Climate Change and a Just Transition

Figure 1 — The Unjust Distribution of Wealth in Australia (Data from Bureau of Statistics)

The ACT Government has announced an inquiry into climate change and a just transition. The inquiry terms of reference include:

The Committee will inquire and report on how the ACT can make a just transition to ensure that all Canberrans get the benefits and protections of climate action. This will include:

A. The effectiveness, efficiency and equity of programs and rebates to reduce emissions, increase energy efficiency and help the transition to electrification;

The ACT Government is concerned that transitioning to a low-carbon economy is unjust and favours some in society over others. The concern is justified as society is divided into those who have the resources to change and those who don't. The challenge is so great that all have to participate, or humanity will not make the transition. That means "business as usual" will not provide a transition.

Government programs typically provide investment incentives to people and businesses with money to invest their own money. The programs provide rebates for people without money to invest. In other words, the rebates pay the investors for the output of their investments. This does not make for a just transition, as those without money do not acquire any wealth, whereas those with wealth acquire more wealth, where the extra wealth tends to come from the rebates of those with less wealth.

An equitable transition allows all members of society to acquire wealth at the same rate and price.

What is a Just Transition

The Climate Justice Alliance defines a Just Transition as a shift towards a low-carbon and climate-resilient economy that is fair and equitable for all. It is a vision-led, unifying, and place-based set of principles, processes, and practices to build economic and political power to shift from an extractive economy to a regenerative economy.

Building on the Climate Justice Alliance, the principles of a just transition include:

1. Inclusivity and Fairness: A just transition should ensure that all members of society, including those most vulnerable or disadvantaged, are included in and benefit from the transition process.
2. Equity: A just transition should aim to reduce wealth inequality and ensure that all members of society acquire wealth at the same rate and price. This means government policies should work towards equal participation rather than amplifying existing disadvantages.
3. Economic and Political Power: A just transition should build economic and political power to shift from an extractive economy to a regenerative economy. This includes shifting from dirty energy to energy democracy, funding highways to expanding public transit, incinerators and landfills to zero waste, industrial food systems to food sovereignty, gentrification to community land rights, and military violence to peaceful resolution.
4. Community Involvement: A just transition should involve the community in the decision-making process and ensure that the benefits of the transition are shared among all community members. This includes encouraging and supporting the idea of permanent asset markets where an asset goes into an organization and remains within it until its members agree to move it to another organization.
5. Sustainability: A just transition should create a sustainable economy that provides dignified, productive, and ecologically sustainable livelihoods, democratic governance, and ecological resilience.
6. Innovation: A just transition should encourage innovation and the development of new strategies to transition whole communities to build thriving economies.
7. Resilience: A just transition should aim to build resilient social and physical structures that survive a changing environment by changing existing social and physical structures to make them more likely to survive.

In summary, a just transition is about more than just reducing carbon emissions. It’s about creating a fair and equitable society where everyone benefits from transitioning to a low-carbon economy.

This submission shows how the citizens of the ACT can meet all these objectives and find the funds to do it.

The Inbuilt Bias to the Already Wealthy

The more wealth an organisation or a person has, the more they attract, and it is the lived experience of most people reflected in sayings.

• The rich get rich, and the poor get poorer.
• Money breeds money.
• The rich invest their money and spend what is left. People with low incomes spend their money and invest what is left.
• Matthew 23:25 says, "For whoever has will be given more, and they will have an abundance. Whoever does not have, even what they have will be taken from them", and it is often interpreted that the wealthy deserve it and the poor are undeserving. The correct interpretation is it is an observation without moral overtones and is called the Matthew effect.

The Matthew effect in network theory is the accumulated advantage principle. It is a phenomenon where individuals or entities gain more of a particular resource or advantage due to their existing possession of that resource or advantage. A just transition means everyone must participate equally, and government policies must work to that end rather than amplifying existing advantages.

