Episode 14: Kim Stanley Robinson, Kate Raworth, and Delton Chen Discuss "Carbon Currency" [Full Transcript]
Carbon Currency Part 2
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Kate Raworth: “We are running down the living world, destroying species, we are using way too much fertilizer. So we need to come back within planetary boundaries at the same time as meeting the unmet needs of billions of people worldwide. This is a double whammy challenge, it’s never been taken on before…”
Casey: This is Pricing Nature. I’m Casey Pickett. You’re listening to the second of two episodes on the idea of carbon currency. To begin, let’s orient ourselves.
Beginning in March of this year, the nation of India faced widespread and severe heat waves, with temperatures rising above 43 degrees Celsius (110 degrees Fahrenheit.)
“It is unbearably hot in India right now. A brutal heatwave is scorching the region…”
“More than a dozen people have died in India in the past two months, due to a severe heat wave.”
2022 marked the hottest March on record in India. It’s estimated by climate scientists that climate change made this heat wave 30 times more likely to occur.
“Prime Minister Narendra Modi says his country is getting too hot, too early in the year…”
As we prepared for the conversation you are about to hear, we were struck by the tragic similarities between that heat wave, and the one that opens Kim Stanley Robinson’s novel, The Ministry for the Future. In the novel’s first pages, India is hit with a severe heat wave and high humidity, a deadly combination that pushes wet-bulb temperatures above 35 degrees Celsius. (A wet bulb temperature of 35 describes an air temperature of 35 degrees celsius at 100% relative humidity, or an equivalent combination of higher temperature and lower humidity.) The point is, at wet bulb 35 and above, humans can’t cool themselves with sweat, the body overheats, and even most young, healthy humans will die within six hours without access to some form of cooling or air conditioning.
In Kim Stanley Robinson’s novel, electric grids across India fail during the wet-bulb 35 event, leaving millions without access to air conditioning. As a result, an estimated 20 million people die within hours.
Robinson’s scenario is fictional, of course. But had India’s actual heatwave this year coincided with higher levels of humidity -- it happened to be quite dry at the time -- the fictional nightmare scenario could have become a reality.
We are in dire need of policy interventions to stop these nightmare scenarios before they occur. Last week, the United States Congress passed the Inflation Reduction Act, also known as the climate bill, a remarkable and deeply encouraging piece of legislation. It will invest $370 billion in climate change solutions like renewable energy and building electrification. This is a culmination of the policy shift we’ve been exploring for two seasons on Pricing Nature, a shift away from carbon pricing toward investments in justice-oriented approaches. It is amazing that this bill finally passed. The law is expected to enable the US to cut its emissions about 40% by 2030, which puts the US, and in many ways, the global economy, back in the game. We now have a chance to keep global warming below two degrees celsius. There is a great deal to celebrate. It’s like we were down 1-3 in a football game, and this policy success brought us up to 2-3. We’re in this. But how do we even the score?
It’s going to take more ideas, and more breakthroughs, to tie it up as a civilization, and then to succeed together. With this urgent question, how do we keep transitioning the global economy to support a healthy climate, we turn to the central policy intervention in The Ministry for the Future, which explores the struggle to identify global solutions in a world racked by an accelerating climate crisis, much like our own. The main policy idea is to create a new global currency, paid out to people and companies that reduce carbon dioxide production and remove carbon dioxide from the atmosphere. We dug into this idea of a carbon currency in our last episode, exploring several critiques of it.
In today’s conversation, we bring on three guests to discuss the feasibility, ethics, and design of this carbon currency idea. Kim Stanley Robinson (or Stan to friends and acquaintances) is the author of The Ministry for the Future. Delton Chen is the creator of the carbon currency idea that Stan drew on for his novel. And Kate Raworth is a self-described renegade economist from Oxford University. She is the author of Doughnut Economics, a book depicting a 21st century framework for economics built on meeting societal needs without exceeding planetary boundaries.
Without further ado, my conversation with Stan, Delton, and Kate.
Casey: I think that we have the honor of being the place where Stan and Delton are meeting, sort of face-to-face for the first time. And that may be true for both of you with Kate as well. Would you like to just start with some real brief intros?
Stan: Sure, I am Stan Robinson, Kim Stanley Robinson, science fiction writer, and my most recent novel, The Ministry for the Future is kind of a sketching of a best case scenario future that necessarily has to be based on a new political economy, that we can't get to a best case scenario without one. And so I relied in very fundamental ways on Delton Chen's work and have been since hugely encouraged by Kate Raworth’s work. So I'm happy to be here. It's a real pleasure.
Kate: Yeah, for me too, for me too. This is the first book I read this year. I decided to kick off 2022 with that… I liked the way he said it’s “a slight sketch,” But yeah, the opening chapter stopped me in my tracks… Brilliant, brilliant book.
And I've hugely enjoyed first encountering the carbon coin in this book, but then reading Delton's papers about it and thinking about the role that you're both playing in reshaping future policies.
Casey: Thanks, Kate. Hi Delton, how about you?
Delton: Oh, well, I'm just beside myself because actually this is the first time I've talked in real life with Stan.
And Kate, wonderful to meet you.
Casey: Fantastic. So I want to start with two small distinctions, before we get really going into the conversation. One is that we'll be talking about two very similar and highly related ideas: the global carbon reward as Delton Chen has developed the idea, and the carbon coin as Stan Robinson put the idea that was inspired by Delton Chen’s paper into his novel, but those two things aren’t quite exactly the same.
The carbon coin is sort of fixed in that incredible work of science fiction. And the global carbon reward is an idea out there in the real world, that Delton’s continuing to develop. So we'll try to make that distinction as we talk, but I wanna just clarify that.
And the second thing I want to open up with is that, in these kinds of conversations, I think we're often implicitly asking what should people spend their time doing? You know, like trying to make happen.
Specifically, should people explore and experiment with and potentially advocate for this big new climate-focused economic policy? But I think that question is really composed of two others and it's kind of answering a kind of optimization between two other questions and those questions are: is this the kind of change that should happen? And is this the kind of change that really can happen?
So I want to suggest that we start by tackling the first part, should we push for a global carbon reward? And then later in the conversation let's get to, could that really happen? What might that look like? What are the challenges?
So Stan, could we start with you? Can you, drawing from your latest novel The Ministry for the Future, could you paint the setting for us, a vision of the future of catastrophic climate change? What might we be in for?
Stan: Well, sure. You can see what's happening already, it was pretty clear in Glasgow and it's been clear all along… As the 2020s go on, there's going to be a discrepancy that builds up between what we need to do in terms of rapid decarbonization of civilization itself, and what we're actually doing. And that discrepancy is going to create damage in the biophysical system that will hammer human beings, and there will be more and more intense calls to do something to rectify this growing catastrophic situation. And I wrote about it in Ministry for the Future. Wet Bulb-35 events are soon to come. Combinations of heat and humidity so ferocious that people die in it, unless they're in air conditioning. So this is the point of the spear, but there's any number of other catastrophic damages that are coming down the road. And I don't even want to sketch them out in too much detail to save more time for other things that we can talk about.
It's clear. We already have experienced fires, droughts, floods, and the loss of ice, so that we're going to have sea level rise. All this is already happening. So the discrepancy is only going to grow. And when people begin to cast around for “what do we do,” economics is crucial. And there aren't that many reformist tools where we can use the system that we've already got and flip it in certain ways so that the highest rate of return becomes doing good things for the biosphere.
This is where Delton and Kate’s work will come in as crucial interventions and will be picked up…
One time, I was told that politicians, when they're in a moment of desperation, they look around for the tools at hand and the tools are handed to them by people thinking “political economy.” And it's not like they're going to think up the solutions. They're going to pick up the tools they have at hand.
There aren't that many people doing it. So this is rather a remarkable confluence. Ideas that can be enacted now in the current global order, that's what you're seeing from Kate and Delton's work. So I'm gonna stop here and let's hear what they have to say.
