Hot Frog - Revision history

David.Christie: /* Bootstrapping the World Carbon System: Start with one country */

2012-01-31T21:43:07Z

‎Bootstrapping the World Carbon System: Start with one country

David.Christie: /* Bootstrapping the World Carbon System: Start with one country */

2012-01-31T20:42:03Z

‎Bootstrapping the World Carbon System: Start with one country

David.Christie: /* A simpler model is needed */

2012-01-31T20:40:27Z

‎A simpler model is needed

David.Christie: /* Allocating WOCs */

2012-01-31T20:38:49Z

‎Allocating WOCs

David.Christie: /* The Basic Idea */

2012-01-31T20:37:21Z

‎The Basic Idea

David.Christie: /* One possible approach: World Carbon Currency — WOC */

2012-01-31T20:36:41Z

‎One possible approach: World Carbon Currency — WOC

David.Christie: /* Link permits to actual emissions */

2012-01-31T20:36:15Z

‎Link permits to actual emissions

David.Christie: /* Other aspects */

2012-01-31T20:33:53Z

‎Other aspects

David.Christie: /* A simpler model is needed */

2012-01-30T22:46:29Z

‎A simpler model is needed

David.Christie: /* A simpler model is needed */

2012-01-30T22:45:46Z

‎A simpler model is needed

@@ Line 142: / Line 142: @@
 === Inside the country ===
-The necessary legislation needs to set up to enable a new currency to be used in parallel. Emitters of CO2e
+The necessary legislation needs to set up to enable a new currency to be used in parallel with the existing home currency. '''Primary''' Emitters of CO<sub>2</sub>e are taxed for their emissions '''in WOCs''' — the WOCs are returned to the Central Bank (WCCB) and removed from circulation. A registered emitter receives the Central Bank WOC "buy" price in local currency. If a given emitter does not have sufficient WOCs, he will have to buy them on the open market, or at a premium from the Central Bank. As far as possible, 1 WOC is always removed from circulation for the emission of 1 kg of CO<sub>2</sub>e: this means that individual emission types will have different, but (scientifically) fixed WOC values. For example, 1 kWh of electricity produced from a particular type of coal will cost more WOCs than 1 kWh of electricity produced from biogas, because of the difference in embedded CO<sub>2</sub>e emission levels.
 === Crossing borders: import/export and customs ===
-=== Allocation via the tax system ===
+Implied primary CO<sub>2</sub>e emissions in imported and exported items are charged in WOCs by the Customs Authorities. If the WOCs have already been collected within the country, then they are not collected again (this must be certifiable). If there is insufficient information about the level of embedded emissions, then a default (higher) level of WOCs is charged. For companies involved in import/export, a WOC account can be held with the Customs Authorities. Just as with other WOC accounts, the account may not go below zero, and any credit can be sold on the open market. If WOCs have to be bought from the Central Bank, they will be charged for at a premium. Airline travel and freight are also included, and charged based on distance and transportation type: here the EU has new rules which could provide a basis.
-=== Circulation via the banking system ===
+The initial list of primary CO<sub>2</sub>e emitters are in energy, mineral exploitation, pharmaceuticals, farming, waste disposal (tbc).
 === Go viral ===
 == External links ==

@@ Line 142: / Line 142: @@
 === Inside the country ===
+The necessary legislation needs to set up to enable a new currency to be used in parallel. Emitters of CO2e
 === Crossing borders: import/export and customs ===

@@ Line 51: / Line 51: @@
 * '''a single global emission permit pool''' linked to the current level of CO<sub>2</sub>e and its trend
-* '''an allocation of emission permits based on GDP and population''' (perhaps 50-50), with a penalty element for countries missing their target in a given year, and also linked to the average temperature level (which has regional differences, affecting adaptation costs)
+* '''an allocation of emission permits based on a mix of GDP and population''', with a penalty element for countries missing their target in a given year, and also linked to the average temperature level (which has regional differences, affecting adaptation costs)
 * '''collection of permits as near as possible to the points of primary emission''': this focuses on the main polluting industries, and mostly those which are currently measured in the Kyoto systems - the rules for the number of units should be fixed as far as possible globally for a particular technical process type by independent scientific groups (and probably will need to be spot checked by independent agents)
 * '''freely exchangeable permits''', like a normal instrument of exchange, with no "distortional" taxes (such as tariffs that protect a local market) - just like in other trade treaties

