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A background paper for the conference "Debt, Climate and Global Justice", organised by FEASTA, with input from the New Economics Foundation, the Global Commons Institute, James Bruges, Molly Scott Cato, Elizabeth Cullen, Mary Douthwaite, David Healy, Nadia Johanisova, John Jopling and Larry Lohmann.
Allocating Emissions Rights
Panel: How Contraction and Convergence would allocate Special Emissions Rights
Global Monetary Reform
The Compulsion to Grow
How the United States gets a subsidy from the rest of the world
The Massive Gains from Seignorage
A True International Currency
Basing Money on the Scarcest Resource
The Third World Debt Crisis
Oil and Gas Depletion
The US Would Benefit Too
Better Distributed Political Power
The Gains and the Losses
Frequently Asked Questions
Panel 1: Why Coal and Nuclear Energy Can't Fill In For Gas and Oil
Panel 2: The Effects of Allowing the World to Warm
Arthur Koestlers fascinating account of the development of scientific thought, The Sleepwalkers, describes how the great thinkers of the past, Kepler, Galileo and Newton among them, seem to have wandered around and around the concepts they were seeking until they eventually stumbled upon them. Robert Frost deftly generalises this intellectual process in a two-line poem: We dance around in a ring and suppose. The secret sits in the middle and knows.
Theres certainly a lot of sleepwalking and dancing around being done by those attempting to come up with solutions to the big problems of our time such as climate change, resource depletion, Third World debt and the growing gulf between rich and poor. Perhaps the reason for the confusion is that the searchers are too specialised, too close to the particular problems on which they are working to see the bigger picture. But its the bigger picture that matters because the problems are inter-related. For example, increased energy use will almost certainly be required to alleviate hardship in the poorer parts of the world. Unfortunately, however, if the necessary energy comes from fossil sources it will contribute to climate change and cause droughts, storms and floods which will have a serious impact on the lives of exactly the people its use was designed to help.
In our view, the world is facing a single underlying systemic problem rather than a lot of totally independent ones. Put another way, global warming, the over-exploitation of natural resources and the extremes of wealth and poverty are the products of the economic system that has evolved over the centuries. As a result, any attempt to cure, say, the debt crisis by itself without changing the way the global economy works is bound to fail. Some poor countries debts would be wiped out but equally unpayable ones would crop up a few years later because of the way the current economic system works.
The need to transform the economic system may seem a depressing diagnosis because it has proved very resistant to calls for change in the past. However, this time around, the required changes are relatively easy to make and, if taken as a package, almost everyone gains massively from making them. We cannot overstress this. The barrier to progress until now has been that everyone has been thinking in terms of solving each problem by itself and their suggested solutions have all been zero-sum games that is, arrangements by which one set of players would gain at the expense of another set. Since the countries cast in the role of losers were the most powerful nations on the planet, they refused to play and the games did not start. But if we tackle the root cause of the various problems rather than trying to ameliorate each of them individually, we can create a non-zero sum game in which everybody gains, not least because the Earth might be protected from catastrophic changes. The deadlock that is currently preventing progress can be broken.
In Non Zero, Robert Wrights book on the way human culture has developed by finding non zero-sum games to play, he writes: In highly non-zero-sum games, the players interests overlap entirely. In 1970, when the three Apollo 13 astronauts were trying to figure out how to get their stranded spaceship back to earth, they were playing an utterly non-zero-sum game, because the outcome would be either equally good for all of them or utterly bad. (It was equally good.) A similar game is being played today. Almost everyone reading this paper is likely to accept that our spaceship is in trouble and that the outcome will be quite good for all of us or very, very bad. And yet one group of prospective losers is refusing to pass another group the tools they need to make repairs, justifying their refusal with calculations designed to show how much they would lose financially by doing so. Yet if everyone passed tools back and forth as they were needed, wed find that we still had them when the job was done, and that our spaceship might escape burning up in the atmosphere.
So what is needed is a coordinated package of policies that simultaneously tackles climate change, the over-exploitation of natural resources and global inequality by changing the global economic system so that it automatically works in a different way.
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Lets start with global warming. The steps we need to take to reduce this threat are already clear. First, since humanity cannot stop releasing greenhouse gases at 9 oclock tomorrow morning, we need to estimate how much time we can safely allow ourselves to make reductions and how big those reductions need to be to stabilise concentrations in the atmosphere at a safe level.
