THE EQUITABLE CARBON BUDGET (ECB) PARADIGM AND THE TFD GLOBAL GOVERNANCE SYSTEM
December 24/29, 2010
THE EQUITABLE CARBON BUDGET (ECB) PARADIGM AND THE TFD GLOBAL GOVERNANCE SYSTEM
December 24/29, 2010
CLIMATE CHANGE FINANCING: The need for a monetary track
International Institute for Monetary Transformation
Frans C. Verhagen, M.Div., M.I.A., Ph.D., sustainability sociologist
December 16, 2010
An overarching component during the Cancun climate negotiations was the enormous need for financial resources to fund the thousands of possible good mitigation and adaption projects in the global North and South. Fortunately, the assembled nations agreed on the establishment of the Green Climate Fund (GCF) to be operated under the Conference of the Parties, with a board with equal representation from developed and developing countries. However, its sources of funding were left for negotiations to be concluded at COP 17.
It is most important that besides the four tracks of funding of the GCF—public financing, development bank financing, carbon markets, private financing—a monetary track be established. This track would be able to create new money rather than distribute present money that is scarce. This can be done by transforming the international monetary system by basing it upon a carbon monetary standard. The monetary architecture of this proposed transformed international monetary system would be governed by a global central bank which would administer the system, monitor and regulate financial flows and create liquidity according to the climate and development needs of its member states. This proposed global monetary governance system, called the Tierra Fee & Dividend (TFD), is considered “innovative” by Maurice Strong and “it seems to be very promising in light of the stalemate of the Kyoto prospects.”
CREATING NEW MONEY FOR CLIMATE FINANCE
Almost all proposals for climate financing have in common that they are conceived within the climate finance box of present financial resources, either governmental or private. Creating new monies means thinking outside the box.
Though these in-box financing proposals have validity in the short term, they are insufficient in the long term because of the enormous amount of financing needed and its constant increase given the nature of a worsening change in climate. They may even be insufficient in the short term given the depressed economic conditions in the industrialized nations. One cannot expect industrialized nations in these recessionary times with austere budget cuts and high unemployment to devote 2% or more of their GNP to additional funding for climate programs. Even only a few nations have managed to fulfill their ODA obligations of .07 %. Also, the Global Environmental Facility $8 billion with its co-financing of some $36 billion is wholly insufficient for climate finance, given these funds are being shared with its biodiversity programs. Led by the value of climate justice industrialized nations might give up their dominance on the international monetary system and agree on a new system that is good for all.
There are at least three proposals out that present ways of creating new monies for climate programs. The first one, presented at the Copenhagen conference, was the Soros proposal of $100 billion of Special Drawing Rights (SDRs). The disadvantage of this proposal is that the distribution of this reserve currency would be based up the unfair allocation system of the IMF and would only be available to governments. An improvement on the Soros proposal is made by the World Future Council which proposes to have about 80% of the SDRs transferred to a democratic “Supervisory Body” which circulate those funds into climate projects as credit, not as debt.
The International Institute for Monetary Transformation considers the WFC’s proposal as a good, fourth track technique that can be integrated into its proposed transformed international monetary system of the TFD.
The time has come that the international monetary system is going to be utilized to combat the climate crisis by advancing low carbon and climate-resilient development. It is not only the need for these enormously large sums of funds that the international monetary system has to be transformed. This carbon-based international monetary system is also needed to reduce the currencies wars that are being fought and to avoid future ones, to reduce currency manipulation and speculation, to remove the costly global reserve system that costs non-hard currency countries some $100 billion annually and, last but not least, to reduce the high transitional costs in world trade. Not realized by many is the crucial role of the international monetary system which, as glue, binds together monetary, financial, economic and commercial systems and which, as lubricant, makes those systems operate smoothly. Transforming the international monetary system—not reforming it by introducing a non-national or non-regional reserve currency—is a necessity if humanity is able to respond to the social and ecological needs of people, species and planet.
MONETARY AGENDA FOR CLIMATE FINANCE
Nations, particularly those that are members of the Second Committee of the UN General Assembly, pass a UNGA Resolution to establish UN Commission on Monetary Transformation and Low Carbon and Climate-resilient Development consisting of experts in monetary, climate and development issues. The Commission would produce, among others, a UN Framework on Monetary Transformation for Climate and Development Financing as part of their recommendations for a monetary global governance proposal for Rio 2012 Earth Summit. In order for governments to establish this UN Commission, the International Institute for Monetary Transformation is organizing national TFD Global Governance Working Groups that would engage in research, education and action.
Many civil society organizations (CSOs) such as the Boell Foundation, the Climate Action Network, and Friends of the Earth International have been proposing various funding regimes indicating their sources, governance and effectiveness criteria. It is the challenge of CSOs to lead nations into transforming the international monetary system so that it can be put to use in combating climate change by advancing low carbon and climate-resilient development. The Cancun Global Green Fund has to include the track of the new money of a carbon-based international monetary system while the track of carbon markets has to be abandoned.
An OPED article submitted to the New York Times
December 14, 2010
CREATIVE DESTRUCTION AT THE CANCUN CONFERENCE
Frans C. Verhagen
The decision of the Japanese delegation at the very first day of the UN Framework Convention on Climate Change not to inscribe their climate pollution measures during the second commitment period of the Kyoto Protocol and even not to support the commitment period at all can be considered to be the first nail in the coffin that is the Kyoto Protocol. This historic decision is the beginning of the demise of the Kyoto Protocol and its market-based approach of cap-and-trade and its offsets.
This is the destruction that took place in Cancun where the conference had to be extended to come to a conclusion that the parties agreed to disagree about the targets of 1.5 or 2 and a couple of other issues. Where is the creative part in this memorable conference of COP16? The creative part, in my opinion, consists of three quite different elements.
