A global Carbon Currency would be a wonder-tool for Bankers, Bureaucrats and Crooks

The idea that we could make “a carbon credit” work as an international currency and fix our weather at the same time, is the stuff of  Econo-alchemy.

It’s where a scientific quagmire marries an economic fairy.  Instead of salvation we get the swamp to end all swamps.  It doesn’t give power to the people or produce an honest mode of exchange or stop the storms either. A carbon currency just feeds corruption and centralized unaccountable unelected committees who play power-brokers and Kingmakers, deciding what is and what isn’t a real “right” and who or what should pay. It serves global bankers who broker the transactions. It is the paper currency from hell.

Where do we start? A bar of carbon “rights” is not a bar of gold

How do we weigh a “carbon right”? Every nation on Earth knows what a gram of gold is, and with 2,500 years of trading history, everyone knows that come the apocalypse, they can still swap gold for goods.

What sort of security is backed by the right to emit one unit of carbon dioxide,  a right that all life on Earth and most of the rocks and water already has? The largest consumer of carbon rights is the Pacific Ocean on a warm day. Should we set up an account for it in Geneva? Do the territorial seas around a nation produce or consume carbon rights? What about the coral reefs, the trees, the bark, the bacteria? Says who? We cannot measure it, so it’s all modeling. May the biggest cheats win and UN Gatekeepers rule the world.

The problem with using a ubiquitous molecule as an exchange of value is manifold — either every molecule is in the market or the new Global Emperor decides what is and what isn’t and everyone bows, grovels or bribes Zir or Zat Ruler to get what they want. There’s no intrinsic way to know if the molecules being counted are “in” the market or out; the biggest players in the market can’t play, and perverse incentives are everywhere like spaghetti.

A global carbon currency would be instantly prone to massive rorting, corruption, and political whimsy.

Are all carbon rights equal, and if not, who decides?

Does a freezing Inuit have the same right to emit carbon as someone living in the tropics? Do countries with high population growth earn more rights to emit? Would that incentivize baby-production in a world where some argue that more people means more pollution? Or do we go the other route, where humans don’t count per se, but it’s the right of a nation compared to past emissions, which disincentivizes and punishes nations that grow their population or allow mass immigration. Should we rate the “right” based on distance from global population centers, population density, latitude, rating for “development” proclaimed by some quasimodo UN Index, rorted up the kazoo by nations that earn votes via Belt-N-Road bribes or leverage, or should we just auction the rights to the biggest bribers? What could possibly go wrong? And whose is this magical “we” who decides?

Gold, on the other hand, is the ultimate anti-cheating device

Governments can’t print it, fake it, change the definition of it, or argue over whether it exists. Logically, without gold backing, our paper currencies are simply legalized counterfeiting. Any global fiat carbon market would be only as secure as its weakest link — think Zimbabwe. At least some paper currencies are backed by the tax-raising power of democracies, which slows the descent of paper currencies to their true long-term value — zero. (Look up MMT).

Make no mistake — the Carbon market is a fiat currency, not a commodity

Despite the name sounding exactly like an element of the periodic table, the carbon market isn’t counting carbon, or even carbon dioxide. It’s merely some fractional subpart, a few percent thereof, as defined by a committee of bureaucrats who would control billions of dollars on a whim — and be bought for mere millions or promises of a glorious golden ambassadorships to New York or Beijing. The carbon market wouldn’t just invite loopholes, it would be one. Real CO2 makes the world go round, produced or consumed by every living thing on Earth. It’s only a small player in the global climate controller — vastly outdone by the Sun, by clouds, ocean cycles and who knows what. Carbon (as CO2) is the only “commodity” on Earth that no human can tell whether the container ship is full or empty. Is that certificate real? Will that CO2 stayed stored in the trees or under the sea? Sure, if you say so, but I need a cut of what you’re getting or I will go public…

There are major obstacles to enter the market

In an efficient market, there should be no obstacle to entry or exit. Yet the largest players in a global carbon market can’t play because they have no brain. Which of these sources or sinks do nations own with sovereign control, and which do they not? The UN power-games over the definition of the parts of nature that could be included will be the International Monetary Bunfight of the Century, and it will never end. We are carbon life forms. Shall we charge fat people more for their right to breathe? Well, obviously.