The average global temperature has already risen by at least 0.6 degrees Celsius since fossil fuels began to be used in quantity at the start of the Industrial Revolution and the rate of the rise is accelerating. Consequently, the answer for our questions boils down to assessing how much more of a temperature increase we dare risk. Although the scientists attached to the UNs Intergovernmental Panel on Climate Change have not suggested a temperature-rise limit, several research institutes and NGOs have done so instead and have come up with broadly the same figure. The Climate Action Networks estimate1 is typical. It is that if our goal is to prevent dangerous changes in the climate then "global mean warming needs to be limited to a peak increase of below 2°C (above pre-industrial times)."
Even this is very risky. 2ºC would be a death sentence for tens of thousands and perhaps millions of people, a commitment to catastrophic losses of species and ecosystems, and, frankly, an invitation to a sharp exacerbation of geopolitical and military instability writes Tom Athanasiou of the US organisation, EcoEquity. And that would be the best outcome. The worst would be if a two degree rise turned out to be enough to cause the worlds forests to burn, touching off a runaway warming effect, or if it stopped the Gulf Streams flow, plunging Europe intro a new ice age.
Once a temperature target has been chosen, the next step is to convert the acceptable temperature rise into the quantities of greenhouse gases that can be released without breaching it. Again, there is no certain way of estimating these it all depends on how sensitive the climate is to increases in the atmospheric concentrations of each gas and we dont know enough about that yet. However, a guesstimate is better than having no figure, no order of magnitude at all, particularly if we can start an emissions-reduction process and then speed it up later if we find that our initial estimates were too generous and would take temperatures over the top.
Of the four main greenhouse gases carbon dioxide, nitrous oxide, low-level ozone and methane the first three are mainly the products of fossil fuel use, with CO2 contributing around two-thirds of the heating effect. Methane is rather more complex. Roughly 20% of its emissions3 are the direct result of fossil fuel production, 30% are natural and the final 50% is due to other human activities, most of which fossil fuel use intensifies. So, all in all, if we control CO2 emissions, fossil fuel use will fall and the production of the three other gases will drop too. Consequently the main task is to estimate the tonnage of carbon dioxide that can be released into the atmosphere without exceeding the temperature target. Once we have that figure, we can then decide how to share out the amount amongst the people of the world since it is, essentially, their fossil fuel ration.
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Allocating emissions rights
There are three basic ways in which the right to emit carbon dioxide can be shared out between countries. One is to have an international agency sell CO2 emissions permits each year and use the proceeds for, say, financing the UN and paying for development projects in poor countries. This idea can be ruled out immediately since it would allow the industrialised nations that have caused the warming problem and have become rich through their overuse of fossil fuel to continue to use the lion's share. Moreover, it would lead to a very top-down pattern of development.
Or should we say, as the Americans once did, that emissions rights should be grandfathered and that all countries should cut back their current emissions at the same annual percentage rate perhaps 5% a year until the necessary reduction is achieved? This approach would, of course, mean that those countries which use most fossil fuel now would continue to use most in future while those using very little at present and have not caused the climate-change problem would have to learn to manage on even less. Such an arrangement would scarcely command worldwide support.
The third option would be to say, as a growing number of people now do, that the right to emit carbon dioxide should be considered a human right and that emissions permits should therefore be issued to all humankind on an equal basis. Contraction and Convergence, a surprisingly flexible plan advanced over the past ten years by the Global Commons Institute in London is based on this idea. Since it, or something very similar, is almost certainly going to have to be used for any structured, internationally co-ordinated response to the threat of climate change, well assume its adoption for the rest of this paper.
Under C&C, annual global emission limits would be set on a rolling basis for at least two decades ahead so that industry can plan. The level of emissions allowed would decline steadily over the planning period and, each year, permits giving the right to burn whatever amount of fossil fuel the years limit represents are shared out among the nations of the world according to their populations.
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How Contraction and Convergence would allocate Special Emissions Rights (SERs)
Source: Global Commons Institute, 2003
The top part of the graph shows how many SERs would be being issued now to people in various parts of the world if C&C had been introduced in 2000 and a 30-year convergence period had been agreed. The Americans, for example, would be seeing their allocation gradually cut from an initial six tonnes a head, the countries of the Former Soviet Union (FSU) would be coming down from 3 tonnes and the rest of the industrialised world from 2 tonnes. Meanwhile, people in China, India and the rest of the world would be getting a slightly larger allocation each every year until, in 2030, every adult in the world would each get exactly the same number of permits. After that, the number of permits all adults would get would be steadily reduced each year until humanitys total emissions were cut to an amount which stabilised the CO2 level in the atmosphere, or even caused the level to slowly fall.
