Money for mitigated carbon: A climate policy you can get behind

Sam, 10, in front of his family's honeybee hive on the boundary of Kibale National Park, Uganda.
Sam, 10, in front of his family's honeybee hive on the boundary of Kibale National Park, Uganda.

Cate Twining-Ward

Related Topics:
Business & Economics, Climate, Policy

We are in a planetary emergency. All high income countries today are massively overshooting planetary boundaries, destroying the living world, and in doing so, restraining the prospects of lower income countries of catching up. 

It’s clear we need solutions both of scale and of speed. Our window of time to act is now. That window will not be forgiving. Equally, sustainable mitigation must provide credible development pathways for low- and middle-income countries. Those experiencing extreme poverty are most vulnerable to climate hazards, not to mention that they have contributed the least to historical emissions. 

It is almost certain that if we do not change our current carbon trajectory, global temperatures will overshoot 1.5 degrees of warming, triggering irreversible damage. Based on current commitments, the IPCC has determined we are on track for 3.2 degrees of warming by 2100. There is a 5% chance we will stay below 2 degrees of warming.

Thus, we need an improved policy toolkit that builds on what we already have, but one that also protects the biosphere. 

What if we had a new financial incentive—one that’s both economically scalable and that incentivizes individuals, companies, and governments to reduce their carbon emissions. 

Introducing: the Global Carbon Reward

The Global Carbon Reward is a newly developed international climate policy that aims to reduce carbon by providing rewards. Unlike other solutions that have been proposed by economists, such as carbon taxes, and cap-and-trade, the GCR policy proposes a reverse approach. Instead of only punishing emitters to push them to emit less, a so-called “stick” approach, a parallel economy that rewards people for doing good decarbonizing work, a so-called “carrot,” could be implemented. 

Figure 1: Carrot and Stick Approach Explained (reproduced with permission)

The idea is simple: Let’s create an economy that rewards people for decarbonizing, and for keeping carbon in the ground. Economic schemes that penalize companies through carbon taxes, carbon offsets, and cap-and-trade, are still needed, yes, but for maximum cooperation and efficiency, these schemes cannot work alone.

The “reward” can be thought of as a kind of carbon currency. The carbon reward is a “carrot” that will  be issued as a conditional grant to  applicants after they present evidence  that they have mitigated (or will mitigate) a significant mass of greenhouse gasses (GHGs). 

For example, industries that are critical for achieving global net-zero on time, may switch from fossil energy to renewable energy to earn the reward. This might include, for example, a farm that transitions from producing animal meat to producing vegetarian meat substitutes. In this example, the farm would receive the reward based on a formula that responds to the decarbonisation of the business model. 

A critical problem that the policy will resolve is the climate finance gap: the money needed for addressing the worst impacts of climate change.   

Figure 2: The Climate Finance Gap Explained (reproduced with permission)

The carbon reward is not expected to realize the Paris goal on its own, however, because it is intended to be used in tandem with other policies to create a toolkit of carrot and stick policies. 

Figure 3: How the GCR Policy Reduces Global Carbon Emissions, (reproduced with permission)

The carbon currency will be managed by a new institution, called a Carbon Exchange Authority (CEA). The CEA will play a coordinating role by managing all aspects of the carbon currency, however, the world’s Central Banks are also involved in the policy, as they are needed to underwrite the value of the carbon currency. The objective is to provide a “public finance guarantee” that the value of the carbon currency will be high enough to achieve the strategically important mitigation that is necessary to achieve the Paris goal. The carbon currency, in the way that it will be managed, will not create any direct costs for citizens, businesses, or governments—because it will be created debt-free.

Figure 4: Roles of Central Banks (financestrategists.com/CC BY-ND 2.0)

Recipients of the reward must agree and abide by long-term mitigation reporting, to ensure true carbon reduction. Modern day carbon offset programs are often rich with greenwashing, recent studies show that oftentimes offset credits do not actually represent carbon reductions. Thus, through long-term monitoring, the Global Carbon Reward Policy ensures a high level of both transparency and permanence.

Decarbonizing our world will require unprecedented cooperation across all levels of society. The GCR policy aims to maximize cooperation by providing a “carrot and stick approach.” In other words, it’s a policy that incentivizes good work with rewards while also keeping some punishment schemes to push people towards certain outcomes. Unlike fiscal policies, which are managed by individual governments, monetary policies are managed by Central Banks, many of which can work together and have the flexibility to address socio-economic problems. 

In addition, the GCR policy provides a roadmap on how to incentivize all levels of society to rapidly decarbonize in a manner that does not come at the expense of low-income countries. Achieving net-zero emissions by 2070 [please check the  time period] will require everyone — including individuals, economists, private sector organizations, and governments — to contribute and this will involve discomfort. But ask yourself this: with climate disaster already unfolding, and a financial reward at our fingertips, what do we have to lose?

What to read more about the Global Carbon Reward policy? You can click here for a copy of the policy working paper, with the opportunities to provide your suggestions to the authors. 

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