Casey: Thanks Stan. So Kate, maybe that's a good opportunity to turn to you. When you think about climate change and the impact that the economy and even the field of economics has had on it. What got off track here? In policy terms, why do you think we're in this crisis?
Kate: I think the economics that is taught and practiced in the world gets off track in the very first one. I talk to students around the world about, and indeed professionals in their life and say, “who here ever studied any economics?” And a lot of people put up their hand because a lot of people study a little bit of economics and then go on, become a business person, a politician, a lawyer, a community organizer, but that economics they learned frames the way they see and understand the world.
And then I say, “what's the first diagram you remember learning?” And it's the same the world over. It's supply and demand. This little crisscross of people wanting to buy something, people wanting to sell something. And it crosses at the point where the price of supply meets demand. To me, that's a hugely political act, to begin economics there, we're literally saying “Welcome to economics, which means the art of household management.”
That's what economics means coming from the ancient Greek roots. So we're entering the art of household management and today it can only be made sense of at the scale of our planetary household. And yet on day one, we say “Welcome to economics. Here is the market.” As if the market were the economy. I think it's one important and key form of provisioning, but by far the only one, and it puts price at the center of our vision. So it tells us the price is the metric of concern when we're talking about the economy. And it means that anything that falls outside the price contract by economists is called an externality.
Now, this means that in these not even early days anymore, a fifth of the way through the 21st century, we find ourselves talking about the ongoing death of the living world, where the economists say, “Yes, yes, that's an environmental externality!” To me that is alarm bell enough that this framing and this starting point of economics, beginning with the market and leaving the living world in which everything depends as some kind of external problem that we therefore should try to correct for later, is appalling and outrageous. And we need to begin again by putting on day one, a vision of what we're trying to achieve in an economy.
I drew a donut. You could draw it in many different ways. I drew it as a donut: leave no one falling short on the essentials of life, don't overshoot the life support systems of our planetary home. Let that be the 21st century economic goal.
And then let's design the markets and the tools and the government interventions and all economic systems in service of that. So we have to recognize the economy is a subsystem of the living world. That's the fundamental move of ecological economics, which is the only kind of economics that makes sense to me. It's economics practiced on planet earth. Where's the rest of it happening? So we recognize the economy is a subsystem of the living world and therefore must be consistent with the cycles of the living world, if we, as humanity, are to belong as part of this planet.
Casey: Thank you. So, in your work and your latest book, Doughnut Economics, you described the power of diagrams and you've just laid out one there. I wonder if you could go a step further describing your theory of doughnut economics and describe the new diagram that you've developed, that you based the title of your book on.
Kate: So the donut, if you think of a donut, the kind with a hole in the middle, the goal is to live within that donut shape space. So we want to leave nobody in the hole. That's where people are left falling short on the essentials of life. It's where people don't have the resources to have sufficient food, healthcare, education, housing, political voice, income…
The world’s governments have already agreed that nobody in the world should be left in this hole, the sustainable development goals do that. So leave no one in the hole. But we know that as we use our resources to meet our essential needs, and once we put some pressure on the planet, we convert land for agriculture, for cities, for housing, we use fertilizers, we've been using fossil fuels… So we interact with living systems, and we therefore need to make sure that we also don't put so much pressure on these systems that we begin to kick them out of balance.
And it was in 2009 that a group of leading earth system scientists came together and said, what are these critical life supporting systems of our planetary home? Let's call them “planetary boundaries.” There are nine of them, from a stable climate to healthy oceans to protecting the original covering of land, protecting biodiversity, to ensuring that the water cycle is recharging, to a protective ozone layer overhead. So we need to find a balance.
And to me the key of this is that the shape of progress that we spoke to in economics in the 20th century… The shape was endless growth. An ever rising line measured in GDP, national income. That is not the shape of 21st century progress, in my mind. The shape of progress is finding balance where we meet the needs of all people within the means of the living planet.
And we know we are way out of balance, we are way over on carbon emissions. We are running down the living world, destroying species. We are using way too much fertilizer. So we need to come back within planetary boundaries at the same time as meeting the unmet needs of billions of people worldwide. This is a double-whammy challenge -- it's never been taken on before. For me it means that there's no country in the world that should call itself a developed country. I can't think of a single country that has that claim because all high-income countries today are massively overshooting planetary boundaries, destroying the living world, and destroying the prospect of all lower income countries, as Stan’s novel so profoundly shows us what happens in India due to the emissions of high-income countries.
So we're all developing countries now, on an unprecedented trajectory. And I believe we need new policies, new concepts, new tools to get there because the policies of the past were not invented for these times.
Casey: Thank you, Kate. So let's explore one of the many ideas that are out there and that are possible for realigning the way that we provision ourselves on the planet, with the planetary boundaries. Delton, could you describe how this corrective measure, rewarding people and organizations for de-carbonization activities could set us on a better path. What is the global carbon reward?
Delton: Sure, Casey. I’d just like to say first that I came to this problem as an outsider, I'm not a trained economist, I'm an engineer by training. So I came to the sustainability problem, the climate crisis from really a natural science perspective and a systems perspective. And I'm really asking the same questions that I think everybody's asking. What is the institutional and policy arrangement for the donut? Because I think we can agree, we have to live in the safe zone of the donut, otherwise we're clearly in trouble. But I do not see a clear conceptual model or policy toolkit that defines the doughnut parameters and how it's supposed to actually stay there.
Now the global carbon reward, which is the policy I put forward using carbon currency as the tool, AKA the carbon coin in Stan's novel. The reason I see this as being a potential resolution to the carbon question is because it comes with both a conceptual and theoretical model and a policy that could be implemented, assuming society likes the idea.
So how does it work? Well, it's really about looking at our civilization as a system that evolved, emerged naturally using fiat money and other types of money to arrive at the situation where we're at today. And this situation is that we survive through consuming and burning organic matter, including fossil fuels and organic fuel.
And we all always have done that since human beings really were still in caves or living in trees, if you like. We were always consuming and burning organic matter. So we as a civilization, are really like a respiring super organism. The approach I'm taking is to say, well, if that's the case, maybe we shouldn't try and actually fix the system. Maybe the problem is we need another system to complement it.
So in a metaphorical or analogous way, what I'm arguing with the carbon currency is to create a parallel economy that really plays the role, so to speak of photosynthesis. That is, it's specialized for conventional mitigation and taking carbon out of the atmosphere, which would then rebalance the civilization in terms of its carbon balance.
This is the way that systems work in nature to a certain degree. Nature has evolved by specializing either as respiring or photosynthesizing systems at the cellular level and at the level of whole organisms complex organisms. So that's a framework that I put forward. That does need review and testing from a scientific perspective, but it is a conceptual model which I think makes sense at multiple levels.
So I would say let's build a parallel economy. Let's make this new economy really specialized and effective at climate mitigation. We use a new currency and when we develop the carbon currency, we can create new social agreements and we can fund this through central bank monetary policy and currency trade.
So when we get into that new approach, it invokes new ideas, which we can talk about. And one of those ideas is: let's shift over to monetary policy. We're currently trying to use fiscal policy through governments, but we've got to acknowledge something about governments. They're not perfect.
In the world today, we can see happening in real time where governments disagree on fundamental issues of concern, such as national security. If there is division globally, how do we cooperate with fiscal policies? We start to attack each other, or fiscal policies such as carbon taxes and so on become a problem for people who don't want to be taxed.
So why don't we try a monetary policy and look for a carrot instead of a stick.
Casey: Cool. Let's get into that in a second… I'm curious, Delton, if you could, can you walk us through, how the global carbon reward would actually flow through the economy from the creation of a single reward unit, to its use, to its trading?
Delton: Sure. We would actually need a new institution and this institution would be given the responsibility of implementing rules that say, “If you produce cleaner, you organize your business to emit less emissions and consume cleaner goods and services, or if you take carbon out of the atmosphere, we’ll give you some carbon coin or carbon currency, and you have to enter into a long-term service level agreement potentially up to a hundred years as an organization.” And that way we can control more closely what's going on at the project level.
