We've discussed the "stick" approach to mitigating climate change, through carbon tax and offset credits. But what if we had a "carrot", too: a new currency based on carbon sequestration?

Reading Time: 11 minutes

In Kim Stanley Robinson’s The Ministry for the Future (2020), there’s a friendly bit of ribbing for one of my fields. Political science, one character suggests, is fake, or at least its name is fake. Where’s the science in it?

“Statistics, maybe?”

“No. They just want to sound solid. They’re history at best, economics at worst.”

“I sense a poli sci major here, still living the trauma.”

“It’s true!”

That earned a chuckle from this PSCI grad, but it also brought to mind a common question from the discipline, which many enter with aspirations of becoming leaders: Does economics guide policy, or does policy guide economics? It’s a silly binary, of the sort one expects in undergraduate discourse, but also an excellent Rorschach test: Which did these would-be leaders of tomorrow want to be true, and why?

Just as some covet a monolithic notion of “Science” instead learning to appreciate the mess of the scientific method as applied by humans, so too do some people have fixed, fawning ideas of “The Market”, as if its laws are universal and immutable. In the world of political science, many want to believe that everything is dictated by market forces, because that gets them off the hook for doing more than learning how to navigate the system to their personal betterment. If it’s just the way of the market to pick winners and losers by certain metrics, why fight it?

A lot has changed since those silly early years in university, not least of which for a form of free-market capitalism that supposedly ran the world based on a deeper, purer logic than any we could hope to contrive with greater regulation. At least, until climate change started depreciating resources and undermining GDPs. Now what?

The Ministry for the Future is a work of speculative fiction that imagines possible efforts to mitigate climate change. In it, Robinson highlights one such recent economic upheaval in our insurance markets. Right now, many US states are seeing home insurance costs skyrocket, as the industry proves unable to cope with climate change disaster. For now, the Federal Reserve is sometimes stepping in as a “lender of last resort”, but without more concerted government efforts to restructure housing policy and combat rising temperatures, there may soon come a time when the insurers of insurance will fail.

As with so-called AI, the “algorithm” of modern finance only works within set parameters. Push those limits too far, and it breaks down, sometimes yielding spectacularly bad results.

Or, as Robinson puts it, on a chapter written as meeting notes:

Can’t charge premiums high enough to cover pay-outs, nor could anyone afford to pay that much. Lack of predictability means re-insurance companies simply refusing to cover environmental catastrophes, the way they don’t insure war or political unrest etc. So, end of insurance, basically. Everyone hanging out there uninsured. Governments therefore payer of last resort, but most governments already deep in debt to finance, meaning also re-insurance companies. Nothing left to give without endangering belief in money. Entire system therefore on brink of collapse.

So how do we incentivize change in our plainly failing market economies? What would it take to establish new parameters in our financial algorithms? These are the questions we’re looking at in this week’s Humanist Book Club: a series of conversations about climate change mitigation framed around one text exploring a wide range of responses to disaster.

Carbon taxes and carbon credits

In recent years, we’ve heard a lot of chatter about the “stick” approach to economic transformation amid climate disaster. As its name suggests, a carbon tax attempts to push the world’s greatest perpetrators of climate change acceleration into better action. But how has this worked out in practice?

As of last summer, the International Monetary Fund (IMF) noted that 46 countries had implemented a carbon tax in some form, although it criticized most of those taxes as pricing emissions too cheaply to achieve the necessary transformations. Granted, though, these are not easy policies to implement without negative consequences. In Europe, the Center for Economic Policy Research noted that negative impacts are especially felt regionally, as the difference between neighboring national policies yield complex spill-over effects.

National discontent is also whipped up by local media, as seen in Canada this year when citizens received a new carbon tax on July 1. Consider the recent CityNews headline, “Canada now paying two carbon taxes while majority of countries are without a national one”. Rather than presenting this as a means by which Canadians could serve as exemplar to the world, the journalist and editorial team chose to fixate on the injustice to average Canadians: a petty but by no means unique response to uneven climate debt loads around the world.

Meanwhile, there is a significant difference between “real” and “net” zero carbon emissions, the latter of which is achievable through swaps and credits without significantly changing internal industry processes. Unsurprisingly then, the worst offenders have figured out how to game this international push for change. A whole industry has cropped up to help companies avoid carbon taxes by allowing them to invest in private offset programs, which promise to use their “voluntary donations” for reforestation and related sequestration projects. This work claims to help take carbon out of our atmosphere: a key aim because carbon dioxide’s greenhouse impact will be felt for another century otherwise. But there are many ways for this system to simply give the illusion of improving climate conditions.

Since we can’t fully grasp the suffering of future generations, we find ourselves less inclined to work for its reduction, and quicker to hasten along the ecological ruin of our commons.

Earlier this year a Guardian joint investigation into carbon offset programs, which it carried out with journalists at Die Welt and SourceMaterial, concluded that 94% of carbon credits from the world’s biggest certifier, Verrá, have no positive impact on the climate. Verrá issued a statement claiming that this investigation was inaccurate because the team used “synthetic controls” to assess overall impact, but even in its repudiation of the claim the company acknowledged that it was still working to develop a consistent shared methodology across relevant projects.

