Reconcile the market and the ecology
The cryptocurrency market collapsed, amplifying as usual the variations of “traditional” financial assets. Many investors, including individual ones, lost money again. Bitcoin is criticized from all sides for the electricity consumption it causes. Almost no one pays with cryptocurrencies, even indirectly (converted by a fiat payment service), and almost no one understands the blockchain either. But burying digital currencies and ledgers, even if possible, would be throwing the baby out with the bathwater. Because these new tools introduce revolutionary concepts that could be our best allies in the fight against climate change, which hasn’t really begun yet.
The 4th element
When we speak of the three powers in the media or elsewhere, we refer to the legislative, the judiciary and the executive ones. We can clearly see this in this period of rising interest rates and inflation than monetary policy has a major influence on our economies and the behavior of its participants, especially when major central banks coordinate to raise or lower interest rates, which has happened numerous times since the concept of a central bank was invented 3.5 centuries ago. Interest rates are basically the price of money. We are in a system in which the prices of goods and services are liberalized almost everywhere, but where the price of money is still determined in an opaque way by governmental entities (central banks): the market for capital is still managed in a socialist manner and hardly anyone seems to question that. It is a central bank that determines the monetary policy for a given territory, more or less independently depending on its statutes. We can therefore speak of a fourth power also separated from the others since it is in the hands of an institution distinct from the State but linked to it: the monetary power.
As for the participants in human societies, we generally distinguish between governments, citizens and organisations, and we sometimes wonder who should make the most significant efforts to truly initiate the fight against climate change. But we forget to specify that these three groups of participants evolve in a system, that is to say a set of rules and principles which encourage them to favor specific behaviours in order to be successful and possibly contribute to the well being of the system as a whole. However, it is clear that the behaviours encouraged by our main system, the economy, have long been harmful to the environment, which is considered at best merely as a provider of (limited!) resources, at worst as an obstacle to development or a dumping ground. This is not surprising since the environment is not represented in prices or currencies, which are respectively the main indicator and tool of the economic system. Being successful in an economic system means earning money or at least saving it when purchasing something. As a result, we have most of the time an interest in exploiting or destroying the environment to succeed in this system: cut trees to obtain resources and land, decimate bees to replace them with drones that we will have to be built and which will need energy, destroy countries to rebuild them, dope our soils with chemicals to increase agricultural yields in the short term, even if it means annihilating all life, etc.
Finally, money is often characterized by its three essential functions: store of value, unit of account, intermediary of exchanges. I show in my two books on digital currencies and registers as well as in this article that cryptocurrencies have given money a fourth function: that of vector of information. The fiat currencies we use are valid for all uses in a given territory. Most cryptocurrencies (known as utility tokens) know no borders but are in principle intended for a very specific use, generally using the storage, hosting or execution capacities of a decentralized computer network linked to a currency, as is the case with Ethereum. By combining these two characteristics, we obtain a currency dedicated to be used in a given territory. I give the example of a currency called IEVAT in this article: if such a currency existed, each person or machine scrutinizing a transaction involving a flow of this currency would know that it was used to transfer the VAT linked to purchases on Irish soil.
After the rain…
If we look at the history of humanity over the past 250 years, we realize that our development has not taken place in a straight line but in stages: a major crisis has been followed by an equally major advance. The French Revolution was followed by the advent of the Republic. The American Civil War led gradually to the abolition of slavery worldwide. WWII has been followed by the Welfare State (in Europe), decolonization, the creation of the UN, the EU… In 2020 we began a new major crisis, the constituents of which are well known: the pandemic, the war in Ukraine, inflation, climate change. I think that these crises have been caused by developed countries who have been emitting way too much money for about ten years. It’s not the first and it won’t be the last crisis linked to the the misuse of the monetary power, as long as it remains in the hands of centralised entities (central banks/governments). Like other crises, we will overcome this one through our ability to organize ourselves and use the technologies we are developing, without having to seek our salvation in space. This is where challenging our economic system and digital currencies and ledgers comes in. Our economic system is outdated. It has to be changed. It cannot ignore the environment any longer, otherwise we will continue to have an interest in systematically destroying it, in other words, in sawing off even more the increasingly fragile branch on which we are sitting.
Monetize the environment
I do not question the market economy or even growth. Each of us will continue to consume as much as we can, to improve our situation, especially financially, to ensure our safety and comfort, to enjoy life as much as possible, etc. It is legitimate and natural. The freedom we enjoy is accompanied by criminal and financial responsibility: breaking the law in principle leads to penalties and/or fines, spending beyond one’s income is in principle impossible, except for States, and otherwise leads to very uncomfortable, even dangerous situations… But our economic system includes almost no environmental responsibility, except for a few insignificant taxes on flights or household appliances. Going from Paris to Pau will cost you as much by plane as by train while you emit 30 times more CO2 by flying (see here), a vegetable burger costs as much in the restaurant or supermarket as its equivalent in beef while you cause 60 times more CO2 emissions by opting for beef (see graph below), palm oil, which travels tens of thousands of km and actively contributes to deforestation in South Asia, often costs less than the rapeseed or sunflower oil produced next to you… The examples are countless and show how our system is incoherent and unfair from an environmental point of view, which certainly brings great comfort to carnivores, to lovers of plane trips and artificially low prices, but which is done to the detriment of less well-off populations, future generations, animals and ultimately us, as we experience climate change more and more ourselves. There is an urgent need to realign the interests of all participants in the system not by coercing or tightening a few bolts, but by creating a new system that builds on the old one and benefits all.