Casey: What do you mean by a service agreement?
Delton: Well, it's a contract. A contract between the private or public institution/organization and the international standard. Call it a carbon standard or carbon exchange standard. And it includes the measurement reporting verification details, the rules on defaulting and the playbook, effectively. With a lot of detail.
So that the business has to abide by their service level agreement, which they sign to earn the carbon currency.
Casey: Okay. So I'm a business, let's take maybe the simplest example, I’m a business that has technology for taking carbon out of the atmosphere. I take one ton of carbon dioxide out of the atmosphere. I measure that, I get it verified, presumably by a third party entity. And then I… I apply to the global carbon standard. And then the global carbon standard sends me this reward. Can you take it from there? Then what do I do with this? What can I do with this reward?
Delton: Well in our policy, the carbon currency is not money in the traditional sense. You can't use it to go shopping with. That's a particular detail which is really important. It's an asset, a financial asset. So when you do need to spend that wealth, you simply trade your carbon currency with your local currency. So Casey, if you live in the US, that would be US dollars. I'm in Australia, the Australian dollars, or British pounds Sterling, so on…
You trade it in the foreign exchange currency market. And then when you have your local currency, you spend it. So the question then is, if that's how it works, how do we make sure that the carbon currency has a certain value in the currency market? And if we can solve that problem, then we've created a policy where we control the exchange rate and the reward value.
That second question, how do we manage the value, that is the macro economic question involving central banks, potentially. With a policy that has sometimes been discussed, actually, I've heard Stan mention it many times, it's called carbon quantitative easing. And this is where we get the central banks to buy the carbon currency, to maintain a rising floor value, calibrated to target the Paris agreement.
So if all the central banks in the world are on board with this international policy, we can set this floor price for as long as we need, so hundreds of years into the future. Make sure the floor price is high enough to achieve our climate objective and that's how we fund it. So does that make sense?
Casey: Yeah, no, I think it does. If we have time, let's come back and get into more detail around the macroeconomics around that a little bit later. Thank you.
Stan turning back to you, can you paint a different future, if we had the carbon currency: How does this fit, this idea fit into the future? What kinds of problems do you see it solving?
Stan: Well… If the highest rate of return is to wreck things and to burn more carbon, then private capital will flow there. It's an algorithm that's over-simple. It's what Kate was pointing to with this price that is simply supply and demand. And it isn't a good measurement of what we need to do.
So first… Kate’s doughnut is a cognitive map. It's a graphic representation desperately needed because it's… simple, and you can comprehend that the inner circle represents all the work towards justice and human equality, very important that everybody understands that's a giant part of the project. Then the outer circle is the planetary boundaries that we can't cross without crashing the biophysical systems in ways that we can never pay our way out of.
It's important to emphasize that. This is not an economic problem anymore, but a biophysical crisis. So say we take that on. And then Delton’s idea, that you get a reward, that there is a carrot instead of just the sticks of taxes, that if you were to do good de-carbonization work, you could make your living at it. It would be a way to make money. And as Delton explained, backed by the central banks and tradable with ordinary currencies, it would be a kind of a standard like the gold standard used to be, except it would be the carbon standard. It wouldn't be pure quantitative easing where you just pump money out.
The central banks make up new money, which is risky, in terms of people's trust in money itself. It would be based on how much carbon is being dragged out of the atmosphere. And you could only create as much carbon currency as carbon got dragged out of the atmosphere, which is a great physical anchoring for people's trust in money itself.
And the value of the carbon coin is backed by the central banks, doing the good work that it's doing, private capital would rush in…In fact, you'd have to make sure that the carbon coin isn't too valuable so that you kill liquidity by having everybody put their money there. So it would be a delicate balancing act that economists would be involved in and the central banks would be concerned.
Luckily, there is a network for greening the financial system, which is 89 of the biggest central banks in the world. And luckily the G7, the G20, the so-called G2, (US and China), if those central banks were on board with this plan, it would be backed adequately and people could then begin to invest. Private capital could begin to flow into this realm, thinking, it not only is one of the highest rates of return, but it's actually the sanest rate of return because you're doing good work for the biosphere. And there is a lot of private capital out there that is no longer just a mindless algorithm, but as actual asset managers thinking it would be good to do the sane thing. It would be good to keep the world alive. It's good for business.
So, to sketch it out with that theoretical introduction: It's just as Delton described…Say the central banks, say the G7 central banks, or the G20 say yes, we're going to now give people a carbon currency, exactly rated on how much carbon they draw down.
And also, this is secondary but important, if you keep your carbon in the ground, we'll give you a discounted carbon currency as well. And what you meant by the contract, I think is that this money is entailed. It's not just pure money and created from scratch and given out. It comes with the obligation to spend it on de-carbonization or you earn it by way of de-carbonization.
So the carbon quantitative easing, luckily the central banks are already talking about it. The idea that we could change monetary policy to better conform with the physical crisis that we're in is something that is so powerful. I have an idea that the central banks are indeed studying it and they're picking up these ideas.
So I guess what you would see is a world in which investment capital, that Mark Carney's $130 trillion of assets that have promised to go green, would suddenly be paying human beings to electrify the energy system, to draw carbon down, to create wildlife corridors and to start taking care of wild nature, to do biodiversity work -- that too is decarbonizing and is important.
And then you would begin to make your living as a wolverine ranger or a sticker of carbon down underneath the earth. The oil industry could be repurposed to shove this carbon back down into the ground… It could very much resemble a full employment program, which helps with the inner circle of the donut. No longer do you worry about the unemployed, but really there's more than enough work for everybody to get ourselves through this crisis.
So suddenly the old fear of capitalism that I need to take a crap job, what Graeber called a “Bullshit Job,” because it's that or starve… Instead, you could go out and find yourself good decarbonizing work, and get paid for it at a living wage. And the inner circle gets sustained. The outer circle gets protected.
And it would also be repairing the biosphere fabric.
Casey: Thanks. Let me take two images out of that: One is the previously unemployed person who is now building a small compost business, and is, in a small but measurable way, sequestering carbon into soils. That sounds great. And lots of people could be really excited about that idea.
The other image that sticks in my mind is the one you mentioned of oil companies being paid to sort of reverse the flow and put captured carbon back underground. I could imagine lots of people having a real hard time with the ethics of that one.
Can you react to that? How do you think about the ethics of a system that pays people in companies that created the problem in the first place?
Stan: They didn't create the problem in the first place! We created the problem in the first place. We burned that oil, that oil is running in our veins. We eat that oil every day. This culture, this civilization has lived off of fossil fuels for over a hundred years. And it wasn't the oil companies and 80% of the oil on the planet is owned by national governments anyway. And these national governments have often had poor governance, the money hasn't gone to their people of these countries, it's gone to their governors. And it would be great to have better governance in the Petro states.
But no, the ethics of it is a kind of silliness, a self-righteousness that is completely inappropriate. We're in a biosphere emergency. We've got to do a lot of things that are new and somewhat strange, but to get on one’s high and mighty horse and say, “Oh, well, you can't possibly compensate the oil companies, they’re evil. When you've grown up on oil and it's in your veins, it's silly. It's just plain silly and it needs to be challenged as such. Get a grip! Look at the problem and deal.”
Casey: I'm laughing because I'd like to turn to Kate next and ask her to react to that, but she's in an awkward position now!
Kate, what do you think of the ethical dilemma created by paying people and organizations to remove carbon from the atmosphere?
Kate: I'm going to, for the pleasure of the debate, I don't think it's only silly. Because yes, I agree with Stan, we eat oil. We have lived off oil. Our civilizations have been constructed around oil, with a car dependency. Think of the suburbs, especially the United States. We are locked into our cars and our homes through consumption, but I cannot just brush aside the power of the companies to lobby, to obfuscate, to smoke and mirrors, to confuse, to question climate change, because it has massively served them.