That broken confidence at such a critical time was echoed in a recent Vox investigation, which highlighted a huge uptick in the voluntary credit market (VCM) and the problems that such a scattered, private-sector approach poses for proper regulation. In interview with Vox, Sarah Leugers of Gold Standard, a certification foundation for the UN, “insist[ed] that carbon credits, properly and transparently administered, remain a vital tool in the fight against climate change”.


“Let’s be honest. The voluntary carbon market only exists because there isn’t the political will to introduce a carbon tax economy-wide,” she said. If there were, “we wouldn’t need to exist. It’s frustrating that such energy is being used to criticize people doing something, when the people doing nothing are often let off the hook.”

That wasted energy includes time spent hashing out the efficacy of specific carbon offset companies and processes. The REDD+ program, for instance, uses a controversial approach to issuing carbon credits, based on encouraging developing nations to conserve or restore forest regions. As Vox reporters noted,

This approach to carbon offsetting has been the subject of controversy in the industry because it relies on hard-to-verify assumptions that a particular stretch of forestland would be cut down if it wasn’t being protected by a paid-for carbon credit. …

This is why Gold Standard refuses to issue credits for REDD+ products, Leugers told us. They can’t be sure that the forests “protected” by the program would otherwise be logged. If a certifier gets this wrong, it would mean the carbon offsets sold to consumers, or to polluting companies like oil producers or airlines, are meaningless.

“Are carbon offsets all they’re cracked up to be?” Vox, April 3, 2023

But if using the “stick” isn’t enough, what other options exist?

Is there any way to make carbon sequestration programs lucrative, desirable, and regulated under stricter global standards?

The Global Carbon Reward

In 2018, Delton Chen published two papers related to a proposal for new currency to help combat climate change. The aim in “Carbon Quantitative Easing: Scalable Climate Finance for Managing Systemic Risk” was to propose that central banks take on a more proactive climate change mandate through a Global Carbon Reward policy. This financial model would compel an expanded understanding of financial risks, including the Social Cost of Carbon and the Risk Cost of Carbon. It would also require a new currency instrument, called a Central Bank Digital Currency (CBDC), that would serve as a “unit of account for carbon”.

In plain language, Chen was asking central banks to mint a digital coin whose worth would be tied to the increasing value, over time, of sequestering carbon ASAP.

But Robinson’s novel makes this proposal even plainer, by hashing out key details.

The Jevons paradox

The problem we face under current economic parameters is that increasing resource efficiency is not enough. There are “good” efficiencies and “bad” ones. The Jevons paradox, named after William Stanley Jevons in 1865, proposes that increased efficiency for a given resource only yields more use of the resource, not less. The consumer market therefore grows around the increasing cheapness of a core material, which would make the pursuit of more efficient energy sources insufficient on their own to mitigate the negative impact of their use at all.

As Robinson describes the challenge,

The paradox is visible in the history of technological improvements of all kinds. Better car miles per gallon, more miles driven. Faster computer times, more time spent on computers. And so on ad infinitum. At this point it is naive to expect that technological improvements alone will slow the impacts of growth and reduce the burden on the biosphere.

The whole field and discipline of economics, by which we plan and justify what we do as a society, is simply riddled with absences, contradictions, logical flaws, and most important of all, false axioms and false goals. We must fix that if we can. … Not profit, but biosphere health, should be the function solved for; and this would change many things. It means moving the inquiry from economics to political economy, but that would be the necessary step to get the economics right.

But how would we even begin to change our priorities, on a technical level? That’s where another key concept comes into play, in Robinson’s application of Chen’s Global Carbon Reward.

Discount rates

The problem with current economic priorities is that, even if we consider all humans as equally worthy (a debatable claim, but one we’ll take for granted here, to advance a larger point), we have a temporal bias toward the humans already with us, and against anyone in the overheating world ahead. The value of a human life even ten years out is tacitly or even expressly depreciated in our economic models.

If we’re going to combat climate change through finance system transformations, we need a way of thinking about the future that counteracts the negative role of the discount rate in our thinking.

Mary: So how much is the discount? How does it work?

Dick: The rate varies. It works like this: if you would take ninety euros now rather than the promise of a hundred euros a year from now, that discount rate is point nine (0.9) a year. Applying that rate, a hundred euros coming to you in twenty years is worth the same as about twelve euros today. If you go out fifty years, that hundred euros you would get then is worth about half a euro today.

Mary: That seems like a steep rate!

Dick: It is, I’m just using it to make it clear to you. … All the different rates and time intervals get traded, of course. People bet on whether the value will go up or down relative to what got predicted. The time value of money, it’s called.

Mary: But if the numbers lie?

Dick: They do lie. Which allows us to ignore any costs or benefits that will occur more than a few decades down the line. … A billion people are worth a huge number of dollars, if you take a rough average of the insurance companies’ monetary valuations for a human life. But using the point nine discount rate, that huge number might equal only five million dollars today. So do we spend ten million now to save what is calculated as being worth five million after the discount rate is applied? No, of course not.