The lower part of the graph shows how total annual CO2 emissions rose in the past and how they might fall if C&C was put into effect. Although the chart does not show atmospheric concentrations, the rate of overall emissions contraction it adopts would limit the rise of CO2 concentrations in the atmosphere to about 70% above the pre-industrial level by around 2100, or 450 parts per million by volume. Neither part of the chart projects the actual emissions by any country because no-one can predict exactly how C&C would be set up (what would be the population base year, for example) and how many SERs each country would buy or sell.
An excellent series of moving images showing how C&C works and how it can be adjusted to allow for, say, a shorter convergence period, or the discovery that the situation is worse than was thought, can be found at www.gci.org.uk/images/CC_Demo(pc).exe
In the early stages of this emissions contraction process, some nations would find themselves consuming less than their allocation and others more. An essential part of C&C is that the under-consumers have the right to sell their surplus to more energy-intensive lands. This feature of the scheme provides an income for some of the poorest countries in the world and gives them (and the over-consumers) a financial incentive to follow low-energy development paths. Eventually, however, it is likely that most countries will converge on similar levels of fossil energy use per head.
Four things should be noted about allocating emissions permits in this way. One is that since the emissions rights are human rights, the permits go to individuals, not to their governments, which merely oversee their distribution. This may seem a cumbersome arrangement but its intention is to keep the purchasing power the permits represent out of the hands of corrupt elites. We admit that this will be very difficult to do, particularly in those countries where the corrupt elite and the government are one and the same. To beat this, the international agency issuing the permits will have to have a team of monitors, just like those used to check on the fairness of elections, and if widespread abuse is detected, the country concerned would get a reduced allocation of permits the following year.
Issuing permits to individuals is also essential because it avoids the extreme hardship that restrictions on fossil energy use would otherwise cause. After all, when energy becomes scarce, its price will go up and this will increase the cost of everything everybody buys, including food. People already on the brink of starvation would face disaster unless they had emissions permits to sell to compensate.
The permits will, in fact, amount to a global Citizens Income. They are a step towards economic democracy. We can imagine Indian farmers dressed in white, queuing up in the hot sun outside the local district office to receive their permits and, when they reach the officials table, having their hands stamped with indelible ink to ensure they dont queue up again. Dealers would set up booths ready to buy the permits when the recipients came out and most of the farmers would immediately sell theirs for rupees. The dealers would then sell the permits on to companies wishing to buy oil, gas or coal.
The second point is that if permits are issued to people rather than to governments, and if each child coming into the world consequently brought an income with it, families would have an incentive to have more children. To avoid this, emissions permits would only be issued to adults. Moreover, to ensure that governments continued with population limitation programmes, the share that each country got of the years global issue of emissions permits would be based on its population in a base year, not its actual population at the time. A state agency would then divide the national share among the adult population.
This makes the choice of the base year a crucial issue but one on which C&C provides some flexibility, some scope for negotiation. 1990 is the base year used in many climate negotiations Kyoto, for example but if that year were chosen for C&C it would discriminate against countries with young populations where, whatever their governments do, numbers are bound to grow because so many young women have yet to have children. Such countries will naturally wish to see a later base year adopted. If they succeed, countries with stable or shrinking populations will get somewhat smaller emissions shares.
The third point also provides scope for negotiation. It is that people in different countries probably wont get the same allocation of emissions permits straight away. In other words, the goal of equal per capita entitlements may only be achieved over a period of time, say ten or twenty years. This is not a matter of principle its just practical politics. An immediate convergence on the same allocation would be very costly for the industrialised nations as, in order to keep their energy-intensive systems running until they could be changed, they would have to buy many more permits from the poorer parts of the world. The burden that these purchases would place on rich-country economies might be more than they could bear politically, at least and this aspect of C&C was developed to allow negotiators from the industrialised world a little wriggle room. True, delaying convergence to equal per capita emission rights introduces an element of grandfathering to the system. However, without such a concession to rich countries to ease their transition to strict C&C, they might never sign up.
The fourth point takes us into the next area in which changes need to be made. What currency or currencies are the over-consuming nations going to use to buy extra CO2 emission permits? This question has to be asked because if the overconsuming nations were allowed to purchase using money they created themselves, namely their own national currencies, those with the more internationally acceptable ones the dollar, the euro, sterling, the yen and the Swiss franc would be able to buy permits at a significant discount for a lot of the time. More importantly, since all those major currencies are created as debts, and rapid economic expansion requiring extra energy use is necessary if those debts are to be repaid, there would be a constant conflict between the need for extra energy to produce enough economic growth to maintain the money system and the need to reduce fossil energy use to reduce emissions. Consequently, unless a way of putting money into circulation without creating debt can be found, any efforts to control greenhouse emissions under C&C or, indeed, any other conceivable scheme are likely to break down. Wed better explain.
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