Connecting Money and Environment
The story so far:
Reporter Max Wahlter has visited the sustainable city of Porena several times. This place manages without money and cars and jobs. And they have what looks to be a great life (see earlier chapters). He records his impressions into his voice recorder and publishes the transcript here.
This week: Max is MAD, really ANGRY. He tells us that business and money are the best things we ever invented and that they SHOULD be used to bring the world into sustainable development. Taking all the Porena and Imagestreaming expertise in a vice-like grip he is insisting it IS POSSIBLE and they are GOING TO SHOW HIM HOW.
I am fed up with trying to understand this money thing. I know there is not just only one answer to everything. Just because PORENA didn't use money it doesn't mean everywhere else cannot. Money can be a good thing too!
The aim of this visualisation is find a place that has used money to create a very fast transformation from an explosive growth society emitting large amounts of material into the biosphere to a sustainable society where money has been the principle instrument of this change.
A curiosity: earlier on in PORENA money was seen as a bit of a problem as people had forgotten its purpose. It had gotten so complicated they decided to abandon it.
I follow my own instructions, formulate the challenge (we are asking for a situation where money is the instrument of change) and sit in the exit lounge on a bench.
The facilitator turns up.
'You again!' he says.
I reply; 'My quest is different this time, it is to find how society has gone rapidly from explosive growth over to a sustainable society using money as the instrument of change.'
'That's a tough one,' says the facilitator, 'I am not sure I can help you'.
There must be one of these lifts that can take me where I want to go.
He looks puzzled. I ask 'What are you doing here then if you can't help?'
'Don't go with me,' he says.
I look around this gigantic departure lounge and mall. Further down the mall a green lift seems to be calling me,
The button on the outside of the lift says 'money'.
So I guess this must be right. It seems to be similar to the other lifts, painted very plainly in a light green.
'Using the money' is on the lift button. I push it and off we go.
Slowly, with the lift cranking 'budda budda,' we ascend.
I notice I am alone. I lean against the metal handrail, unsure of what is going on.
Apprehensive. Is this right, good, possible? Is money a good way to create change towards sustainability? Am I the right one to ask the question - I have no head for economics?
The door opens onto a rock tunnel. I go through into another door, this time opening onto an underground control area. Maybe I have ended up in an ecological footprint monitoring area.
A lot of people are staring at a lot of screens in what I think they call 'the pit'.
And up in the control room managers, I assume, are staring down at them. A gigantic screen seems to be showing the news or something like it.
I enter this control booth. People are moving knobs, staring at the screen. It seems to be a monitoring station - you would think it is NASA. It IS a national body – or an international body of some sort.
'Can you tell me what you are doing?' I ask one guy.
'We are monitoring the waves, the airwaves, for the news'
I feel confused until I understand that is what HE is doing, monitoring the news for economic information. But if I am to find out how you use money to get to sustainability I need to talk to an expert down on the floor. I go down to the floor and ask.
'Sure, let's grab a room with a whiteboard,' a guy says.
'Wait up! Is this going to be complicated?' I ask.
'Not really.This is how we use money to accelerate sustainability'.
He draws a diagram of time vs emission, with time on the horizontal axis. This represents an index which all countries have agreed to follow. There is a straight line descending from the present levels to levels equivalent to a limit per inhabitant that does not exceed what nature of the equivalent area can absorb. It looks to be over 10 or 20 years. The index is connected somehow to money and the price of goods. The total amount of money in the country is connected to the rate of reduction in emissions. Everyone wants the value of the money to go up I am thinking, realising I know nothing about economics and wondering why I even started on this exercise. A total monetary index based on the currency values at the starting point. That index works … I am not getting it….
Time for borrowed genius. I come behind my guide and look through his eyes.This is how it works. All developed nations agree on a starting point. They agree on a certain GDP (Gross Domestic Product), number of inhabitants, and the footprint exerted by the nation. They also agree initial currency exchange rates in order to fix the GDP relative to each others.
From this they work out the footprint per inhabitant at the starting point. Then, they calculate the theoretical footprint limit for the nation, based on its area and a few other factors. From the theoretical footprint limit it is possible to work out the footprint limit per inhabitant.
