Economics is defined as the study of how people use their limited resources in an attempt to satisfy unlimited wants. Using this as a base, carbon economics can be defined as:
The study of how individuals, society, business, government and nations address the limited capacity of the planet to sustainably absorb greenhouse gases in an attempt to maintain and improve their quality of life.
That is, the limited resources become how much greenhouse gas the planet can absorb without changing the climate and the unlimited wants become the quality of life. Perhaps the more accurate term for this is Greenhouse Gas Economics, but as the main greenhouse gas by volume is carbon dioxide, the label Carbon Economics seems more clear.
The term is not new, however it does not have a fixed definition. This is counterproductive and so this article seeks to lock down a meaning to support better understanding and clearer communication.
However, Kym Lennox says It isn’t about money:
“The key departure of our approach from the general discussion on this subject is that we do not monetise greenhouse gases. Carbon Economics is not about the trading of carbon credits; or the investment analysis for the projects that lower the carbon footprint of an industry sector; or analysis of the effect the pricing of carbon has on the cost of living. These are important considerations and form part of the study within Carbon Economics. They inform the policy to solve the unexpressed problem. They do however miss the point.” said Mr Lennox.
The wants are not a product or service and the resource is not money (as is the typical situation in economics). The resource is an "overdrawn account" against the capacity of the planet to absorb greenhouse gases and the want is avoiding the impact that increasing or even maintaining the "overdrawn account" will have on the quality of life. There is no money involved at this level of the study.
Why does this departure matter?
Money has a meaning of its own, a meaning that is not equal between people. Money is not a common global mechanism for value - US$1 does not buy the same amount of an equivalent product or service globally even excepting for local taxes and similar distorting influences. Money is not a single item - we don't use just one currency globally.
Carbon (measured as CO2e) means little to anyone today. Unfortunately, when it will mean something most people will see it as the harbinger of personal catastrophe (the loss of home or a lack of drinking water, etc). Carbon has the same impact to the climate regardless of where on the planet it is released and a unit of carbon is still a unit of carbon. Carbon isn't like money.
Hence we might conclude that Carbon is a commodity, simply a new product to price. However all commodities have a different value depending on where on the planet they are and involve the exchange itself of the commodity or right to the commodity. Certainly if we monetise Carbon we may have something that is tradeable, but the distinction should be made that we are not trading the carbon itself, but a contract about it. Carbon is no more a commodity than an insurance contract is.
Kym Lennox - The Tipping Point Institute
The Tipping Point Institute (TTPI) is a boutique consultancy that focuses on developing and disseminating responses to the carbon constrained reality of the 21st century. TTPI provides its clients clarity and context for their participation in a sustainable future. Our focus is to:
- define the targets through what we term ‘carbon economics’;
- keep on target through programme governance; and
- support the delivery of outcomes with best practice in procurement, infrastructure utilisation and integrated planning.
Our economy and society is at a tipping point such that the consequences of our actions and inactions will ripple through many generations to follow. TTPI seeks to be an active participant as Australia and the world manage the next stage towards a sustainable future.
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