Wednesday, March 30th, 2011

Kym Lennox of the Australian Practice of The Tipping Point Institute and Chairman and CEO of the charity, "Climate Change Equity", continues with his explanation of the term "carbon economics", and the need for new tools moving forward into the future.

More than a century of modern economic theory has provided a great many tools to analyse and compare the value of money over time and the value of alternatives for how money is used. These theories and tools are part of our ability to have increased the quality of life so significantly for so many over the same time period.

Mr Lennox said: "A fundamental premise for these tools is that the value of money changes over time due to a single factor - inflation. This provides for money spent or earned in the future to be evaluated in terms of the meaning of money today by discounting it back in time. There are, of course, the different perceptions for the need to spend or the chance to earn in the future. This difference gives rise to dissimilar valuations and much of the trade seen in markets.

"This apparent variable for the value of money, or more correctly what it can purchase of be invested in, is an emergent outcome from people working with uncertainty regarding the future, not an outcome from the money itself," he continued.

The value of carbon changes over time due to (at least) two factors:

1. The amount of carbon emissions in a given year relative to the sustainable level; and

2. The ease with which the emissions can be addressed.
The first factor is conceptually the inflation of Carbon. The more our emissions depart from the sustainable level, the more valuable the avoidance or absorption of the Carbon. However, it is a significantly more dynamic consideration than monetary inflation as most sources of Carbon remain in the atmosphere impacting the climate for more than a century (so the sooner the emissions stop happening, the less accumulative the stock of Carbon in the atmosphere and thus the lower the effect of Carbon on the climate).

The second factor has no conceptual equivalent as it relates to a change in the relationship for the supply of Carbon. The mechanism for the supply of money does not change, the government of a country mints notes and coins, banks distribute them and money is created through the payment of interest and trading of risk (this is an overly simplistic picture, however it is illustrative).

Over time technological development and production scaling will change the relative ease with which the emitting of Carbon can be avoided or absorbed from the atmosphere. This is a key variable for the consideration of carbon emissions in different time periods.

Consider the ability to have zero emission private transport. Today it is impossible, as emission free power to mobilise a car is not available. In 2050 it will be available and most likely at a price that is competitive with less Carbon friendly options. This variation in supply availability makes the Carbon in 2050 less valuable than in prior periods. That is, the harder it is to do something about it, the more valuable doing something is.

This difference means that new tools are required to support decisions about Carbon and the study to develop them and consider their impact is the core of Carbon Economics.

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Kym Lennox

Kym Lennox of the Australian Practice of The Tipping Point Institute and Chairman and CEO of the charity, "Climate Change Equity".

About 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.

Candice Lowden
P: 02 9210 4600

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kym lennox, economics, carbon, climate change



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