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 high market value in developed countries (after all, people want to drive their cars and fly to Guadeloupe).
-=== Allocating WOCs ===
+=== Creating WOCs ===
 A key issue is how to allocate WOCs. Suppose that a simple country-based scheme can be found based on current emission

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 The World Carbon Currency is new type of global [[wikipedia:Commodity_money|commodity money]]: an extension of the cap & trade idea. The basic idea is that 1 unit of this money ([[WOC]] 1) has to be spent whenever 1 kg [[CO2e|CO<sub>2</sub>e]] is emitted at source. The reason for choosing this size of unit is to make it more relevant to individual people: an average European currently needs between WOC 7000 and 9000 per annum, whereas the goal is more like WOC 2000!
-By controlling the amount of this money that is in circulation, the level of emission can be influenced. By charging a negative rate of interest on WOC holdings, the [[World Carbon Central Bank — WCCB]] encourages circulation of the currency and discourages hoarding. Also, it must be forbidden for commercial banks to issue WOCs that they do not have (unlike normal currency). Apart from these basic rules, the WOC currency can be traded like any other currency and will float to find its own value, driven by supply and demand.
+By controlling the amount of this money that is in circulation, the level of emission can be influenced. By charging a negative rate of interest on WOC holdings, the [[World Carbon Central Bank — WCCB]] encourages circulation of the currency and discourages hoarding. Also, it must be forbidden for commercial banks to issue WOCs that they do not have (unlike with normal currency). Apart from these basic rules, the WOC currency can be traded like any other currency and will float to find its own value, driven by supply and demand.
 The set of countries that have the legislation and facilities in place to collect and distribute WOCs form the [[World Carbon System — WCS]]. Countries outside the WCS have to pay a levy in WOCs to compensate for the embedded CO<sub>2</sub>e emissions in their exports to the WCS. Similar arrangements apply for air and sea travel and cargo emissions to and from WCS countries.

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 See also the website [[ http://www.kyoto2.org/ | Kyoto2 ]].
-== One possible approach: [[World Carbon Currency — WOC]] ==
+== Making it more concrete: [[World Carbon Currency — WOC]] ==
 === The Basic Idea ===