So I won't let them off that hook and say, put that all aside. Let's just pay…
But I want to come back to where I do agree. I think finance should be in service to a real economy that is in service to life. And as we know right now, life is massively transgressing the life support systems of our planet. So if we can create jobs in the world that create good work of restoring the living world, of drawing down carbon so that we reconnect with the carbon cycle, that we restore and rewild lands and bring back the richness of ecosystem… If that can be turned into good, well-paid work, I'm all in.
And so what I really like in this proposal is that focus on decarbonization and drawing down the carbon on the fact that it doesn't allow an offset market to be created, right? So we don't get into this kind of tradable offsets, where actually it doesn't even add up in the end. And also the intention of having co-benefits to society, to biodiversity, recognizing that there's a real danger that we pursue carbon draw-down at the cost of people's wellbeing, at the cost of ecosystems…
And in fact, this is one of the reasons why our system scientists came up with the nine planetary boundaries. They said, tackle climate change, yes! But not at the expense of all other dimensions of the living world. And so any attempt to resolve climate change also has to take into account the complexity of the systems in which all of it is embedded. For me, there is an ethical consideration, so I'm delighted to have the debate.
Yes, to paying to draw down carbon -- that has already been admitted. What stops me is where we say, and let's pay companies that avoided emissions, right? So we'll pay them… I liked the way Stan puts it in the book actually. They will be paid for what would have been burned “in the ordinary course of things.”
That's the phrase, but actually what is the ordinary course of things? These are tumultuous times and the ordinary course of things is dramatically changing. And I think I worry that if we create schemes that say, we will reward you for the oil you don't burn, then that creates a perverse incentive. I'm sure Delton has thought a lot about this as well.
So let me give you a very immediate example in the UK: Shell, after the COP26 meeting, after a lot of protests in the UK, they said, “Okay, we won't go ahead and invest in an oil field called Cambo in the Shetland islands, they were going to start new drilling, then: massive protest in UK. “What are you doing? We are in a climate crisis.” There was no justification.
So they pulled back and got a lot of praise from climate campaigners. Now, the oil price has gone up from around 70 to over a hundred dollars a barrel. Today, they announced we are reconsidering and maybe we'll go in. So because of the global war and crisis around oil they’re saying, “Oh, well, perhaps we will go in.”
Now, if there's a prospect of a future payment, which will pay me, once I've found that oil, that will pay me to leave it in the ground... I think we're on a moral trajectory towards stranded assets. Get out of stranded assets now, because they are going to lose their value and it flips that to hold on to those assets because they're going to actually receive in the future a lucrative reward.
So I worry not only that it's a moral issue, but it actually creates a perverse incentive to companies that say, “Okay, for the next 20 years, we know we have to decarbonize. Should we do it now? And we're feeling that moral pressure from campaigners and from our staff and customers, or actually I've heard there's this thing called a carbon coin maybe coming in, so actually, why don't we just hold production as it is because one day we'll be paid to stop doing this?” So the central banks will take the payment for that, or they'll give us the money for that rather than us covering it. So I'd really be interested to hear what a response on that would be.
Delton: I'd love to comment. So I think Kate raised a very good point about the fossil fuel companies, the big ones. Are they just going to sit back and wait for the carbon coin to come along so they can make even more money? And are we going to create a moral hazard?
This question, it comes to the heart of the issue because we as human beings, we are moral entities and we frame our reality on morality because that's just who we are. Now, the question then is, is there a moral hazard? And there potentially could be, so we have to be very careful about this.
The way I see it is, the carbon reward and the carbon currency is not a standalone thing and everything else is forgotten. It's about contributing another tool to the policy toolkit. So… I advocate carrots and sticks. You need your sticks from the police, so to speak, and we're offering a carrot. So carrots and sticks will be even more powerful than sticks alone, which have political limitations, you’ve got to admit.
So let's think about this in more detail about the morality. Now, the morality that we have established is intuitive. That's called the polluter pays principle. That backs the notion of a carbon tax and every other kind of stick. Okay. I think we can understand that it's intuitive.
But what about when we have a problem that's even bigger. When the system itself, that's our civilizational systems, are the problem.
Because we are addicted to fossil fuels and it's not anyone's fault. It's a product of the system we've created. And I argue that we’re stuck with fossil fuels to a great degree because of a network effect, and no single person is responsible for the network. Literally the infrastructural networks and all the other societal systems we have, which forces us to use fossil fuels.
So if we think about this in another way, what is the new moral principle? And I argue it's about systems and I call it preventative insurance. So I'm putting forward an idea that we're missing a principle I call the “Preventative Insurance Principle,” which says that, if we don't want to all sink on the proverbial Titanic, we can't rely just on taxing polluters and blaming the bad guys. We got to work together and save the ship as a system.
And that might mean rewarding everybody, the good guys and the bad guys, so to speak, to lift ourselves out of this systemic risk into a pathway where we actually can see the future. So coming back to the problem in question, I would say, let's go to the fossil fuel companies and say, “Okay, give us a plan where you're going to aggressively transition out of fossil fuels. You're going to retire your fossil fuels as early as possible. And you're going to replace it with clean energy or cleaner energy. If you can convince us, sign this service level agreement that you'll commit to it, and we will reward you with carbon coins or carbon currency.” And that way we negotiate with them into a plan that can move us towards the Paris goals.
If fossil fuel companies in particular come on to this carbon reward approach, there will be, obviously, some energy companies that simply won't do it because they see their future in selling fossil fuels. That's not necessarily the end of the world because as long as we get a good proportion of them onto a rapid transition pathway, those companies will eventually take over and we can also reward businesses to stop using fossil fuels and consuming dirty goods and services.
That way we reduce the demand for fossil fuels. You see, you can't solve this problem simply by paying people to keep fossil fuels under the ground, because the price of oil and coal and gas will simply rise, rise higher and higher because you're creating scarcity. The way to solve this problem is, you've got to reduce demand at the same time.
That's why I advocate the three rules. Rewards for cleaner energy, rewards for cleaner businesses, and rewards for carbon removal. What do you think Kate and Stan?
Casey: Kate, do you buy it?
Kate: I totally understand. The debate, is the moral crisis, is the ecological crisis so great that we need to bring it all in-- I wanna think about it a bit more for a moment actually. Stan, do you want to come in on that?
Stan: I understand completely what Kate was saying before. We're talking about a generation of oil executives running private oil companies that have obfuscated and delayed and created damage, and they could be charged with Ecocide. These are criminal behaviors, and I'm not saying they should be rewarded.
And I'm also taking for granted that Delton’s plan for a carbon currency is so good, in terms of providing the carrot, that the results could be quick and massive in just the way that we need. So it's a bit of a science fictional exercise to sort of assume that that problem has been solved and that there will be industries devoted to drawing carbon out of the atmosphere. And then what's the next problem? This is a sort of science fiction exercise, but what I'm worried about is: About 75% of the fossil fuels on the planet are owned by national governments that depend on them for their national incomes. They get used to pay for social security, airport control, for police, for education.
These Petro-states are more addicted than the rest of us to the ownership and the financial income that comes from owning fossil fuels. And so it isn't Exxon and Shell who are minor players and should be nationalized really, or driven out of business by taxation, et cetera…But also maybe weaned of this and aimed in other directions and made better moral actors.
But what about the Petro-states? And here, I'm thinking again of a kind of carbon currency, not quite the same as Delton's first suggestion, but rather a compensation that would be discounted heavily. They’d take a haircut. They'd be signing that entailment agreement to take what money they get paid for not burning their carbon to use for good work.
It would also be amortized over time on a schedule that would be the same as them selling it. And these would all result in a kind of impact on their sovereignty, as nation states, that they would squawk at. But they would be [be]coming member states of the Paris agreement rather than nation states.
And the European Union shows how going from a nation state to a member state is a change both legally and emotionally in terms of people's relationship to the rest of the world. So I must admit that I am throwing in sort of the next problem as if the big problem has been already solved by the clarity and utility of Delton’s ideas as envisioned through Kate's conceptual apparatus of the donut.
