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From YouTube: Keynote Presentation: The Global Carbon Reward - Delton Chen, PhD - Montaña (Main Stage)

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Keynote Presentation: The Global Carbon Reward presented by Delton Chen, PhD at Sustainable Blockchain Summit LATAM 2022 - https://sbs.tech/

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I'm just going to point out something that you may already know, and that is the climate crisis- is a wicked problem. It has many dimensions, um of course, there's degrowth carrying capacity collapse, planetary boundaries, carbon credits, Etc, it's disorientating, but I always believed when I started this project that we needed scalable climate Finance.

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This is what the policy is about and it uses carbon currency as the instrument in this presentation. I will also talk about the opportunities for blockchains and I will finish off with a philosophical discussion of degrowth versus green growth.

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A good place to start is the problem, as it's explained, with the carbon budget. So you've probably seen this before many times in reports. What's important about this graph is that it presents a very challenging carbon trajectory to stay under one and a half degrees.

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Two degrees is yes, it's different, but more or less. The challenge is similar.

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We know from various studies that we're missing at least three trillion dollars per year over the next few decades. Maybe more depends how you want to calculate it, and we need that money for clean, renewable energy infrastructure, conventional mitigation and important is the timing, because if we don't build the new infrastructure, if we don't avoid mining the fossil fuels, we end up with carbon lock-in and that locks us into a dirty future. That's the problem!

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There are other problems here too. It's not just about carbon, it's about where the carbon goes. So we have to be aware. The biodiversity and putting carbon in the right places is part of the problem or the challenge. We now know from various studies that we have to remove carbon from the atmosphere.

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It's necessary an optimistic scenario is that we would need about one trillion dollars per year for carbon removal, and also carbon removal is Complicated by biodiversity and carbon farming and so on, I'm sure you're. All aware, with of those issues laughs, many of you probably have heard of Ministry for the future. It's it's been a great advertising medium for our policy, Kim Stanley Robinson, who wrote the novel. He got the idea from some papers, I published with my colleagues and these papers introduced the policy Concepts.

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The policy is unique because it provides scalable, debt-free, climate finance and its targeted Finance.

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It's also unique because it proposes that cooperation, which is also needed, can be greatly enhanced with carrot and stick pricing. So we have a lot of sticks, but not enough carrots.

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We need- or this policy is unique, because it also offers 100 funding for carbon removal. That's important, because carbon removal is not only expensive. It generally requires energy as an input and it doesn't necessarily produce goods and services that can be sold, and what that means is that the funding probably cannot be managed with loans. So you need grant funding and this policy provides proportional grants.

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It also has a focus on providing, obviously, the finance for clean energy. I mentioned that and finance for hard to Abate Industries, so we're funding both the supply side and the demand side of the energy equation.

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It's also a policy. That's based on New Market Theory I always wanted to develop a policy that could be understood and connected with standard economic theory. So it took me actually eight years to get to this point. That's a long time. Isn't it to develop a policy, but the reason it took so long is because I needed the justifications, so the justifications have to be understood by economists in terms of their conceptual models and their existing theories, as it turns out. The theory for this policy is is framed by risk management.

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So it's a risk management policy.

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Okay, carbon pricing Matrix: this is um the Theory. Actually it's presented in this relational diagram. A lot of the details are missing here, because I didn't want to overwhelm you with too much technical stuff, but basically our carbon pricing, Matrix It identifies the four major policies for pricing carbon through governmental policy. So we know about taxes, you've all heard of cap and trade. You know, Carbon subsidies, like maybe Q45 or whatever the carbon reward is new and textbooks do not actually present policies. This way they don't have a matrix.

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The Matrix is something I developed and it's it's an analysis based on the functions of money, so the two columns they represent the two main options for the unit of account and they are Fiat money for the left and, on the right hand, side. It's carbon units.

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uh This gentleman here, Arthur begu. He developed the theory for externalities that economists refer to. You may have heard of pagovian taxes and subsidies. That's what we're looking at. He formalized the idea of externalities negative positive externalities, so our Rose represent positive externalities and then negative externalities. So the top row positive pricing bottom row. Negative pricing- this fellow here Ronald Coast, he's Economist, who came up with this theory about private trading to internalize externality and that helps to explain cap and trade.