This is also referred to in the book as the “tragedy of the time horizon”, a bleak successor to the classic (and flawed) tragedy of the commons. Since we can’t fully grasp the suffering of future generations, we find ourselves less inclined to work for its reduction, and quicker to hasten along the ecological ruin of our “commons” (the Earth). The solution, for Chen and Robinson?

The carbon coin

Quantitative easing is a tool used by central banks to manage long term interest rates and stimulate consumer activity. The practice usually involves lending money to the government by buying long term bonds from it. Once upon a time, that would have been the end of it, too: a bond would sit around waiting to mature, and then get cashed out at its promised rate of return.

But bond trading now also has a robust secondary market, with investors finding all kinds of inventive ways to leverage the long term guarantee of a bond’s government-backed value to improve short term profit.

That’s key to the concept of a carbon coin, which would be “backed by hundred-year bonds with guaranteed rates of return, underwritten by all the central banks working together”, as one character explains in The Ministry for the Future.

Mary, who leads the eponymous UN-based climate change action group, doesn’t understand at first why a coin with a bond payout of 100 years would interest anyone. But the coin’s existence would be contingent on proof of carbon sequestration, and the value of sequestering carbon would be government-guaranteed to increase for future generations, following the logic of discount rates.

This would make the carbon coin safe, a storage unit for value, and therefore useful in other market exchanges. Backed by long term bonds and a “whole monitoring and certification industry” for the original issuance of digital coins, and with banks stating plainly the rate of return they’d pay out no matter what, investors would easily find ways to use this coin in secondary swaps. That kind of market stability would also necessarily help the coin to gain favor internationally, because

[n]ormal currencies float against each other in the exchange markets, but if one currency is guaranteed to rise in value over time no matter what, then it becomes more valuable to investors. It will always stay strong in the currency market because it’s got a time stamp guarantee of a rise in value. … It’s like compound interest … but this time guaranteed by being delinked from current interest rates, which often hit zero, or even go negative. With this coin, you’re good to go no matter what happens.

Well, sort of. Robinson’s characters also consider a possible danger to making the carbon coin seem too safe, too robust. After all,

[t]hat could make for a liquidity trap, because investors would stash money there for safety rather than put it to use.

Shook head at that. Set the rate low enough that it’s seen as more of a back-up.

Dick said, If the central banks announced they were upping the amount of carbon needed to earn a coin, they could then balance it with other safe asset classes like treasury bonds and infrastructure bonds. That would add liquidity and give traders something about this they could short, which is something they like to do.

In other words, Robinson’s discussion of carbon quantitative easing (CQE) as a possible “carrot” to offset the carbon tax “stick” doesn’t ignore the gamification of our current carbon credit and offset markets. Nor does it pretend that investors aren’t always finding new ways to leverage old products to maximize short term gains through elaborate secondary swaps.

Instead, it works with all those predictable human behaviors, and tries to offer a constructive monetary prize that companies and individuals would eagerly seek out while still playing the markets in pursuit of better personal ends.

Could such a coin work? What might limit its implementation, and success?

The viability of CQE

When Robinson first published The Ministry for the Future, the world had a lot more faith in cryptocurrency. Now, we have a great deal of hard-won skepticism for the reliability of key banks and exchanges. Will that change? That depends on how much we can regulate, and not only in the world of digital currency.

READ: “What should regulatory burdens look like in the secular world?”

Blockchain mining, a common means of creating digital currencies, was also seen as terrible for the environment. But we’ve recently made strides in drastically reducing the carbon footprint of blockchain networks, as the industry moves from using an energy-intensive “Proof-of-Work” algorithm to a simpler “Proof-of-Stake” protocol. The financial technologies exist, if we’re ready to use them more responsibly.

Since the book’s publication, other financial figures have joined Chen in advocating for a new digital and ideally international currency. In January 2021, Frank Van Gansbeke, writing for Forbes, outlined a proposal for national CBDCs, which central banks could issue to tackle internal social welfare crises, or an IMF Climate Coin, a digital “stablecoin” backed by fiat (government security).

But while central banks have been assessing possible use cases for such CBDCs, the IMF remains cautious about the development of stablecoins, especially in the wake of global collapses in 2022, and in the face of ongoing regulatory challenges.

This level of real-world caution (or reluctance) highlights a remarkable facet of Robinson’s careful and highly technical writing: its optimism. In his world, the central banks do, with a little grousing, come more or less together. And people do more or less onboard with integrity around the need for better regulatory standards, to ensure that carbon sequestration programs deliver.

But Robinson’s optimistic future is not our present. Not exactly. While our home insurance markets may have started to fall apart, financial systems in The Ministry for the Future are even further gone when banks and policy makers start to take other options more seriously. Their willingness to change economic priorities in favor of biosphere health and future generations doesn’t emerge out of goodwill alone. This suggests that the world has to get worse, even in Robinson’s most constructive vision of global recovery efforts, before it will get any better.

Do we agree?

That’s the Rorschach test we need to sit with, as we push for change today.

GLOBAL HUMANIST SHOPTALK M L Clark is a Canadian writer by birth, now based in Medellín, Colombia, who publishes speculative fiction and humanist essays with a focus on imagining a more just world.

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