In combination, what you have is a way of understanding it and also a tool to operate it. And I guess I'm just thinking about if we don't get the Petro-states on board, there will be nation states in the world that will be dragging their feet on the Paris agreement, that will be burning their fossil fuels, both to charge themselves, energize themselves, and to make money by selling it to foreigners…
So maybe I'm talking about a secondary problem and we should stick to the primary problem… If so, I apologize for that, but it has been a kind of current worry on my mind taking for granted already in advance for the last couple of years that the global carbon reward is a necessary and wonderful innovation in global finance.
Kate: I really appreciate that position of distinguishing between the Petro states and the private fossil fuel companies. And I know, I do think of them morally separately in terms of national assets versus companies that have done a lot of work to sustain the profits that they're earning as a corporation.
And so I'm just noting in myself, those feel morally different. And I think especially lower income countries that have fossil fuels, then the argument that Stan just made is compelling in terms of… And whether it's through the carbon coin or another way, but they absolutely need resources to meet the fundamental needs of their people.
And so should be compensated for not taking the path that the current global north countries and the industrialized countries took to meet the needs of theirs.
Casey: Yeah, I hear you. That sounds like a challenging sort of razor, a conceptual razor to develop. But I hear the point that we might very well need one to distinguish between different kinds of oil companies. That's interesting. So I want to move us toward the next question, the next big question of: Could this new big policy idea be implemented? As a way of moving us toward that, Delton, can I ask you a couple of more details about the global carbon reward? Particularly, why… It seems like there are two ideas embodied in it, one that it’s a reward and the other that it's a currency of some kind that can be traded. Are those two things both important? Does it need to be a currency? Could it simply be a set of funds to pay people in dollars or euros or yuans for carbon removal? Or could it be green bonds paid to those entities that decarbonize?
Delton: Yes, Casey. I think it really does matter. Indeed, I would argue that we need a taxonomical definition of what is a reward. In this case, I argue we're missing a concept in market economics. And I claim the concept we’re missing is a reward, where the reward is by definition, a type of currency. But it's not money in the traditional sense.
You would have heard that money has three or four key features: unit of account, medium of exchange, store of value, and a social agreement. So in this case, it's not a medium of exchange in that it's not for buying goods and services. That's why we have money from the government: fiat.
In this case, it's a tool for market policy. So we don't really need that medium exchange function. It's really working as a unit of account -- as Stan pointed out the measurement of carbon, so it's coupled -- and store of value as the incentive. The point here about using a currency is that it opens up a new possibility and that is we can fund mitigation, particularly the high cost items, where for example: Do you recall at COP26 India made a statement that they need about a trillion dollars to transition early?
They are, that was an ask at COP26. Who's going to pay for that trillion dollars? Well, the beautiful thing about a currency is that nobody has to pay because if you use monetary policy, you get the cost and the cost goes into the currency market. And no individual person, government or business is going to be directly charged to fund the policy.
So this is an important feature of using a currency. And this point I think the economists should actually think about carefully because a definition of a positive externality or a negative externality, take your pick, is that it's a benefit or a harm to a third party who doesn't actually pay for positive externality or create the negative externality.
So theoretically, in the case of mitigating climate change with this carbon reward and carbon currency, no individual person will be up for the cost. We discharge the cost through currencies, in currency trading and creating more currency if we need it. And that's a technical point, which maybe we won't go into here in your interview because we could easily get confused.
But does that answer your question?
Casey: For now, I think it does… I'm hoping that we have time later to get into that particular aspect of, can you pay for something without it being a cost to someone. So let's put a pin in that one. Thank you. Stan, moving firmly into this area of “could this big new policy actually be implemented?”
In the novel The Ministry for the Future, why do central banks actually sign on to this policy? What does it take for what you called the carbon coin to be actually adopted globally?
Stan: In my novel, the notion would be that central banks have one charge, one major charge with a secondary charge. The major charge is, keep money stable. Not too much inflation or deflation, and an inflation rate that is generally regarded as 2% would be normal and healthy, lower than that as is questionable higher than that highly questionable… That's their only task.
And then employment levels are a secondary thing that if they can help keep unemployment to a similarly non-zero, but not great amount… They balance these two tasks, they've been tasked by them by their governments -- legislation tells them to stay in that lane. Money can't stay stable if the biosphere is being wrecked catastrophically.
So in my novel, my minister for the future, Mary Murphy, goes around to all the central banks of the world, the big ones, and convinces them that their charge of keeping money stable now depends on keeping the biosphere stable as being the physical basis for money and civilization, both. And the central banks come around.
And what I found after I finished the book is that the network for greening the financial system, 89 central banks getting together to study this issue, are beginning to understand this very thing. And of course, this was going on before my novel was written, I just wasn't aware of it.
And it's reassuring to think that, if you stumble into a big problem, that of course other people have already noticed it and they're working on it.
And there's a white paper from the Network for Greening the Financial System that gives nine suggestions for greening money itself. And I've wondered… Would a carbon currency be a 10th suggestion or do the nine suggestions add up to a kind of a carbon currency? I suspect the former, I'd love to hear Delton and Kate on this. Can the central banks, by way of monetary policy, make that huge of a change? This, I think, is the big question.
Casey: I know the Bank of England, in addition to the Network for Greening the Financial System… The Bank of England has announced a new climate mandate, and some new climate related policies. There are movements going in the right direction. Would any of you like to react to the question?
What are we seeing and how encouraging is it, in a little bit more detail, either from a NGFS or Bank of England or others…?
Kate: I'm happy to jump in. I gave a couple of caveats to the policy, but of course, in the broad direction, I absolutely agree that we should steer finance to be in service to life. And that means drawing down carbon and restoring the living world. And this policy is a very big, powerful vision in favor of that. My concern of it, and I actually, I went back over the novel and was picking out the chapters where Mary Murphy goes around the banks one at a time and she goes again, and then she goes again, and over time you feel things changing. And I was really enjoying reading: How is it that Stan shows us that she persuades them?
And I think at one point she's almost banging her shoe on the table like Khrushchev… It's partly her passion. It's partly her personality. She's not afraid to swear in front of these men in a thousand pounds suits. Oh, and I think it's also partly because we end up with a Chinese female minister, Madam Chan, right? I think there's something interesting about the women playing a role here, I have to say.
However, my concern, and I'm thinking of this around from the political economy here we are in 2022, this is a fabulously, powerful, compelling idea, and the world needs these big, powerful, compelling ideas. Like it needs the donut as a vision. Will we get there or not? I don't know, but we're going to do a damn sight better if we see it and aim for it, have that as our vision! So we need these.
Does it mean that this actually becomes the way that we aim to get there? And so let me pitch into our debate, some of the concerns about: could this happen? It would require coordination between say at least three big regions, 10, maybe 20 central banks. No country can go it alone. It requires a new architecture of this creation of the currency and then the taxonomy and then the infrastructure and the mechanisms for ensuring that everybody's working together to an understood system.
So we're jumping into a new system and of course, there's going to be complex series of contracting. Now I know Delton has thought about all of this a lot and has written a lot about it, but of course, what it means is that we have to jump into a new system. And I suppose this is where we touch on the psychology and the practice of central banking, which is it doesn't have a history of doing that.
It has a history of conservativism, stability, as Stan just said, incrementalism, moving gradually, carefully, not straying too far from the lane, or at least carefully and using careful words as we move from one lane to the other.
So my concern as of 2022 would be, if we're saying let's have this big vision of a policy because it inspires and it will make us move fast, I'm all in.
If we say let's actually put all of our energy into making this what happens now, my concern would be it's going to take so long and the hurdle into making it happen, that actually I would put a lot of my energy into saying, let's work with what is already happening because it is, several of us have said it is already happening.
Let's build on that because it means you can build on unilateral action by individual countries that are already beginning to move the central bank out of the old familiar lane into a new one, and recognize that what we need as Stan said is not just the stability of the finance system. It's the stability of the life support systems of the living world, upon which all finance depends, by the way.