Now, that would mean a decrease in the footprint exerted by a certain percentage. For example, a nation like Sweden which is just about its theoretical limit (i.e emissions are equal to the carry capacity of its total area,) might only have to achieve a few percent reduction.
A highly industrialised, densely populated country like England would have a much higher percentage reduction to achieve. The value of this reduction is set equivalent to the corresponding percentage of GDP. Say a reduction of 20% was needed. This would be equivalent to 20% of that nation's GDP.
To make it easier to follow, every nation had these figures converted to an index where 100 was starting footprint per inhabitant and 0 was target level. This reduction was to take place over 20 years. Debt was 0 at year one, and 100 percent at year 20.
So if a nation did not reduce its emissions at all, it would have a debt of the equivalent amount to the other countries. Existing footprint and existing currency are combined into the index, all put into a currency basket.
I am really not sure I understand what he is saying.
'What about … can you make a difference between environmentally good transactions and those that aren't? Would the less environmentally sound transactions cost more? Is there a coupling, a connection between the two?'
He replies, 'to understand that you need to look at the way the nation involved in the scheme operates.'
And this is why you need central monitoring. It is our monitoring centre that puts the environment and the currency together. And it is the deciding body. A bit like having a central bank.
To understand how that works in practice we have to go out in the street. We go to the local market. I see on the market stall that prices and taxes are different. There is a tax on everything. The tax helps the government. It takes money in to pay for the environmental debt, as a tax on top of the price of the goods.
So for example if something is taxed highly, the tax goes into government funds which are earmarked either to pay the debt (to the IEF?) or to solve the problem and thus not incur the debt. If it doesn't work you will have nations owing a lot of money. If it does work they will not owe anything as the footprint will be reduced by the equivalent amount required in the index. The nation could also 'buy' some other nation's footprint absorption ability if the other nation's own footprint was less than its land area.
This nation has decided to add a tax on top of all consumer goods sold. The environmentally sound product is cheap for the consumer to buy as tax is low. Unsound products incur higher tax and are relatively more expensive.
'It all requires monitoring' says my guide.
'Why were you monitoring the news?' I ask.
'The body monitors what goes on in each country and how the news is spread. This is because consumer attitude and all kinds of human factors can come into play to affect the mechanism.'
'Now we are half way through the year. Some are making it some are not. Those that are not will be asked to pay, and that money will be used to fund a task force to redress the emissions.'
Where there is a technological solution, applying it is the cost of cleaning emissions up. This is difficult to pinpoint so there is an agreed set of standard costs for each emission type clean-up to assist with comparisons when monitoring progress.
For those countries that are able to go below the planned limits, they are able to sell their goods cheaper as there is less tax on them and they become more competitive. And the goods are better for the world as long as the right logistic route is found to supply other countries.
So this is using competing and money by re-drawing the playing field.
'How would you define the tax?' I ask.
The reply reveals it is defined as a percentage scale based on GRI (Global Reporting Index - www.globalreporting.org). It puts goods into 12 categories based on GRI, with yes/no questions covering 50 different analysis points. For every product you sell you submit a declaration, and from that your tax category is worked out for that product. It makes classification complicated but with modern techniques it is possible to succeed. Tax groups are from 0 – 11. For example, local produce sold in the market is group zero.
'How does that affect wages?'
'No difference there.'
'VAT is included in the tax group'
'And the black market?'
'There will always be a black market whatever you do. It will be for environmentally unsound goods of high value. The tax is only on the consumer, taxed when it is bought not when it is produced.'
For the high-tax items it is best to keep the price down; to do that production, should be efficient so the incentives are there to reduce the tax, not go into black marketing. The decision was taken among nations in a federation. It was taken as a decision between those countries with high emission levels per inhabitant. It gives other countries with low emissions an advantage. Those countries with low levels were not in the reduction basket.
I get frustrated: 'I can't see America going along with it. There is not enough incentive.'
Once you understand that release of materials into the environment is essentially expensive it becomes clear that the system is good because it encourages efficiency, which brings competitiveness.
This system is excellent because it encourages the following of best manufacturing practices, and it encourages cost accounting to follow best practices, because the system embodies what is determined to be the limit of what the Earth, or the part of the Earth the country is sovereign over, can handle long-term. The system connects a monetary figure to the limits of emissions for what the biosphere can tolerate.