The first creative part consists of the reinstatement of the threatened multilateral process by the adoption of the Cancun Agreements on many important and disputatious issues that seemed to be out of sight in the first week of the negotiations.
The second creative component is the increasing strength of civil society by the ever increasing network, both quantitatively and qualitatively, who is willing to continue to do battle till governments become serious about the climate change peril. The second element is the vision that is being born, particularly the need of the carbon budget approach that is proposed by India and the intergovernmental South Center in Geneva. In June India had organized an international conference on the carbon budget during which both Germany and France, not the US, were prominent participants.
During the side event on Wednesday December 7 on carbon budget I raised the question whether we should not place this approach in the larger framework of a carbon based international monetary system which was considered a valid and interesting question. Both the Indian minister of the environment and his academic counterpart of the Tata Institute responded that more information is needed, an approach that can not be said about panelists in other side events. As a matter of fact in another side event panelists held forcefully forth on the challenge of effective monitoring to my monetary question.
Why should carbon budgeting and other climate change issues be placed in the larger context of a global monetary governance system? The main reason is that global challenges such as climate change and the MDGs have to be dealt with a global monetary approach. If that were done, nations could create the liquidity needed for these challenges without creating inflation. Presently, high-income nations in the North are expected to fulfill their financial promises to fund the programs of these two challenges while their own economies perform very poorly operating under heavy sovereign debt loads, high unemployment and austerity budgets. These national funding approaches to the two global challenges are unpredictable, ancient and ineffective.
During the conference the International Institute for Monetary Transformation presented two press conferences, one dealing with the alternatives to the KP and the other dealing with the need for inclusion of monetary governance in the Rio 2012 Earth Summit. Both were very sparsely attended, though IIMT’s media advisory in its 18 point heading “THERE ARE ALTERNATIVES TO THE KP” went like hot cakes. With different foci, both press conferences contained the same message: a carbon-based international monetary system is needed to deal with the financing of the millions of good local mitigation and adaptation programs. That message was also communicated to senior Japanese negotiator Nakano in a forty minute exchange of views and even to Ms Figueres, UNFCCC Executive Secretary, in a request for a short meeting.
How can the present dysfunctional international monetary system that is called criminal by Nobel Prize winner economist Robert Mundell be transformed to fulfill its linchpin role in making the other global systems work and respond to the climate crisis? For two years the IIMT has been engaged in finding the answer to that most important question. Its importance became ever clearer during the two week conference in Cancun by focusing on the many financing proposals that created more funding institutions, but with less committed funding. The new Global Green Fund under the UNFCCC is still empty.
By introducing a carbon-based monetary standard of a specific amount of tonnes of CO2e per person nations’ currencies become convertible. Though nations can maintain their own currencies, their value is determined by the carbon standard of which the Tierra is the unit of account. Thus, the strength of a nation’s economy and consequently its currency is dependent on the level of decarbonization of its industry and the life styles of its citizens. The introduction of this Tierra carbon-based international monetary system also leads to carbon accounts in a nation’s balance of payments. These carbon accounts have to be balanced and thus nations have to deal with ecological imbalances besides financial imbalances. Given that nations in the South are carbon creditors and financial debtors and nations in the North are carbon debtors and financial creditors, there is room for substantial substitution. Finally, the architecture of the Tierra carbon-based international monetary system contains the Global Central Bank which administers the system, monitors and regulates financial flows and, most importantly, creates liquidity by circulating credit into the economies of nations in the global North and South. In the process it reclaims the sole money creation function with the consequence that privately-owned banking systems become utilities without the privilege of fractional reserve banking. Maurice Strong of UN Earth Summits fame considers the Tierra Fee & Dividend proposal “innovative….it seems to be very promising in light of the stalemate of Kyoto prospects”.
The carbon reduction method that the IIMT has selected among the half dozen carbon reduction methods is the Fee & Dividend method that is considered fairer, faster and more formidable than the present cap-and-trade method. This fee that is levied upstream at the source where fossil fuels enter a nation’s economy is not a carbon tax, because its administration takes place outside the national government’s fiscal system. This non-governmental organization collects the fees and divides its revenues among the legal residents. The components of the Fee & Dividend method are well described in James Hansen’s 2010book entitled Storms of My Grandchildren.
It is to be noted here that part of the destruction of the KP is the abandonment of cap-and-trade method which is not fast, formidable and fair enough. This market-based approach with its offsetting programs such as the Clean Development Mechanism (CDM) has to abandoned, so that other carbon reduction methods such as the Fee & Dividend can be adopted that push all nations to reduce their emissions without offsetting.
The strategy for implementing the Tierra Fee & Dividend monetary governance proposal is two fold. Nations are to endorse the UN General Assembly Resolution to establish a UN Commission on Monetary Transformation that would consist of experts in the climate, development and monetary issues. It would recommend a UN Framework of Monetary Transformation to be submitted to the UNFCCC and the Rio 2012 Earth Summit. At the same time national TFD Working Groups would engage in further research on monetary transformation, stimulate a national debate on the issue and press their national governments to sponsor the above UN General Assembly Resolution. With such strategy humanity may finally produce a global monetary governance system that would combat the climate crisis by advancing low carbon and climate-resilient development.
Frans C. Verhagen, M.Div., M.I.A., Ph.D., a sustainability sociologist, is the founding president of the International Institute for Monetary Transformation. His forthcoming book to be published by COSIMO is entitled THE TIERRA FEE AND DIVIDEND GLOBAL GOVERNANCE SYSTEM: Using a transformed international monetary system to combat climate change by advancing low carbon and climate resilient development.