They can work with their existing architecture. So central banks can work with existing relationships with commercial banks, tweaking and rearranging the ongoing relationships. It means that you can allow incremental experimentation and learning, and many different approaches. And then you have peer-to-peer inspiration or peer-to-peer permission, which is, I think what seems to be happening. Peer-to-peer permission from one central bank to another: “Hm, look what they're doing over there in Japan, look what they're doing…”
Perhaps it permits us also to stray from that lane.
So just to give a few examples of some places that I started looking… because this isn't where I spend all my time thinking and working. But I started looking into where it began. It seems it began in Bangladesh.
In 2009 Bangladesh began a refinancing scheme for renewable energy and green finance offering it across 11 sectors. So I really liked that, that Stan’s novel places the radicalization in India and the first country to seize it is China… Actually, maybe in reality, it was Bangladesh just kicking things open. Bank of Japan in 2021, that was the first big national central bank. Everybody started looking: “Oh, look, Bank of Japan. They're providing green targeted lending for a carbon neutral economy.”
We've seen the Bank of China doing subsidized lending towards green investments. Really interesting for me, sitting in the European region, see what the European central bank are doing.
So Isabel Schnable, who's one of the members of the executive board, um, some wonderful quotes from her: She says “Central banks cannot remain idle, we have a responsibility to explore our capacity to act.” And saying, we need to move away from so-called market neutrality to market efficiency.
We can come back and talk about that more. But what we're seeing is that central banks, with the tools they have, with the structures they have, are already leaning themselves in this direction. Now it's going to be more incremental, and It's not going to be as significant a shift as say the carbon coin, global carbon reward proposal.
But if we take it in a political economy point of view, what is more likely to happen in the next decade, which we know is critical? And so, I'm going to pitch for the sake of our debate, why wouldn't we put our energy there. And the last thing I'll say is if we did put our energy there, the phenomenal service to the world that both Delton and Stan together are providing is moving the Overton window by coming up with a very powerful concept and proposal, and then putting it in a major work of fiction so that we actually see the possibility of something far more ambitious than any of these incremental examples I’ve just mentioned are going to do.
But it means that central bankers can suddenly see themselves as heroes! As Stan puts it in the novel, you could be saviors of the world. People may talk about you for centuries to come. And to me, this connects to Mariana Mazzucato’s work on re-imagining the public sector, which for 30-40 years of neoliberal economics has said, “Oh, public sector, boring bureaucrats. They should just get out the way, and then sort of hold things in the background, just level the playing field.” And Mariana and others have said, “Why?! We have to tilt the playing field, we have to tilt the market and shape it in the direction of life, in the direction of actually ensuring that prices begin to reflect what matters.”
So there's a huge value to the public servant who says, I'm now going to take the powers of the institutions of which I'm a part, and put them in service to life. And shape markets so that markets begin to serve humanity.
Your work, together, to me, does a phenomenal service in that direction. I think there's an amazing study to be done in maybe 10 years time, going around the central banks, seeing what they've done, and, “By the way, who here read The Ministry for the Future?” Because it will have filtered into people's minds. And this is a fascinating part of how change happens. It's partly from seeing what other central banks are doing, it's also partly from reading fiction and imagining and seeing oneself and the possibilities differently.
Casey: Thanks. Delton, you've got a front row seat at this, who's reaching out to you, or whose doors are opening? What kinds of engagement on greening the world's financial system are you seeing that you're most excited about?
Delton: Well, I have to say, I just want to make something clear about change because the discussion just a moment ago about central banks is. Will we wait around for central banks or the world to respond to the climate crisis through incrementalism?
Is that the right approach or should we go for systems change? Now I've heard over the years, various people say we need systems change. Actually there's a slogan: “Systems change, not climate change.” Now, are we serious about this? We talk a lot about systems these days, but are we actually thinking at a systemic level? I don’t think so.
If you go to the central banks and look at their narrative, they talk about systemic risk. This is to the core of their meaning and their essence as organizations, systemic risk, but it's financial systemic risk that they're talking about. Not the biophysical risks that Stan was talking about.
The biophysical systemic risks are upstream. They're the real problem, like the earth systems and engineered systems as solid systems, they're biophysical. We don't have a plan or policy in place, the central banks, to deal with those originating systemic risks. Now, my point is this, should we imagine a new world, where the central bankers, whoever they happen to be, are going to suddenly change their attitude? I think it's possible. But the point about central bankers, whom I don't know personally, maybe I've met a few, but they are conservative because they have so much responsibility. They're not going to change their mandate, not going to ask for new mandates or change their policies at the drop of a hat. They want to be convinced.
And the policies put forward such as green quantitative easing just don't fly, they're not really practical or going to help much. So if you put on the table a policy that they can understand, has scope to work, and has a justification, then you're appealing to their intellect.
Now I don't believe that they themselves are going to drive the change. We have to drive it for them. And that's why I advocate a global carbon reward demonstration. We'll put it right in their face. Now, about theory of change: If you look at history, and I’ll be very brief here, when in the past, our civilization has introduced new monetary systems, think of Bretton woods, think of the end of the gold window.
They happened very quickly. Bretton woods was organized over a few weeks of meetings, and ending the gold window by Nixon, the Nixon shock, was announced in just 10 minutes. So my point is this: We might have the wrong conceptual understanding about how quickly monetary systems can change, because the thing about monetary systems, when they do change, they can change quickly, in my opinion, because they're not taxes.
You see monetary systems at their core are generally based on different principles of rewarding or voluntary involvement. The tax is a stick that requires political and policing power. You don't need that necessarily to offer a reward, or change the monetary system. So what I'm saying is that, if we have just a few pilot studies with governments and their central banks, it can grow quickly because it probably won't receive resistance.
If you look at the recent announcement last year, where the Exchequer gave the Bank of England an expanded mandate for net zero, it was written into a letter, announced publicly, and there was no discussion. It just happened like that. So extrapolate. And I'm saying, you know, big change can happen. It's that we're not familiar with it. It's something that we haven't experienced yet.
Now, if we did have a carbon currency and a global carbon reward, a global carrot, we need to ask some other questions at the human level. How will people feel and respond? I wouldn't discount the possibility that we could see exponential societal change, because we have something new to play with.
And we have a whole new set of profitable experiences that entrepreneurs or businesses can enjoy and use to justify their innovations, research development, co-investing, new companies will appear on stock markets overnight, or green tech will suddenly be the new gold rush. And this is exactly the kind of change we need.
I think there's a distinct possibility a carbon currency could do that. So I put the ball back in your court, Kate, and anyone else who wants to compare incrementalism with systems change. My argument is we need systems change and this is one way to do it.
Casey: Thanks. I want to take what may seem like a little bit out of left field, dig into the question of like, how are people going to respond to this? So Kate, in your book, you refer to research on extrinsic versus intrinsic motivation, showing that when people are paid for certain kinds of labor, it can reduce their motivation. And I think of this, like my mom is an incredible knitter, and she’s just sort of known in the four counties around, and people are often saying, you know, you should do this for work.
And she's always said, why would I do that? I love doing this. If I get paid for it, then it becomes a job. Can you describe that research? By proposing to pay people to remove carbon from the atmosphere, do we risk removing some kind of intrinsic motivation to support proper climatic function?
Kate: So that research is very much. Yeah. I mean, it's fascinating. It's about the way things are framed. And part of the way invitations to us are framed are whether they're offered us, we're invited to do it as a volunteer or through the market. I mean, I'll just give a couple of examples: I recall, there was an experiment done out on the forecourt of a petrol station saying, “get your tires pumped, save money,” versus “get your tires pumped, help protect the environment.”
And it was actually on the help protect the environment one that people were more motivated to do it rather than save money by getting their tires pumped. So it can go either way. I mean, I think this is what we need to learn. How do people respond and how we respond is in partly how we think about our relationship with the rest of the living world. And also how we think about a relationship with markets.
