Blog Post by Delton Chen
There is no doubting that Kim Stanley Robinson’s sci-fi novel, “The Ministry for the Future”, has elevated the idea of using a currency as an economic tool to fight climate change. Robinson’s novel has attracted many positive reviews from journalists and followers of sci-fi and climate change. Some of the more intellectual reviews vary from extremely positive to very negative, which is to be expected given that the subject matter is wickedly complex. After all, we are dealing with the dual crises of climate change and unsustainable growth.
A common question about the novel is the feasibility of using a “carbon coin” to resolve the climate crisis. How does the “carbon coin” in Robinson’s novel actually stack-up against the Global Carbon Reward (GCR) policy and the associated proposal for a carbon currency?
A good place to start when reviewing the carbon coin idea in “The Ministry for the Future”, is to read this Bloomberg Green article. This article puts on display the thinking that inspired the storyline for “The Ministry for the Future”. The Bloomberg Green article is mostly accurate, and the citations are reliable, but the “carbon coin” in Robinson’s novel is used to pay fossil fuel companies to keep their fossil resources in the ground. This approach deviates from the the Global Carbon Reward (GCR) policy, which offers three specific rules for rewarding climate mitigation.
The first rule of the GCR policy is the “Cleaner Energy Rule”, the second is the “Cleaner Business Rule”, and the third is the “Carbon Removal Rule”. Let’s start with the first rule.
The rule for cleaner energy production does not pay fossil fuel companies to keep their carbon resources in the ground. The rule only rewards energy companies to produce cleaner energy. This difference may appear minor, but it is not a minor difference, because the aim is to incentivise the production of cleaner energy, which is an essential service for society.
The reward rule does not incentivise energy executives to lay around on banana lounges, sipping cocktails at sunset. Sarcasm aside, there may be instances when paying a nation or company to keep fossil fuels in the ground is the last-ditch option to protect an ecosystem. So the idea should be taken seriously. This was certainly the case when the Ecuadorian government invited the world to help protect Yasuni National Park by paying to keep their oil in the ground, as discussed in the Scientific American.
The Ecuadorian example is likely just a drop in the bucket, given that many valuable forests and marine ecosystems could be at risk of destruction by companies that specialise in resource extraction. The GCR cannot resolve most of these problems, but what it does offer is a reward for producing cleaner energy. Producing low-carbon energy to meet global demand will be challenging because there are many technical challenges. By producing more cleaner energy, our reliance on fossil fuels will decline—and hopefully quickly. There will be tradeoffs, because solar farms, wind farms, and electric vehicles are constructed from natural resources, like cobalt, nickel, lithium, and copper. The extraction of critical minerals will come at an environmental cost.
What the GCR policy actually does propose, is to tackle the climate crisis from two sides of the energy equation. The first rule, for cleaner energy production, addresses the supply-side of the energy equation. The second rule, for cleaner business practices, addresses the demand-side of the energy equation. Therefore the GCR policy is targeting the de-carbonisation of the energy mix, and it is also reducing demand for fossil energy. Nowhere does this include paying companies to keep fossil resources in the ground.
What would happen if we paid companies to keep carbon in the ground? This approach is conceptually similar to paying for avoided deforestation, because avoided deforestation requires “doing nothing”, where “nothing” means not cutting down trees. In reality, avoided deforestation is about protecting forests that somebody wants to cut-down for short-term financial gain. Similarities with avoided deforestation are not sufficient to justify a direct comparison with paying to keep carbon in the ground in every location on Earth. Forests are ecosystems, and not just carbon stores. Forests are the backbone of terrestrial ecosystems, and we need forests to sustain the hydrological cycle, carbon cycle, biodiversity, ecosystem health, and indigenous communities.
So there are two objectives to consider: keeping carbon out of the atmosphere, and protecting ecosystems. Sometimes the two issues are overlapping.
❝The GCR policy does not pay to keep carbon in the ground because this could be an unproductive use of our collective wealth.❞
In the fictional story, “The Ministry for the Future”, the “carbon coin” is issued to keep carbon in the ground. The “carbon coin” will therefore increase the value of fossil fuels through cost-push inflation, given that a portion of the fossil reserves will be bought with “carbon coins” and then removed from the marketplace. In the GCR policy, the “carbon currency” is not paid to companies to keep their carbon in the ground because this approach would likely result in an unproductive use of our collective wealth.
If a carbon coin were paid to companies to keep their carbon in the ground, it would act as an incentive for resource companies to find more fossil resources, and it would incentivise them to find poor quality fossil reserves to sell for more “carbon coins”. From a profit seeker’s perspective, it would be logical to mine the easy-to-extract fossil energy and sell it to consumers; and to sell the low-grade fossil energy for “carbon coins”.
If the “carbon coin” approach in “The Ministry for the Future” is used selectively, to protect invaluable ecosystems, it could be a smart policy and worth examining. At the global level, the application of the “carbon coin” might be deemed a moral hazard for the reasons given below.
The main limitation of the “carbon coin” proposal is macroeconomic. The quantity of fossil resources that currently exits in the ground—as energy reserves—is very large. The total of all of the coal, oil and natural gas that is currently held in reserve is equivalent to about 9,000,000 TWh, 2,900,000 TWh, and 2,100,000 TWh, respectively. Compare this with the total of all coal, oil and natural gas that has been extracted since the early 20th century (1920), which is 6,500,000 TWh. The remaining reserves are roughly double that which has been extracted and burnt since 1920 when comparing the embodied energy.
If the total fossil energy in reserve is more than double the total fossil energy extracted since 1920, then the “carbon coin” approach has a problem. The rough data suggest that the world cannot afford to pay to keep the fossil energy in the ground (at today’s prices) because there is just too much of it.
The world’s fossil fuel dependency might be better resolved with a combination of regulations, caps, taxes, and our proposal for a Global Carbon Reward (GCR). The carbon reward will reduce demand for fossil fuels, and this is how we can keep the coal, oil and natural gas in the ground on a permanent basis. No doubt some of these fossil resources will be needed by society because of difficulty with substitution.
Various analyses have been done to estimate the mass of future “residual carbon emissions” this century. These residual emissions will be large. They will likely exceed 1000 GtCO2 by the end of century; and so conventional mitigation technologies and methods will not be sufficient to achieve the Paris goals. This is why we need the GCR policy, and in particular we need the third reward rule: the rule for carbon removal.
The carbon currency has many features that are not discussed in this blog, and a major problem is that many economists are too quick to dismiss an idea that they simply don’t understand or haven’t tried to understand.
The novel, “The Ministry for the Future”, is a story about the human condition when civilisation comes crashing into a planetary boundary. It covers the depth and breadth of a complex problem in 563 pages of (mostly) plausible fictional events. The storyline is not perfect, but we should not expect a sci-fi novel to be perfect. “The Ministry for the Future” presents a highly valuable narrative because it invites us to think outside the box in order to find solutions to some very wicked problems.
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