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So our policy in you could call it a mitigate and trade, but that's just another name: I prefer to call it a carbon reward.

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So we're utilizing this guy's Theory to help justify this approach to pay for the mitigation- and uh this is really important, because if this is correct and if it can be sort of proven, then we're changing the fundamentals of standard Theory and we have a new conceptual model for the market. Failure now not shown on the diagram is more detail, and that is the tax is used to achieve efficient markets. That's the concept, cost First benefit. This is to achieve safety. It's a risk management objective. Call it a guard, rail safety and that's formalized.

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At this point in time, our team is launching our campaign to raise some money, because we want to create a proper project to demonstrate the policy we're going to do some interviews with experts, we're going to do interviews with business people and with stakeholders to explore the feasibility of the policy we're going to do economic assessments and it's called stakeholder mapping.

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We don't intend to create a carbon currency at this stage because that's a little bit tricky, but we can talk about that later. If you go to our landing page, you can download the concept paper. It gives a good summary of what's going on. This is coming out soon. This will have the details, the concepts it's about, 40 to 50 pages, with an appendix explaining the concepts of the theory.

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Okay, back to the policy, the car, the carbon currency, is in the instrument, and so we need to understand its unit of account. It's simply a ton of CO2 mitigated for 100 Year duration. This is important because, um obviously global warming, potential of gases and so on. Technically it's a representative currency. It will be an international token tradable in the Forex, and thus it will have its own ISO code, which could be xcc. There are analogs, there's xau for gold and so on important. Is that it's not a medium of Exchange.

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It's not the purpose of the currency. It's there as a price signal and as an asset. Also, it's not a carbon credit, there's no offsetting in the policy uh and that's incredibly important, because by fully funding the policy and the carbon currency, we won't need offsetting, and then we can de-risk the climate problem. It doesn't mean that offsetting will be uh stopped. It'll continue! It's just that this is another Market here, I'm, just explaining technically what a carbon reward actually is. So the reward is not the currency.

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The reward is the exchange rate, so the reward is defined in terms of any exchange rate uh currency pair with XTC as the base. You just pick your quote currency. So if you're using Colombian, pesos use that look up the exchange rate- and it will tell you the value of the reward in pesos in this example, it's US dollars per ton of CO2.

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This currency will be different to other currencies. Currencies today have a floating exchange rate. This one will have a guaranteed floor price.

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I'm going to explain how the market works just in terms of Supply demand, we need an institution in the novel, it's the ministry for the future. In this policy, it's called the carbon exchange Authority, so the authority has um control over the policy, the standards and everything, and it will issue the digital currency to awardees the businesses that are mitigating.

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They can then sell that currency for Fiat, in open markets so that carbon currency be traded in retail and wholesale markets to private Traders.

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I'll, explain why they'll buy it. Okay at this point, the flow is that when there's not enough demand in the private Market, the central banks they're the guarantors. If there's not enough demand, they will buy the carbon currency and hold it on their balance sheet, as they do, that they're, creating more Fiat and that goes into circulation, and thus we do get monetary inflation, but it's not as bad as that might sound at first.

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So that's the basic supply of demand model just to clarify this is the balance sheet. So the issue is the carbon exchange Authority, that's our ministry for the future. They issue the currency as their liability, but they have on their balance sheets service level agreements as an asset. These are long-term 100-year agreements that contain all the details from mrv and performance obligations and so on. We could talk about that.

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The awardees those Agreements are their liabilities and the currency is their asset. By analogy, think of a mortgage, you've got a mortgage contract and a Commercial Bank gives money uh in a similar way. On the demand side. I mentioned investors. They just buy it as an asset. Central banks they're the guarantor. They will buy it. They will have to issue new money in this case.

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It's the Federal Reserve, obviously, because they're issuing US dollars the method of producing that money is called carbon quantitative easing similar to QE, but here the central banks are not buying uh Financial assets, they're buying our currency, which transfers purchasing power to the productive, productive sectors of the economy, which is good for jobs and the environment. So this is I, think much more ethical than the QE that we've seen since the global financial crisis.

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Yeah we're going for time: okay, I, better speed up a little bit. This is a hypothetical price chart for the global carbon reward. These numbers are actually quite realistic.

