Big thinker Delton Chen argues that his idea, surfaced in The Ministry for the Future, can bridge the yawning gap in climate investment
When Kim Stanley Robinson wrote his 2018 sci-fi blockbuster, he wanted to address the multi-trillion-dollar question: how could humans cover the cost to pull earth back from the brink of climate disaster? Because, in this near-future novel as in reality, the economy is not really set up to save us.
As The Ministry for the Future opens, extreme weather has intensified. Millions have died from a catastrophic “wet bulb” heat wave in India. Climate refugees are pushing across borders in search of more habitable climes. Meanwhile, scientists are drilling beneath the remaining glaciers to slow their movement, experimenting with risky atmospheric geoengineering projects to reflect the sun’s light back into space, and setting aside large swathes of the Earth for “rewilding” — all ideas that are currently being explored in the real world. In addition, the book showcases what is arguably the most significant real-world idea of all: a new international currency, or “carbon coin” to drive the massive investment needed to halt the deadly rise in atmospheric carbon.
The carbon coin
For every ton of carbon not burned, or sequestered in a way that would be certified to be real for an agreed-upon time, one century being typical in these discussions so far, you are given one carbon coin. You can trade that coin immediately for any other currency on the currency exchanges, so one carbon coin would be worth a certain amount of other fiat currencies. The central banks would guarantee it at a certain minimum price, they would support a floor so it couldn’t crash. But also, it could rise above that floor as people get a sense of its value, in the usual way of currencies in the currency exchange markets…
“It’s a mechanism that is untapped… And it’s so powerful because it’s a way of funding — at speed and scale — climate mitigation through monetary policy that avoids creating more debt.”
Who is Delton Chen?
It’s an idea that came to light in fiction, but never was it intended to remain fictional. Robinson picked it up from an academic paper by Australian researcher Delton Chen, who has toiled for nearly a decade to develop his policy, called a Global Carbon Reward (GCR). Chen, a civil engineer and geo-hydrologist, who has one foot in economic theory and one in climate science, believes his “carbon currency” is the financial tool needed to save ourselves — to keep enough fossil fuels in the ground, to shift hard-to-abate industries to low emissions and to spark carbon removal at scale.
“It’s a mechanism that is untapped…” says Chen of the carbon currency. “And it’s so powerful because it’s a way of funding — at speed and scale — climate mitigation through monetary policy that avoids creating more debt. By avoiding debt — avoiding directly charging citizens, businesses, governments, I think it will solicit much more cooperation.”
What Chen is trying to address is a yawning gap in climate financing. In spite of expanding renewable energy, growing efficiency, various voluntary carbon markets, carbon credits, offsets, carbon taxes and clean-energy subsidies, the world is not on track to meet the Paris Climate Agreement goal of limiting warming to 1.5 degrees. The investment needed to meet the targets and stabilize the climate is an estimated $3-6 trillion/year for cleaner energy and emissions reductions over at least a few decades, plus about $1 trillion/year for removing greenhouse gasses from the atmosphere over the rest of this century.
Investment-grade asset
Under his GCR policy, Chen envisions central banks coming together to underwrite an international carbon currency, to be deployed by an international authority. The carbon currency or “carbon rewards” would essentially pay for the mitigation of carbon by the metric ton at an internationally agreed price that would gradually increase in value over a rolling 100-year planning horizon. When a carbon mitigation project is done (and validated), the recipient of the carbon currency — a government, business or organization — could trade it for any hard currency.
Once in circulation, anyone could buy carbon currency. Chen believes that as an asset backed by the world’s central banks, carbon currency would be attractive to all types of investors in search of a hedge against volatility.
Strategic targets
The carbon currency would be applied to two types of strategically chosen initiatives:
Under one scenario, the carbon exchange authority would use carbon currency to avoid fossil fuel extraction in key sites. The Democratic Republic of the Congo (DRC), for instance, contains one of the planet’s most important virgin rainforests for natural carbon sequestration, and below it lies vast oil resources. There is immense pressure to pursue fossil fuel profits in the near term even though such profits will come at the longer-term expense of the climate, indigenous people and forest biodiversity.
Hypothetically, the carbon exchange authority could offer the DRC government an alternative to auctioning off those drilling licenses: To be paid in carbon currency to shelve those licenses in exchange for carbon currency payments and long-term service-level agreements.
“The government will agree,” Chen argues. “Why? Because they’re going to get paid carbon currency which is debt-free, valuable money proportional to what they would have earned as a profit… The condition is that they take the carbon currency and build renewable energy assets,” which would then generate revenue over time as they own and operate them.
