With alternative coins flourishing and Central Banks designing their own digital currencies, there is a potential hard-backed currency which cannot be ignored: carbon. Using carbon to back a global currency would redistribute wealth, incentivize low carbon technology and avoid the environmental taxes which hit the world’s poor the hardest, writes Steve Keen.
Economists tell us that environmental problems are caused by the “tragedy of the commons”: because no-one owns the environment, no-one pays when they dump carbon dioxide into it. Their solution is carbon-pricing: put a price on things that generate carbon-dioxide—such as petrol consumption, or coal-fired power stations—and the market will do the rest. Demand for carbon-dioxide-generating products will fall, while the market will invent low-carbon products—such as electric cars, or solar power stations—to replace the high-carbon products that are causing Global Warming. Hey presto, problem solved.
However, while the economics sounds OK, the politics are not: attempts to price carbon, or tax products with high carbon content, have led to social revolts. The most colourful, literally, was the Gilet Jaunes movement in France, which started when French President Macron increased the tax rate on petrol. Working-class demonstrators donned the yellow safety vests that all vehicles in France are required to carry, and made the point that this tax was hard on the poor, but easy on the rich. They demonstrated as only the French can do, and Macron scrapped the tax.
We need a mechanism that puts the politics first, and lets the economics follow. A “Universal Carbon Credit” (UCC) could be that mechanism.
This is the problem with only using prices to attempt to reduce our carbon consumption: while the rich consume far more carbon per head than the poor, increasing the price of carbon affects the poor far more than the rich. When you’re already barely able to meet your monthly expenses, a higher price for petrol for your car means you can’t afford to drive to work. But when you’re a billionaire, a higher price for avgas won’t make you leave your private jet parked on the tarmac.
We need a mechanism which would be popular with the poor—so much so that they would campaign in favour of it, rather than against it. We need a mechanism that hits the big consumers of carbon—the rich—rather than the poor. In short, we need a mechanism that puts the politics first, and lets the economics follow.
A “Universal Carbon Credit” (UCC) could be that mechanism.
Every adult in a country would receive a UCC, measured in tons of carbon dioxide per year, for the carbon dioxide in their purchases of goods and services. This allowance would be set, initially, at the level of the average carbon consumption in a country. Given how unequal the distribution of income has become, this average would in fact be well above the amount of carbon consumed by the vast majority of the population—90% or more of the population would not consume that much carbon per year.
All goods and services would have their carbon content included, so that as well as running down your wallet when you went shopping, you would run down your UCC. For 90-95% of the population, this would not be a problem: they’d end up with unused UCCs. But the top 5-10% would exhaust their ration, and have to buy unused UCCs from the poor. The richer they were, the more they would have to buy.
Suddenly, the poor would benefit from a scheme to reduce humanity’s generation of greenhouse gases, while the more the rich wanted to buy CO2-generating products, the more it would cost them. Suddenly, products with a low CO2 footprint would become much more desirable than those with a large one. Corporations might put more emphasis on designing low-carbon products, if their CEO suddenly found a large slab of his income ending up in the pockets of the poor.
This scheme would require several innovations to enable charging consumers for the carbon content of goods and services as well as their prices, and to distribute the UCCs to everyone in a country.
The former is a big but not insurmountable problem. Point of sale systems already record numerous things in addition to the price of a product; they would need to record one more fact—the carbon content of the product—and deduct that from each customer’s UCC account.
The UCC account itself could be established using digital currencies distributed by a country’s Central Bank. Many Central Banks are already looking at establishing CBDCs—“Central Bank Digital Currencies”—for other reasons. These could be repurposed to distribute UCCs to people instead—and they could be paid weekly, or even daily, to discourage people from selling their UCCs all at once for money, and then being forced to buy them back later at a higher price.
The poor would benefit from a scheme to reduce humanity’s generation of greenhouse gases, while the more the rich wanted to buy CO2-generating products, the more it would cost them.
There are problems with this scheme of course. One obvious one is “carbon flight”: the rich in any country that implemented this scheme would threaten to move somewhere else. This is one way that income tax rates have been driven down over time, by the threat of “capital flight”. But there’s a solution here that doesn’t work with capital flight: propose to other countries that they introduce the same scheme. Since 90% of the population would benefit from it, democracy alone could lead to it being introduced. And rich people that left a rich country for a poorer one would end up paying even more to buy UCCs, because they would be so much wealthier than the average for that poorer country.
Another is resistance from economists themselves—they hate rationing, and will probably oppose anything that sets quantity rather than price. But their own attempts to set “the right price” for carbon have been a failure anyway—their estimates of the “right price” for carbon are all over the shop, from virtually zero to over $1,000 a ton. Carbon pricing is an attempt to set a price that means that humanity as a whole doesn’t exceed the carbon budget we’ve set for the whole planet, and we have no idea what that price might be.
But we do know the carbon budget: no more than another 420 Gigatonnes of carbon if we want to stay below 1.5°C of Global Warming, and no more than 1,170 Gigatonnes to stay below 2°C. So why not target the known quantity, rather than the unknown price?
For more on this idea, see https://carbonwatchdog.org/proposal/.