Why a Carbon Currency based on Carbon Allowances is Our Best Chance against Climate Change

Updated on 2023-06-08 by Adam Hardy

Faced with ever more obvious signs of damaging climate change all around the world, a clear and effective way to reduce CO2 emissions and keep atmospheric warming to a minimum must be every government’s goal. EcoCore advocates that every individual receives an equal carbon allowance, consisting of carbon tokens which represent a certain amount of CO2 emissions. The carbon allowances policy we are working on creates a national carbon currency set at a level defined by the nation’s share of the global carbon budget, which imposes these emissions limits on business, industry and the fossil fuel corporations.

The carbon allowance is distributed fairly to every citizen on a regular basis. As people spend the carbon tokens from their allowance, they flow through the economy like money, so there are dual transactions involved for all goods and services – one in cash and one in carbon.[1]For the complete explanation of the framework, see the proposal here

The carbon currency mechanism would need a major initial investment of time and money, but once underway offers significant advantages over other climate solutions that pay a high price for their convenience, principally the significant risk that they just won’t be adequate or fast enough in cutting emissions.

Carbon Currency Key Features

  • Fair shares for all – the beauty of the allowance mechanism is that it’s per capita, so chief executives and office cleaners, royalty and the unemployed, all receive the same quota. It offers an economic policy with real advantages to employment, welfare and social equality.
  • Freedom of choice – No one dictates how you use your tokens. People make their own choices and will soon learn to be as canny about carbon use as they are about their money. Just as you are free to spend your allowance on holidays, clothes or charities, you can also sell it or buy more. Personal carbon trading benefits those who have no need of or desire for a high-carbon lifestyle, sets up a flow of funds from the rich to the poor, and creates a huge incentive to find low carbon options first.
  • Real-time carbon labelling – Every kind of good or service will be priced in the carbon tokens according to its total cost in terms of emissions. The carbon price is cumulative and starts with the initial carbon cost of energy production, e.g. natural gas or solar, required for manufacture and supply, building up along the supply chain. In modern supply chains, a product’s carbon price will always be right up-to-date, including packaging, freight, and storage as every business in the supply chain adds their carbon costs to the cumulative price. The final carbon price to the end consumer is simply the accumulation of all carbon costs as they are added on at each step in the supply chain. It is very similar to normal cash with the exception of where the carbon currency originated, and where it ends up. It results in a dynamic, responsive carbon price for everything with no requirement for official carbon price settings.
  • Competitive advantage – customers are in the driving seat. Just as price wars bring down the monetary cost of goods, a lower carbon price will make goods more attractive to buyers. Unlike all other carbon price systems, a carbon currency will create a price that isn’t combined with the cash price. In a large proportion of situations, raising something’s cash price to adjust for CO2 emissions just has no impact as other factors become the decisive influence on the cash price. The real carbon price of everything on a dual price label – throughout business supply chains as well as retail – will result in a huge commercial push to reduce emissions with rapid innovation and disruption in business practice.
  • Inclusive yet simple – this comprehensive system should be more effective, acting more quickly than any piecemeal legislation, carbon taxes, emissions trading schemes or pricing policies. Even contentious sectors like aviation, shipping, inbuilt or imported emissions, as well as every government service, will be required to pay in carbon tokens as well as money. It is an all-inclusive approach where any significant loopholes or exclusions will have to be deliberately and thus transparently build into the system.
  • Equitable payment for carbon drawdown – carbon tokens will pay for carbon drawdown from the national carbon budget, covering carbon capture, CO2 removal, negative emissions, direct air capture (DAC). This allows schemes such as tree planting, reforestation, restoring peat bogs, or mechanical CO2 sequestration to be funded in carbon tokens from the single national authority, circumventing the argument of who has to pay for CO2 removal. We all pay. For example, the government would pay in carbon tokens for the sequestration of carbon in soils via sustainable farming practices or rewilding, the protection of ocean carbon sinks, or the mechanical drawdown and sequestration of CO2. If the world adopted carbon allowances, the global carbon budget of remaining allowable emissions would become the primary reference point for financial carbon accounting. The protection and reforestation of the world’s major forest blocks would also feed into the global carbon accounting, allowing for their funding in carbon tokens before allowable emissions are divided up into national budgets. This would create the basis for transparent, equitable international negotiations.
  • One regulatory body – such a carbon drawdown payments facility establishes a single point of governance, a clear path to financing projects, improving and regulating today’s over-complex and sometimes questionable carbon offsetting industry.
  • Hands-on control of future emissions – in the carbon allowances framework, government-issued carbon tokens flow from consumers through the supply chain to the original producer of the fossil fuels, directly reflecting the amount of fossil fuels extracted from the ground by the oil, gas and coal industry. The audit and accounting regulations for carbon token bookkeeping in the industry would provide a guarantee of the amount of emissions reduction taking place.
  • Complements energy efficiency measures – the Jevons Paradox[2]In economics, the Jevons paradox (/ˈdʒɛvənz/; sometimes Jevons effect) occurs when technological progress or government policy increases the efficiency with which a resource is used (reducing the … Continue reading is a law of economics which describes how the efficiency measures lead to more consumption as opposed to savings. So people hoping that energy efficiency measures will bring down CO2 emissions would be disappointed, because consumption of energy would just increase as people use the savings to do more. The rationing effect of the carbon currency mechanism would prevent increased use of fossil fuels, driving all demand towards other clean energy sources.
  • Market-based mechanism facilitates cross-border trade – since carbon tokens will be designated in tonnes and kilos of carbon released as CO2, the system sets a standard that can be easily integrated across industries and trade borders.
  • Popularity – surveys in a number of industrialised countries show that the public finds per capita quota-based systems such this to be fair, so are likely to support such a policy, especially if the introduction is well managed and only the most profligate carbon emitters are impacted at the start.
  • Covering all the bases – because carbon is not the only cause of climate change, the system can cover methane and other greenhouse gases via licences priced in carbon tokens. So for example, a dairy farmer will need to purchase a licence for each of his cows, the cost dependent on the emission of methane in his particular farming system, or a cement manufacturer can obtain a license to produce cement with a price dependent on the quantity of emissions produced.

Of course there are no quick fixes. But the carbon currency mechanism brings a catalogue of benefits. When business-as-usual finally succumbs to reality, this option must be ready and waiting. EcoCore is a community interest company, funded by donations – if you want to help, please become a patron with a small regular donation here via Patreon red Patreon logo.

More about Carbon Allowances

The carbon currency mechanism is a combination of several climate policies:

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1 For the complete explanation of the framework, see the proposal here
2 In economics, the Jevons paradox (/ˈdʒɛvənz/; sometimes Jevons effect) occurs when technological progress or government policy increases the efficiency with which a resource is used (reducing the amount necessary for any one use), but the falling cost of use increases its demand, increasing, rather than reducing, resource use.
3 English translation:

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