There was another study done in a series of villages in Tanzania, where researchers went in and said to people in households, we invite you to help plant trees in the school yard of your kid's school. And in let's say half of the village, they said, “Come and do this, this Saturday, chip in as part of the community,” and another half of the villages they said, “And we'll pay you the standard day rate for the work.”
And what they found afterwards was that in the villages where people joined as a member of the community afterwards, they were asked, how was this? And they said, “Yeah, it was satisfying. And I'm glad I've contributed and made something better,” because they saw themselves contributing to the commons.
Whereas when people had been offered a payment, they were more likely to say, “Well, actually it turned out to be pretty hard work and I’m not being paid very well for it.” Same work, same task, but because they saw themselves contributing to a market, they showed up as a laborer. And therefore that frames their relationships.
So this is just, this is just one example, and there may be many, many other examples. So it's an empirical question of how things are framed and therefore how we show up and how we respond to them. Now, I would say that that doesn't mean that any time paying people to engage in restoring the living world is going to mean they say I wasn't paid very well and that it commodifies it, because I don't think that's true at all.
I think there are plenty of jobs that people have already today where they are effectively restoring the living world, and that can be being paid well for doing work that has purpose. I work in a purpose based organization and it feels great knowing that the work I do is aligned with the values that I hold.
So I think the question here goes to not should it, or shouldn't it happen, but how would it be framed so that it means people do feel good about doing this work, but also that it doesn't get gamed. I mean, for me, the fear, and again, I'm sure Delton’s thought about this, the fear is that when we bring markets close to the design of the living world, do markets adapt and does the design of finance adapt to reflect the true dynamics of the living world? Or does the living world get commodified and demanded to perform like markets?
So in some of the space of valuing natural capital, there can be a pressure then, “Well, if it's capital, it should give a return because isn’t that what capital does?” So what is the return? What's my return. And how do I finance that? How do I cash in on that?
So to me, there's a really fascinating tension when financial markets, which is sheerly a design, right? The design of finance is a human construct of the traits and the qualities that we expect finance to have. We expect it to hold up a financial return: money on money on money on money.
Meets the living world, which is regenerative, thermodynamic, cyclical. What happens when those two things meet? And how do we make sure that paying people to restore the living world doesn't mean that the living world gets commodified in the process?
Casey: Yeah. So Delton, do you want to… I understand you're looking for a country to do an experiment with the global carbon reward.
How would you think about these issues of, how do people respond to this thing in designing that experiment?
Delton: …I think Kate raised two good points. One is the moral framing and the human experience because she pointed out that people aren't necessarily motivated by money, it's not necessarily the best way to arrange our society all the time.
And I would agree. However, I think we have to make a distinction between, say, a small village or local community versus the global economy, because our civilization is now planetary. So there's the issue of scale.
Kate: Can I jump in depth and say, I absolutely agree. And I should have said that as I shared that example, but that doesn't mean that the qualities of examples transfer across scales.
Delton: Yes. The scaling point, I’d like to comment on. The other was a little bit theoretical about natural capital. Are we just really commodifying everything, you know, nature, ecosystems? I'm pleased to say that I think the global capital reward does not commodify nature in particular. It's not the same as natural capital theory.
So natural capital theory wants to put a value on ecosystem services and nature in US dollars or whatever money you have. But with the global carbon reward, we flip it, because what we're saying is the value proposition is how much we're willing to spend to protect systems. So I see it as it's a different context of value, which is important to me, philosophically.
So to kind of put some meat on the bones of this, what would it look like? Well, what I argue is that if we offer a global carbon reward, AKA carbon coin, then in upon itself, it has huge potential to cause harm as well as good. For example, mono crops of trees to sequester carbon can be devastating for ecosystems and soils. We know that and it's happening. What do we do about it?
Well, what I argue is that we could open up the whole policy to stakeholder consensus, representation to adjust these rewards higher or lower to reflect the harms and co-benefits that are created for ecosystems and societies and for energy reliability.
So if we decentralize this adjustment scheme, where we ask the relevant stakeholders, is this a good project? If so, why? Is it a bad project? Why? And we'll score them and then wait, the rewards are put down. Now this is I admit technocratic, and maybe it might appear a bit, let me say, science-fiction-like, but I think it could work now.
We do need a new economy, and this is the whole point…The existing economy. I don't think it really does a good job of incentivizing co-benefits, particularly if you’re using taxes, sticks. Now, have you ever heard of a carbon tax improving a co-benefit? Like, what's a carbon tax going to do for biodiversity or whatever? It's a long, long way away from addressing those.
But if you have a reward, you can build it in, if you have a decentralized system of consensus, engaging with stakeholders to pull back your metrics, to score the projects. Can this appeal to both our moral and human need for interacting with our environment in a way that's sustainable, culturally and ethically sustainable?
I think it has potential. Why don't we try it out? It hasn't been done before.
Kate: You mentioned that you're looking for a country, which to me actually is a really powerful… well, that really motivates me because if the policy depends upon we're all in it together doing it at the global scale, then there’s of course that huge hurdle to get over and will we get over it?
And if we put lots of energy into trying to create something that we never get over that hurdle, that's what drives my personal kind of political economy towards let's work with the systems that we've got. But if you could create an experiment in one country, which enables you to actually start doing this, and it may not, of course, look exactly like what you intended the global carbon reward or the national carbon reward, it wouldn't look exactly like that yet.
But if you could design a scheme that sufficiently matches the intention, I would be all in for learning from what's happening there, because I think that would be precisely the kind of innovation that is needed in central banking. And that, I think that is precisely the kind of innovation that other countries would then look to and might say, well, hang on, it's not going to work for each one of us to do this alone. Oh, do we need some kind of coordinated mechanism?
I'd be fascinated. If, if you have a sense of, do you have a sense of opening on that? Do you have a sense of opportunity on that? Do you have a sense of what kind of country might be open to that or what that scheme might look like at the national level, if you were to be able to try and implement it?
Delton: Yeah, we actually have a plan. So the plan is we try to convince the government of California as a good starting point, be great to bring the state of California in, and then we just need a couple other smallish countries, maybe from Africa or Latin America, or even a small European country.
We only need two or three countries for a demo and then go to a proper pilot and before you know it, the whole world would be talking about it. So I agree with you. This can't be done in one step, that’s almost impossible. It'll have to happen incrementally, but once the idea and the concept is there, I think then a lot of scientists and philosophers, economists will look at this and it will become a really big discussion point.
Then if there is some kind of strong evidence that it's going to work, I think the world could probably pivot on that. You know, particularly in another five or so years today. My forecast is that we're going to experience record-breaking global temperatures in another two or three years, we were actually in a la nina period in the Pacific… when we shift to an El Nino, the temperatures will ramp up again and then we're going to see some real stress at the political level, because more and more people will be getting nervous about the climate crisis and fear…We've got to translate that fear into productive action.
For me, this is where we could go wrong. Coming back to the discussion about civilization again. The risk I see is that our civilization, it reaches a certain tipping point socially, where we lose faith in institutions, in our governments and policies and economics.
Once we go past that social tipping point, it's very hard to coordinate people and motivate people to actually work together. That to me is a huge risk. So we need an institutional arrangement that can maintain coherence and cooperation both at the high level politically, and then lower down in markets and individually where all of us sort of feel that we're bonded together through some kind of mechanism or agreement that we know that the guy next door, the woman next door is also helping to solve the problem.
And we're not going to suffer that prisoner's dilemma, which we're currently in. So that's my, my theory of risk coming out again.
Casey: Delton, as you are either in touch with countries or are preparing to be in touch with countries about advocating for that kind of experiment…
We've been checking with, trying to get some other economists in addition to Kate, to talk with us about, you know, give us some feedback on this idea. And one of the things that we have been running into as a major concern is the inflationary concern. Earlier in the conversation you said something about how the costs for this policy wouldn't actually need to be borne by any government, but would be dispersed throughout the global economy.
I presume as sort of a slight inflation, and that fact that nobody needs to pay it, is it part of the case for it, right? That could ease the politics around this because unlike a carbon tax, no one would actually feel like they were really paying it... That sounds to me a little hand-wavy, and it sounds a little like getting something for nothing. Can you explain or react to that?
