Some say a real market economy is the one that ensures greed is good. But on the other hand, there are those who argue that greed is in fact what is fuelling the rapid climate change. I am not sure if blame game is the right way forward. Also, I am not really sure if a confrontational approach will get us anywhere.
I do feel that, it is our collective effort that will help us solve our problems. And there has to be a genuine buy-in from all of us if we are to make any real progress on the subject matter. So I ask myself, just where do I stand on the issue ?
I believe to understand climate change and its overall impact, one should have a good understanding of finance, starting with what is necessary and needed to support the new sectors that will enable the transition of the larger global economy to a more greener and sustainable economy.
But before we get into that, for discussion purposes, let us understand try to assess the potential economic cost of letting things be. And we need to have this discussion without any inherent bias. Now, I would like to bring in car insurance analogy into this discussion to help us create a perspective. So even if we were the best drivers, there is always a chance that we will make mistakes and get into accidents, and therefore, most of us willingly buy insurance.
And here is an important point to note, whether I am for climate change or not. I do think that it is only prudent for all of us to at least try to assess the potential economic damage, and most importantly the human cost of climate change. Yes, there are still considerable uncertainty about how much long term damage there will be on the economy and also how well societies can adapt to reduce these damages; depending on a number of variables, my working estimate is that the overall impact on global GDP could be between 35% to 51%. Obviously, there will also be a significant loss of earning to individuals, and therefore, there is a cost to our wallets.
The question then is, why are corporates not pushing ahead? And why is the progress slow? While increasingly a large number of people attend climate change conference, more and more people are of the opinion that not much is being done. So yes one could argue that these conferences are nothing but a photo op, and the real progress is quite slow. Getting the world economies to agree to transition to a greener economy is a big ask because there are no real plans to allow emerging economies to access capital to fund their green growth.
In the end, it’s all about capital and how are we funding a greener economy. If more and more people can benefit and profit from the transition and transformation of the economy to a more greener economy, I believe a lot of capital will flow into the cause. So in a way, it might be a good idea for us to find ways to empower greed if we want to power the green economy.
And here is one such idea, which by no means is a new innovation, but in my assessment is worth exploring. The core idea is based on monetising carbon through a digital unit which I refer to as “ eCarBon “. To set up the overall framework, I believe UN along with national level environmental agencies could help facilitate the market for eCarBon which will be linked to carbon offsets certifications.
So instead of eCarBon becoming another Bitcoin or Crypto, it will be a new globally traded asset class. And by investing in a regulated and authorised investment, people will be able to invest directly and also indirectly in a greener future, and profit from it. In this case allowing greed to drive green growth may work out. Instead of mining BitCoins the infrastructure could be used to create eCarBon- a regulated asset class that people will invest in and trade.
Global CO2 emission has crossed over 36 billion tonne a year. So the idea is to get everyone especially the younger generation of investors investing in eCarBon carbon instead of existing crypto assets. And let them make money from Carbon. In the regulatory framework, the annual global allocation of eCarBon could be supervised by IMF or world bank. And local issuance of eCarBon could be regulated by national level regulators following a global benchmark and guidelines.
All the custody and settlement could happen in London so perhaps FCA could take a lead on it, and turn London into the global hub for eCarBon. I do wonder if eCarBon will probably trade like a resource asset class, or it will eventually become the most liquid asset class, a possible hedge against USD especially for emerging markets, but we will let that be decided by the market.
Whatever may be the case, my guess is that this will easily become a few trillion dollar market in the next 5 years. Banks along with other financial firms will come into the market, and as the market gets more liquid, more capital will flow in.
To make the investment class more attractive, governments could incentivise investors holding eCarBon through smart tax structure and regulators could offer accounting flexibility. Companies and promoters will hopefully be able to tap into a new source of liquidity to fund greener project, and help the economy transition to a more greener economy. So I wonder, if perhaps empowering greed is a way to power the green economy ?
A human body is up to 18.5% carbon and almost 50% of the dry mass of a human being is carbon. And most of the organic life on earth is carbon based, so does that make eCarBon as a genuine long term store of value ?