I put a question. How do they work that out?
We go down to the control room. I see the currency monitoring system. It reminds me of a stockbroker's room, where the figures come up. They are being monitored continually. The footprint of the nation broken down into greenhouse gasses: carbon dioxide, methane, ethane, etc.
The countries are listed down the left, and along the top, metals in use, metals dumped. Dumping: you need to measure what you dump, which is mostly estimated. Household rubbish not sorted has a high tax. Its contents are estimated. By testing samples of household waste regularly a reasonable estimate can be achieved.
Then tax is collected in order to offset the calculated debt. The money is used to put activities and packages in action to rectify the problem. If an audit by the federation reveals the footprint is not reduced by the required amount, the debt is collected. And the money is then used to rectify the problems. It is an immediate environmental undertaking, not a sustainability one. Reaching sustainability is up to each government.
I strain to understand the real name of this body it looks like EEF or EMF or something. The European Environmental Foundation. Economic Environmental Foundation. Federation. European Environmental Fund.
That is where we are. The foundation is given money in order to work with the nations. Each nation gets recommendations, reports and then the money is given back as grants depending on what needs to be done. If for example people are using a lot of transport then the funds are given back to address that imbalance.
Got it! And then it is monitored again. There are reports written and published. These are followed by the news. What we are watching on the news is the reaction in the country to the most recent EEF report and recommendations.
The first question was how they managed to get countries to set the federation up in the first place. But having achieved that, the nations gave the federation the task of connecting money to environment. To find a starting point and carrying on with it and monitoring it. Finding a working method.
I suppose you can describe the method as reporting and then setting currency and deciding the level of contribution based on the debt incurred. (The cost of cleaning it all up in ten years)
The aim is to reduce the footprint to what can be absorbed in that country, although footprint trading within the federation is allowed. That is why the currency has to be aligned. If you have the same currency you cannot do that. There has to be a tax if nations share a single currency. This could be handled in a tax union or federation though.
Let's take an example. Start in 1990 one dollar is ten euros. The Europeans reduce their footprint faster than the Americans do. Now. For the same goods, as the Europeans are better at reducing footprint, their products are cheaper (incur less national debt). This means there is a relative inflation in the US and a relative rise in the exchange rate dollar- euro.
The Dollar eventually becomes more expensive than the Euro, plus for the Dollar the Americans have a larger federal debt. After two years the Americans pay for the year gone by. So that money is taken, and after the audit the Federation gives the nation tasks to do and offers to help using best practices. Remember we are aiming towards significant reduction, extreme reduction. Every month a reduction is required. Then some of the money is used for subsidies as funds and grants and it comes back to the country under the jurisdiction of the EEF. This is like quarantining funds, or lending them at zero interest.
As the currency is higher, products are more expensive and it is more expensive to go there and trade. So the rise means their products that still sell will get more money for them and they have more money to pay the tax.
'That is neat!' I exclaim as I start to see some kind of symmetry.
'We think so,' my guide replies.
The report is done once a year, the debt is charged, the funds transferred, and distributed. The EEF then initiates actions and prioritises countries and aspects of countries to pay the money back in one way or another. If a country keeps on track there is no money to pay. Being a real amateur in economics, and feeling I have had more than I can handle, I take my leave.
Reflections: connecting money and environment
I think I understand the basics of the system I have seen: each nation has a debt equivalent to the extent its footprint exceeds the country area, in proportion to its GDP. Either the country reduces its footprint or incurs fines. These fines affect the national economy negatively but help other more environmental countries.
The fines are used to pay for cleaning up and for resolution of the problem's source. The details of how this affects inflation and currency exchange rates I would like to leave to an expert.
A method reflection: I have worked with something I know nothing about. I have learned a lot. This includes being forced to look up the basics of economics in order even to be able to type up the tapescript. I have noticed the last few days that I have taken in economic information on the news in another way. So Imagestreaming like this is a good way to learn a new subject.
The problem will come with verification. The only way I can verify this is to give it to someone who understands macro economics. Yet I daren't in case the person laughs and says things like 'You are so out of your depth, wasting time etc'.
On the other hand, why are economists not working on this to come up with something like this or even better? – it really is urgent!