Delton: Yeah, sure. It's a good point. First of all, we haven't really directly approached any governments. Although we're trying, we're getting ready for that. We need funding and so on and so forth because we need proper resources in terms of the policy’s funding mechanism:
There is no such thing as a free lunch. I mean, we've heard that many times. I agree with that intuitively because from a systems perspective, you can't create or destroy matter and energy. So there is no free lunch. But what we're doing actually with this carbon quantitative easing, this monetary approach, we're really creating an investment vehicle, the carbon currency is an investment vehicle.
So what we're doing is we’re incentivizing the private sector to buy it, and that's how we transfer private wealth into mitigation. I know it's incredibly simple, stated that way, but that's effectively it. So we need the central banks to create that motivation, the psychological incentive, and then the private sector will buy it. Now, in the distant future, the central banks or the private sector rather, won't be buying it forever because you can't have the carbon currency appreciate in value forever.
It's gotta peak and then decline and plateau off. So at some point, the central banks will be the buyers of last resort and they will expand the money supply to buy the carbon currency. That's how they're going to defend the floor price. Now that will create monetary inflation. So I get the feeling that everybody's afraid of inflation, politically it's sort of a dirty word.
So what do we do about this monetary inflation? Well, we can actually neutralize it so to speak by making sure that the value of all currencies in the world are devaluing or deflating or inflating for one at the same rate because of this policy. So if the US dollar, the Yen, British pound Sterling, et cetera, are all being expanded at the same rate, your exchange rates are actually not changing in this approach. Okay? Because we're effectively managing the world economy as one unified system. We create more money of all currencies at the same rate. So we're using the whole world economy and that way we're not disrupting trade relationships. So the only metric then that reflects this monetary inflation is the exchange rate of the carbon currency, which will rise or fall as required.
That takes a bit of thinking to understand, but what it's saying in effect is that, we use all the world's currencies so that we kind of pay for it, but we don't see it as an obvious cost. And the idea here is we make the cost as least disruptive as possible from a psychological and financial point of view.
Stan: Well, it's quantitative easing in a way. And we did it in 2008. We did it in 2020 with the pandemic. The immediate cries of dismay have been contradicted by the reality itself. And really a lot of the money for quantitative easing went directly to the banks and to the rich, to private capital which now is flush with it.
So I think of the global carbon reward as shifting the highest rate of return to doing good biosphere work. And then the reason I raised my hand before was the idea that the framing does matter if you can make your living at something so that your career. So it isn't just a daily wage -- Do you plant a tree or do it for free? It's can you make your living as someone who has to pay bills and feed families by doing good work rather than bad, and this and the global carbon reward is pegged to carbon itself. So it isn't just quantitative easing in the 2008 sense of “makeup a whole lot of new money and give it to the banks and keep things liquid.” It's actually pegged to a standard that if you were making up a lot of carbon currency, it would be because a lot of carbon would be getting drawn down out of the atmosphere.
And then individuals would be making a living by doing stuff that they morally believe in. So there's a difference between making a living and making a profit. And now, right now in the current neo-liberal economy, a profit is an index of damage of appropriation and of harm to other people and to the planet.
And so the whole world is running well, the corporate world is “let's make a profit here,” but that profit is being calculated by an accounting system, that is a Ponzi scheme, a rip-off of the future generations by destruction of the biosphere. The idea that you get a reward, but also let's put it this way that you could make your living by doing good biosphere work.
Then suddenly this is really political economy, not just economics. You have added a new set of values to a political economy. It's semi post-capitalist. It's not Neo liberal capitalism. And it's public over private. It'd be backed by the central bank. So this isn't a cryptocurrency in the sense of private people making contractual agreements.
It's the central banks, the heart of the whole public system of the nation state system that it's money is now being tilted to green directions. So it is carbon, but also let's say biosphere, and it's not just quantitative easing it's this reward, which is a good name for it added to the system.
And also, what Delton's point is that I think is strong, is that if enough of the central banks back it, then no single entity has to take on the admittedly gigantic cost of it is distributed out through the global society at large as something that the central banks are doing. That Fiat money is now being tilted towards green work.
And that's what I see happening here in ways that I myself can understand. And the framing, the story being told, the vision involved, social change of a new structure of feeling. It all ties together in a way that one can comprehend and believe in. And to me, this is what is powerful and interesting about this set of ideas.
Casey: I wonder if you have another two minutes to give, Kate if you've got a final thought, we'd love to hear it.
Kate: Yep. So we're finding ourselves closing on some of the very nitty gritty points.
So let me just really briefly comment on those. I can't yet see, or I'm not yet convinced how the world's currencies would inflate together, and I think that's an extra macro challenge of making this work. I just wanted to comment on that… And the inflationary pressure of course, economies flow in cycles.
And it's in the crises, whether it's been a COVID recovery or a global financial crisis that the quantitative easing and that issuing of new money has happened. So again, a shorter term version of this, the tragedy is that we've just come through a crisis. And, we could have seen so much more of the world's recovery from COVID tipping finance towards sequestering carbon, towards greening…
It didn't happen anything like the scale that it should have. We know we're going to go through another bubble, because we have this economy that is designed to expand in a way that I believe is destructive as Stan’s just described, but it will hit another bubble. And when it hits that, we need to see so much more of the QE that happens that leaning towards green investments and restoring the living world.
And I believe, already, this proposal already, Stan’s work, will have influenced whatever happens next in the short term, as well as this being an ambition for the long term. But I want to end with the long term because even though I've focused on questioning some of the moral issues or questioning some of the design, I'm here with both of you saying we need system change, and I think it begins in the classroom on the first day of economics, what is the first diagram you teach?
What is the worldview? An economy embedded in the living world and therefore compatible with restoring the living world. And I think Delton's proposal is precisely the kind of imaginative leap we need to show us all that money is a design and we can redesign it, that the economy is a construct and we can reconstruct it.
So I'm all in for using tools like these now and calling for such change. What kind of policies will we get in the end? I don't know if it'll exactly look like this, but inspired by this so that, as we've all said, that we can do good work by restoring this only known living planet and the universe. I'm in for that.
Casey: That is a heck of a note to go out on. Thank you all so much for taking the time. This is a really enriching and fun conversation to be part of.
Kate: Thank you very much. For me, it's been a total pleasure and honor to meet all of you and to have this conversation and to enjoy the debate. Thank you.
Stan: Yeah, same for me. It's really a huge pleasure and really thought provoking. Many thanks to all of you. And also to Delton in particular: Thank you for two years of education and inspiration. And I met with Richard Schorske, the global carbon reward is a world movement now and Godspeed to you. Let's hope it succeeds massively.
Delton: Thanks Stan. Thanks, Casey. I totally enjoyed the conversation.
Casey: Thanks for joining us for our final season 2 episode of Pricing Nature. We are incredibly grateful to the dozens of people who have supported this project over the last three years. Yale Provosts Ben Polak and Scott Strobel; the Tobin Center for Economic Policy, the Yale Center for Business and the Environment, and the Carbon Pricing Leadership Coalition; to our thousands of listeners; to our colleagues, friends and family who reviewed and gave feedback on episodes: Tim Pavlis, Josh Rines, Betsy Shimberg, Ken Shimberg, Noah Weinberg, Gavin Weinberg, Zach Zabib, Anna Pickett, Caleb Stokes, Nick DiNapoli; and to the first students who laid the groundwork for the show: Whitney Mann and Ben Linthicum.
Don’t forget, if you like what you heard…
Kidz: Rate and Review! Like and Subscribe! Follow! Kidz out.
Casey: This episode was produced by Jacob Miller, with help from Naomi Shimberg and Casey Pickett. Sound engineering by Jacob Miller. Original music by Katie Sawicki. Finally, special thanks to Ryan McEvoy, Stuart DeCew and Heather Fitzgerald for making this episode, and all the others, possible.