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It's a hypothetical for the year 2045.

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The point here is that this black thick line that's going to be calibrated to the minimum amount of carbon removal we need. Thus, this reward price is actually explicitly pricing, carbon dioxide removal to achieve our carbon budget for one and a half or two degrees, or whatever it will be you'll notice, something that this this will be uh guaranteed. It will be communicated over the long term with floor price guidance.

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This is important because then Market actors can invest in large projects, knowing that the project will be rewarded with carbon currency, that's backed and guaranteed by central banks, so this becomes a bankable future Revenue source and that will open up the market to equity, finance and debt Finance there's a shorter period here called the guaranteed floor, which is a maybe 10 20 years, and that's uh explicitly defined beyond that.

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The institution needs more flexibility because things change over time. We could have more climate feedbacks and all sorts of changes that are unexpected. The red there is the historical spot price just to show that it can trade above the floor.

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This this trading is the example of cosine bargaining, and this price signal will internalize the cost of mitigation for a safe, safer climate.

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Should is that it's based on three major rules, one for clean energy, second, for cleaner business, the third for carbon removal, this one's relatively easy to understand because I just explained it. Actually, it's an explicit price based on what's expected, as the cost per ton into the long term rules. One and two are more complex, and this is because we have the problem of baselines.

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The Baseline here is essentially zero, but, as you know, counterfactual baselines are always problematic in this policy. We take a somewhat different approach to carbon markets today, because there's no carbon offsetting, so it's fully funded, therefore we're not so reliant on the counterfactual Baseline.

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What we want to know is the additionality significant once we establish its significance and, generally speaking, it will be significant because we won't reward projects are non-significant that that's just logical once it's significant, for example, decarbonizing the maritime sector.

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We then focus on the price okay, so our policy is going to provide prescribed baselines that are calibrated for price points to make sure there's enough Finance for Industries to sign a service level agreement. This approach is called cost effectiveness.

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The rule is slightly different for the met the demand side of energy versus the supply side.

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Energy rule one I'm not going to go through rule two, because I won't have time but rule one very quickly. There are many ways to provide the reward we can set carbon intensity baselines such as grams per kilometer traveled or tons per cash flow.

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So this is what we prescribe to do the computations for rewards, but we can also offer the reward through reverse auctions, which is setting a quota of carbon or carbon currency. We want to issue in a year and we ask the marketplace to apply, and then then we can issue it or when there's a smaller number of very large actors, like governments or major energy corporations, we could simply go into negotiations.

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The name of the game is to get them to sign on to Performance obligations. That's the service level agreement for radical transition. Important is that the rule can be used to deleverage Fossil assets.

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A good example is keeping fossil fuels in the ground, say, for example, in the Congo in the peatland, forests or Ecuador the isuni national park, those types of situations we can offer the carbon currency to license holders of these mining sites or all drilling sites and say well, we'll we'll pay you carbon currency, but you have to take that money and invest it in renewable energy infrastructure which becomes their asset and they can earn long-term Revenue through those assets.

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So, basically, this approach is called an energy asset exchange, and this is the way to keep the fossil fuels in the ground and also help developing countries skip the Industrial Revolution.

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The rule two can be used used with real one macroeconomically to balance energy Supply demand.

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In summary, we have the three rules, uh the first platform of explain those rules.

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We also have three more rules for co-benefits, so we can create a secondary price signal to incentivize, more reliable energy suppliers, Community well-being and ecosystem Health. These platforms for these co-benefits. This is where blockchains can really or blockchain tight Technologies can be utilized, because these will be very decentralized. This.

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These rules need a platform too, and that will require administrative systems for uh pulling in uh third-party assessors long-term data security, I think content addressing would be very, very good system, given that we have long-term 100 Year service level agreements, smart Administration I could imagine our service level agreements being on Smart contracts at some point and mrv. A lot of detail there, which I'm not going to try and explain here, but mrv, can be adapted depending on the risks involved in each project, so more rigorous for high-risk projects, less rigorous for low-risk Technologies.

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There is centralization as well. I know a lot of people don't like centralization, but I see. We need a balance. The carbon exchange standard, the xcc floor, price, Authority and mandates. That's somewhat centralized or very centralized here is the real opportunity, I think for blockchains, uh not so much in the monetary world, because that's taken care of by corporates and governments.

