, whereas penalties such as taxes operate more neutrally through the market. But Chen argues there’s a difference between a “subsidy” (offered to incentivize an activity, such as producing solar panels) and a “reward” (provided to increase the value of the result, such as the solar electricity produced). A reward, therefore, is effectively the opposite of a tax or penalty, to discourage an unwanted outcome.
The question is, then, why have economists (and more importantly policymakers) almost completely overlooked this idea? After all, empirical research has shown that the combination of “carrots” and “sticks” is more effective than either of these alone. Much of Dr. Chen’s analysis is driven by this question—which is not a purely theoretical one, because it has clearly undermined our ability to deal effectively with what is, after all, an existential threat, not just to the economy but perhaps to all of life as we know it.
Understanding this leads us to consider the blind spots created by the mindsets (or “frames of reference” or “paradigms”) that dominate our current thinking. These mindsets are so pervasive that they lead us to ask the wrong questions and therefore arrive at the wrong answers. In this case, the wrong question is “what’s the social cost of carbon emissions,” as if carbon was some ordinary pollutant, rather than asking “what’s the risk of a catastrophic failure if we fail to do enough to curb emissions, and to reduce the CO2 already in the atmosphere”?
This leads Chen to posit something called the “risk cost of carbon,” and to propose that each of these costs requires a different policy mechanism to address the economic consequences of global warming. The proposed Global Carbon Reward is designed to provide a “kind of insurance policy” against the most disruptive consequences of climate change by calibrating the rewards issued by central banks to scientific estimates of the risks of global warming, adjusted on an annual basis.