In a second scenario, carbon currency could be leveraged to hasten the transition in a carbon-intensive industry, like shipping. Diesel-powered maritime freight carriers are major greenhouse gas emitters. Although many companies are dabbling in clean technologies such as green hydrogen and battery power, the industry is growing rapidly and emissions are on the rise. To turn the ship more quickly, the carbon exchange authority might choose to pay carbon currency for a given number of ship conversions, using a reverse auction.
Chen believes the carbon currency can be used to provide a global price signal for capturing carbon, and spark a rush to scale.
Chen argues that this approach helps address a couple of challenges. For one, speed: by hastening the transition in shipping, it averts “sunk costs” in new diesel ships that will pump out greenhouse gas emissions over their lifespans stretching well into the century. It also negates the effect of the “Nash Equilibrium” in the system, which prevents one company from unilaterally investing in a virtuous move because there’s no guarantee that its competitors will do the same.
About those bounty hunters…
According to the IPCC, achieving 1.5 degrees will require not just transitioning away from fossil fuels to renewables and clean tech, but also removing a lot of carbon from the atmosphere — anywhere between 1 gigaton and 20 gigatons per year, through the end of the 21st century and beyond. But, while there are myriad carbon removal ideas and experiments underway, there’s no clear path to profitability for carbon removal.
So a carbon currency, Chen believes, could be used to provide an explicit global price signal for capturing carbon, and spark a rush to scale.
“That long-term price signal will mobilize huge amounts of money into R&D because anybody who can sequester 100 million tons of CO2 — times, say, $100/ ton — well, do the math!” says Chen. “We’ll get the investment in R&D, serious money from corporates and private equity investors, and — bang — suddenly this problem is an opportunity and green ideas are coming out of the woodwork. Venture capital money will rush in to back these new techs and it will be a completely different story.”
Parallel economy
Chen’s carbon currency is a departure from the current array of carrots and sticks that are in place to address the climate crisis. It is not a subsidy, not a tax, offset, or green bond. Importantly, this approach does not rely on debt, which sets it apart from existing institutions like the World Bank which is the biggest multilateral lender for climate investments in developing countries.
The carbon currency would not replace any of these approaches, Chen says.
“The model that we’re putting forward is different because it’s about producing a parallel economy, a complementary economy — call it the mitigation economy,” which could be about the size of the economy of France, according to Chen. “So what we end up with is these two systems working together in a kind of symbiosis where resources are transferred from this consumptive mainstream economy with the fiat money and the debt, into a debt-free economy.”
It might also offer a way to streamline a pipeline of deals that are currently being negotiated one by one. For instance, under the Just Energy Transition Partnership agreement thrashed out in late 2022 the U.S. and Japan will pay $20 billion to assist a rapid drawdown of coal production in Indonesia, currently one of the world’s biggest producers and exporters of the fossil fuel. A similar deal has been completed with South Africa. Vietnam and others are also in negotiation for this type of transition.
Certainly, the carbon coin has captured the imagination of people in climate circles — where The Ministry for the Future is something of a sacred text.
Can the carbon currency make the leap from fiction?
Certainly, the carbon coin has captured the imagination of people in climate circles — where The Ministry for the Future is something of a sacred text. When Chen and his colleagues debuted their organization Global Carbon Reward as a startup at the Verge 2022 climate tech conference in San Jose, California, the hall was packed with attentive entrepreneurs and activists. Chen shared the stage with author Robinson in lively panel discussions and went on to a series of well-attended speaking engagements in the San Francisco Bay area and Hong Kong.
In Robinson’s novel, the key challenge was for the main character, a UN official in charge of The Ministry for the Future, to convince central bankers and planners in the world’s biggest economies, especially China, to cooperate in a coordinated monetary policy based on “The Chen Paper.”
But for the real-life Chen and his team, the immediate challenge is raising the funds they need to run proof-of-concept demonstrations, gather feedback from stakeholders, and further refine the policy. So far, fundraising has been tough. Right now, Chen is working on a GCR Policy Working Paper for release in the coming month or two for external review. (Submit an application to review the GCR Policy Working Paper here).
But there is hope in the air. The broader concept of quantitative easing to tackle the climate crisis has surfaced in important quarters — the World Bank, the European Central Bank, the U.S. Federal Reserve and the Chinese government, which controls its central bank.
“Can we get to 1.5 degrees?” says Chen, rhetorically. “With this (carbon currency) policy I think we’d have the best chance. I certainly believe we could never get to 1.5 without it.”
Featured photo: Delton Chen and Kim Stanley Robinson at the VERGE 2022 conference. Courtesy of GreenBiz.