It is imperative to reconcile economy and ecology in a systematic way, i.e. everywhere, for everyone, automatically, so that each participant is housed in the same boat and contributes positively to this new system. Market ecology is an economic and monetary system in which prices are made up in equal parity by two components: economy and ecology. We already have the economic component: it emanates upstream from the quantity of work, materials and investments necessary to produce and make available the goods and services that make up the market, downstream from the supply and demand for these goods and services. The ecological component consists of monetizing the environmental impact of the life cycle of these goods and services, from production to the treatment of the caused waste, which can be measured in the same way regardless of the activity and the place. The good news being that we already know how to carry out accurate GHG measurements most of the time. The common denominator of environmental impact is GHG (greenhouse gas) emissions. In order to convert the environmental impact into the price, it is necessary to choose on the one hand the direction (reward or tax?), on the other hand the valuation of one kg of CO2e emissions (e = equivalent), the standard denominator of the environmental impact. If we refer to the market for European CO2 emission permits, we obtain a value of 84 euros per tonne currently, or 0.084 euro per kg. It’s not much but it doesn’t matter, we will take this figure as a reference.
Currently, buying a kg of beef or a kg of lupine, seitan or tofu will cost you about the same, which is nonsense from an environmental point of view, if we accept the idea that the economic lever is the most effective in influencing the behavior of the participants in the system and that we have an interest in collectively reducing our carbon footprint. This example alone symbolizes the dead end that our current economic system has been leading us on for too long. At a time when deforestation is reaching record highs in the Amazon and when firefighters are fighting tirelessly against the flames in Europe, the barbecue season is going well in the media, supermarkets and gardens in Europe, America and elsewhere. 5 of 8 kg of cereals we produce do not go to human consumption, but mostly to animals. 97.8% of French people continue to eat meat, for instance, but they complain that temperatures and prices are rising. It’s like Alcoholics Anonymous drinking a bottle of vodka at every meeting and wondering why they don’t defeat their addiction. We dig our grave a little more every day and continue to do so because our economic system conceals through a whole set of mechanisms (subsidies, relocation of pollution, biased taxation, etc.) the environmental responsibility of our consumption, which should be reflected in prices, as money is the best pedagogical tool we have when it comes to consumption.
To understand how absurd it is to base the fundamental indicator of the economy, the price, on purely economic components, let’s imagine that the price of food is this time based exclusively on the basis of their environmental impact. According to Poore and Nemecek (2018), we would obtain the following prices per kilo, taking 84 euros per tonne of CO2e emitted:
Nonsense, isn’t it? Basing our prices exclusively on the economic component is unfortunately just as absurd. And yet this is what we do, with the consequences that we know. Introducing the environmental component systematically into the price of goods and services in our economies, as a reward or tax, would allow them to reflect the reality of the ecological cost of their production and distribution at parity with the economic cost of their production, and would have moreover a significant pedagogical aspect, because this impact would be reflected directly in the price, positively or negatively. How then to systematically monetize the environmental impact of goods and services? I invite you to read my articles on market ecology, taxation 2.0 and impermanent currencies to get an answer to this question, at least from my point of view.
Desperate times…
The solutions that we must bring to the crisis that we started in 2020 must be commensurate with its scale, otherwise it is not 9% of the population in developed countries who will soon have to choose between eating and heating, but 30 or 35%. Handing out checks and rebates indiscriminately, asking corporations to lower their margins, threatening the rich with heavy taxes may be tempting and easier than changing the system, but it won’t achieve anything. Political leaders such as Emmanuel Macron or Joe Biden should at least start to change the system we are evolving in rather than accuse big bad corporations of being too successful in that system. Making the system evolve is their job. Fortunately, we already have the technology and data to be able to impulse this system change. Digital currencies and ledgers are the tools that will allow us to reach a new level in our main system, the economy, and it is useful to remember here that they are neither automatically environmental monsters, nor necessarily decentralized systems. The high energy expenditure we sometimes hear about in the media, especially during bubbles of the crypto-asset market, is caused exclusively by Bitcoin’s proof-of-work system, which makes no sense in a centralized system as will be those of digital currencies which will be issued by central and commercial banks. Let us have the courage to question the very foundations of our economy and use the technologies we are developing to do so with the joint participation of citizens, governments and businesses. Market ecology involves revisiting both the fundamental tool and indicator of our economy, respectively money and price, in order to systematically consider ecology in our economy based on scientific and transparent measures. A great crisis requires a great change. Not in 2030 or 2050, not in a far-away country, but here and now.