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 === Link permits to actual emissions ===
-A key idea is to link permits directly to emissions and control the total number of permits in circulation, thereby creating a form of "money". As long as this "money" is credible and suitably backed by policing, then it can be used as a normal financial instrument. A project to generate electricity, for example, would have a component of its costs over its lifetime expressed in this "money", which itself has a market price. The control of the units would be carried out by the normal auditors of the books and records of the companies involved.
+The idea is to link permits directly to emissions and control the total number of permits in circulation, thereby creating a form of "money". As long as this "money" is credible and suitably backed by policing, then it can be used as a normal financial instrument. A project to generate electricity, for example, would have a component of its costs over its lifetime expressed in this "money", which itself has a market price. The control of the units would be carried out by the normal auditors of the books and records of the companies involved.
-Behind this is the idea that there is a group of countries where this "money" can be used, and where the rules giving it its value are clear and uniform (including policing etc.). The "money" needs to be set up such that there is an economic interest for countries to become participating countries: if your country is outside the group, then its exports to the group will be penalised for their emissions, by being charged in terms of this "money". Only the countries inside the group can get credits in this "money", though. Those outside have to buy it on the open market.
+There is a group of countries where this "money" can be used, and where the rules giving it its value are clear and uniform (including policing etc.). The "money" needs to be set up such that there is an economic interest for countries to become participating countries: if your country is outside the group, then its exports to the group will be penalised for their emissions, by being charged in terms of this "money". Only the countries inside the group can get credits in this "money", though. Those outside have to buy it on the open market.
-The leap of faith is that one can start from an initial smallish set of countries and other countries will (want to) join when they are ready/willing: getting the economics right, so that the economic incentives drive things in the right direction needs a multi-disciplinary team to set the key basic concepts well from the start.
+It should be possible to start with a smallish set of countries and other countries will (want to) join when they are ready/willing: getting the economics right, so that the economic incentives drive things in the right direction needs a multi-disciplinary team to set the key basic concepts well from the start.
-Setting the emission permit pool's overall volume and the allocation rules are a political issue just like today's emission targets under Kyoto. The difference is that one overall emission target would apply for all across the whole system, with one agreed split between GDP and population overall. Also, if possible, the amount of "money" in circulation should be tied to a physically measurable number, like the level of CO<sub>2</sub>e in the atmosphere. The scheme needs a global central bank which follows these rules to allocate units to national central banks, a bit like the ECB in the EU. The rules for removing the "money" from circulation need to be the same for all countries and obviously need to be policed. Likewise, the penalties for "overspending", and a negative interest rate on holdings (set to discourage hoarding) need to be defined globally. All loans of this money must be backed 1:1 -- it should not be permitted to go "short" -- the only place where this money can be created is in the central bank. Detailed allocation within countries could still remain a local matter.
+Setting the emission permit pool's overall volume and the allocation rules are a political issue (just like the targets under Kyoto). The difference is that one overall emission target would apply for all across the whole system, with one agreed split between GDP and population overall. Also, if possible, the amount of "money" in circulation should be tied to a physically measurable number, like the level of CO<sub>2</sub>e in the atmosphere. The scheme needs a global central bank which follows these rules to allocate units to national central banks, a bit like the ECB in the EU. The rules for removing the "money" from circulation need to be the same for all countries and obviously need to be policed. Likewise, the penalties for "overspending", and a negative interest rate on holdings (set to discourage hoarding) need to be defined globally. All loans of this money must be backed 1:1 -- it should not be permitted to go "short" -- the only place where this money can be created is in the central bank. Detailed allocation within countries could still remain a local matter.
 The existing financial system is used to do all the accounting and price setting. The investment flows will definitely take place if there is a "market", and that will happen if the rules are sufficiently simple and stable. For this reason, a single rule set is preferable that is defined by all participants multi-laterally, which can be a controllable political process. As long as the system is suitably long-term, then the financial sector will develop all sorts of fancy instruments and derivatives where they make economic sense.

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 * a solution is needed for how to charge for airline and similar "international" emissions not tied to a particular country
 * the mechanisms must be treated like the EU's ''acquis communautaire'' - that is, if a country participates in the scheme, it follows identical global rules (and can participate multi-laterally in adjusting them)
-* "sinks" are problematic, because the case is not very clear. However, the destruction of mature trees (such as in the rainforests) needs to be counteracted, so perhaps there could be a credit for woodland, on the condition that it is sufficiently mature that carbon is truly bound - perhaps this can be assessed by satellite survey.
+* "sinks" are problematic, because they are hard to measure and justify - however, the destruction of mature trees (such as in the rainforests) needs to be counteracted, so perhaps there could be a credit for woodland, on the condition that it is sufficiently mature that carbon is truly bound - perhaps this can be assessed by means of a satellite survey.
 Although the model should be neutral in economic terms, there will be winners and losers. What is very important is that it is conceived so that no big bureaucracy is needed to vet projects: they should take place based on the "normal" economic mechanisms that projects follow, except that they factor in the price of the emission permits.

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 * '''expiry of permits''' after a certain period to prevent hoarding, or an equivalent mechanism such as negative interest on holdings.
-Other aspects:
+=== Other aspects ===
 * supposing that there is a central bank for permits, it could sell new permits to participating countries at a premium each year and use the proceeds to fund adaptation projects, or to help in disasters caused by climate change as a last resort re-insurer