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But here this could be huge where we create a decentralized platform for these stakeholder groups that could organize or self-organize as as Dows I think that would work well, but we need to identify the co-benefits and harms that's what this is for. Actually, we invite the stakeholders to identify what's important in terms of harms and co-benefits, we achieve consensus on these for ranking, and then we use the ranking to score the projects. Once we've scored the projects, then we can adjust their rewards up or down.

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This is how we plan to create the secondary price signal and the accounting is maintained via a simple rule and the rule is simply this. If you reward more, then you have to reward Less on another project. So all the adjustments add to zero.

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If you're interested in this come and speak to me, I think I have five or so minutes left.

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Just to finish my presentation, five minutes, I thought I'd end with some philosophy around this. This topic of growth versus degrowth Now growth versus degrowth is probably one of the most uh important and topical issues in sustainability, Theory, academic, Theory and environmental narratives, because we've reached a point in human history, where this growth narrative isn't really working.

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The green growth narrative is not really getting us there. We can see that with the trajectory of carbon emissions and so on. So what do we do about this? Some people propose that we degrow the economy, which simply means shrinking the pie.

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um My point of view is that we don't really have explicit policies for that and I think that will be problematic. My argument is that growth versus green growth is a false dichotomy and I put forward an alternative that is linked to the carbon cycle.

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So you've seen this before I'm sure, let's go back to the carbon cycle and think about how nature deals with growth versus degrowth, even if it does at all so photosynthesis is pulling carbon in respiring organisms, animals, exhales CO2. We have the human input, factories combustion and you know the rest. Carbon goes into the soil and over a long term, that's the slow carbon cycle.

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If we're to look closely at ecosystems and organisms, what I found and I think it's definitely true. Respiring organisms and cells have natural carbon lock-in. They cannot reverse their chemistry for reasons to do with their genetic specialization, so cells, animals, like our cells, we respire. We can't reverse that chemistry. We can't absorb CO2, we can't further synthesize, so we are locked in it's a natural phenomenon and the point I want to make is that the way nature achieves Net Zero and it can it does ecosystems.

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Plants can achieve NetZero in controlled environments or in the natural world. uh It does that through two metabolic pathways, photosynthesis respiration and it can balance out under certain conditions.

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It's really a supply, limited system, uh depending on what's available from the environment, from sunlight and so on. A certain amount of sugars will limit respiration. So it's a self-limiting system with carbon locking on that end they call this symbiosis or third web.

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What I claim is that our economy, our civilization, has a similar problem that we have carbon lock into. However, our lock-in is biosocial, it's a product of social networks, so the most important social network. Actually, the causes lock, in my opinion, is the monetary system, so the monetary system forces Market actors to make a profit because they have to pay back their loans with interest, and it sets us on a growth trajectory.

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Most of our money is actually debt based. So in my opinion, the source of the climate risk is actually emanating from this carbon lock-in, which societal it includes the monetary system, the political system, legal system, education, every kind of social system that you can think of which is cultural.

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The resolution from a systems perspective is to introduce a parallel economy. How do we do that with a parallel currency, so our carbon currency literally creates a parallel economy.

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The flow of energy and resources comes from the first system to the second via the exchange rate, which I showed in the earlier graph, and this is how we circumvent the carbon lock-in effect to achieve a rapid, exponential-like social economic response or shift away from dangerous global warming. So, in the diagram I've pointed out, this system is defined by its Fiat currencies this by the carbon currency, and this model is actually completely different to the model that academics and Scholars are using because they're thinking about single systems for d-growth. This is not degrowth.

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This is um more like symbiosis, and this is how the new model explains the negative externalities, the positive externalities, and how to achieve carbon neutrality.

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So, just to finish answering the question once more: do we need to degrow the economy to achieve Net Zero carbon? Should we put our trust in green growth? I think my answer is this is my advice? You don't have to agree with me. It's it's a hypothesis, but my argument is: we need optimal growth and I Define, optimal growth as uh two economies, coexisting they're, both specialized with the new economy specialized for greenhouse gas mitigation and the relationship is symbiotic based on the carbon currency exchange rates, and so thank you very much.