Is that a market managed by God I see?

What happens when a fire wipes out a forest? Was that an Act of God, or arson, or just an investment? Was it warfare? Foreign actors might find all kinds of ways to destroy a national account. Currency management might be a cigarette butt thrown out a window on a summer’s day. In another country — that sounds like a job for the CIA.

The efficient market hypothesis suggests buyers and sellers act on all available information. But when humans make only 4% of total global emissions, and 96% of this market is controlled by the Sun, or phytoplankton, or cosmic rays, who the heck knows?

Perverse incentives are everywhere

In Australia the Kyoto agreement probably led to the theft of farmland from farmers. Coincidentally, all Australian states brought in legislation to protect native regrowth (often also known as weeds). Suddenly farmers that didn’t clear every year couldn’t clear at all. The new “carbon” was credited towards our national Kyoto commitment, as measured by satellite cameras with no compensation for farmers. Thus the perverse incentive was to stop farmers from allowing regrowth, or to steal the farm accidentally off them if they made the mistake of allowing trees to fill paddocks. (Read the sorry saga of Peter Spencer, who lost his life’s work through no fault of his own).

Most past carbon markets ended up including credits for atmospheric nullities that may or may not have been real, and are always unknowable. Was the forest saved from being razed? Would you have built that hydro dam anyway? Does that carbon credit really exist — was that factory closed, purely to claim the credits, or did it create more pollution in the first place so it could earn more from being closed than it did while running? These environmental frauds have already happened — see HFC-23 and ask President Xi.

And then there is the awful state of carbon accounting. In 2015 the world found 2.6 trillion undiscovered trees. Despite satellites, 83% of the Earth’s trees were not counted nor known. Suddenly, the whole world owed carbon credits to the rest of the world. It’s a bad joke. Every year new carbon account “oopsies” turn up. Lakes one year, microbes the next. As soon as there is money in carbon accounting, the grants to discover carbon will bloom and flow. The market will shake every year and for decades to come as the dollar gets furiously revalued with a thousand new peer-reviewed papers.

Let’s have a free market in science before we mandate an un-Free market in carbon

We need to understand the science before we can even start thinking about the market. The abject endless climate model failure, and the scientific sickness underlying the core value of “a unit of emissions” neutralizes the entire economic argument. We can’t predict what  CO2 will do to the climate a year from now, but we do know that carbon emissions increase crop growth, help arid zone plants grow, and green the world. Is that not beneficial? Who should pay who? Cold countries benefit from warming. Twenty times as many people die in the cold than die in the heat. Nothing kills as many people as moderate cold. Global warming saves 166,000 lives a year. Based on the only scientific facts we are sure of, carbon feeds the masses, helps the poor, and saves lives. Reducing carbon will kill people. Who will pay for that?

A theory of carbon currency

Abstract

….

Let’s use a medium of exchange which is not meant to be a medium of exchange, it’s “meant” to control the weather?

3.4. Other benefits: carbon currency as a medium of exchange and a store of value

As discussed earlier, we do not emphasize much the function of carbon currency as a medium of exchange because it is not the main motivation of introducing carbon currency into the international monetary system. As invoicing currency have been shown to be important, we argue that carbon currency could also be used in international trade. The current trade system has U.S. dollar as the dominant invoicing currency, and both theoretical and empirical studies [2] have shown that an appreciation of U.S. dollar would lead the trade volume of the rest of the world to decline. 

And by definition the appreciation of the carbon credit “dollar” would lead to a trade volume decline in every nation on Earth. Carbon dioxide emissions are linked to GDP. The more nations emit, the richer they are.

OWID |

Nothing about a carbon currency makes sense except to global bankers and bureaucrats. Certain parties are going to grow rich and powerful by using a carbon currency, but they don’t include us.

h/t Willie Soon and Joe Bast at Heartland

REFERENCE

Liu et al (2022) A theory of carbon currency, https://doi.org/10.1016/j.fmre.2022.02.007

https://www.sciencedirect.com/science/article/pii/S2667325822001182