The Matthew Effect and the Economy

Currently, wealth inequality advantages the already wealthy and reduces the overall wealth of society, compounding inequality. It impacts economic growth by reducing aggregate demand, erodes social cohesion, affects investment decisions, impacts long-term investment performance, influences consumer behaviour, and reduces economic opportunity and mobility.

In Australia, every six months, the top 10% increase their wealth by as much as the total wealth of the bottom 10%. If everyone had an equal increase in wealth, the bottom 10% would double their wealth every six months, and the top 10% would not notice the difference. The well-being of the bottom 10% may double, and the top 10% will still get a wealth increase.

The current wealth distribution is unjust and works against the transition needed to address climate change in multiple ways.

There will only be a transition if society changes how new wealth is distributed. To make the transition, we need everyone in society to be included in wealth acquisition and investment.

The concentration of wealth means many in society are excluded from participating in the investment and wealth-creating economy. Every entity excluded reduces the economy as concentrated wealth means fewer wealth transfers and less investment.

The way we model economies determines how we view change and transition. The current formula-based statistical models fail to show important aspects of economies by assuming economies are working well if more money changes hands. In contrast, agent-based modelling shows the effect of cutting people off from wealth, which is not apparent with statistical modelling, which assumes that money generates wealth rather than the use of money generates wealth.

Studies of money markets -like stock markets — show that prices follow a random path, meaning they do not predict the future. Almost all economic modelling uses the past to predict the future; in complex systems, they only work briefly. They rarely work when there is a transition — just or unjust.

The Banks and Investment

Most of the money for the transition will come via the banks, and in the ACT, most will come from the four Big Banks. The Banks must be involved to finance the transition, but the evidence is overwhelming that they will be reluctant.

The Big Banks, by regulation, serve their shareholders first. Also, the Reserve Bank regulations favour them and, by proxy, bank shareholders. Big Banks require fewer reserves and can count some of their share value as reserves. This gives them an advantage over member-owned community banks and superannuation funds when issuing new loans. It means there is continual pressure on member-owned financial bodies to join the ranks of the shareholder-owned financial bodies.

However, there is a weakness in the Big Banks: they invest little in new assets. They make extraordinary profits from financing the transfer of ownership of existing assets. For housing in October 2023, there were 11 times more loans for existing houses than for new ones, and new ones built by developers are sold as soon as they are finished.

Investing new money to shift the ownership of existing assets is very expensive. We move the asset by creating new money with a loan. The new money comes by repaying a loan with profit generated with the loan. We then pay for using the money while we generate the profits with interest on the loan.

Funding the transition from fossil fuels to renewables will require a lot of money and investment. This money can be found by changing how we finance the change of ownership of common assets like houses. Instead of creating loans to transfer home ownership, we can convert houses into shares and transfer home ownership a few shares at a time. This removes the cost of creating new debt and eliminates the interest cost. Instead, removing these costs will increase the return on savings and reduce the money transferred to buy a house.

It means that an emergent property of reducing the cost of transferring houses or other assets is to free up funds for other investments — like a just transition.

However, the Big Banks will only change if competitive forces make them change. That competitive force could be the Community Banks working with local communities to reduce the cost of transferring a house and directing the freed-up capital to finance an equitable transition to a zero-carbon society.

Facts

Some facts on which to base a Just Transition.

1. Money does not have a time value. The time value of money is an accounting device to give savers a return on investment. Thinking money has a time value favours short-term profits against long-term savings and works against a just transition.
2. Markets are essential for giving consumers choices and allowing innovation, but there are better and more reliable ways to set the price of goods and services than using a market. Sharing profits is one way, and common ownership is another.
3. Renewable electricity generated locally is cheaper than burning fossil fuels at a distance.
4. Fossil fuels have higher value uses than burning to produce heat.
5. It is unnecessary to monetise an existing asset to transfer ownership.
6. Monetising assets to transfer ownership means investors seek profits from asset price inflation.
7. The value of an asset is not the price but the value to the user of the asset. Society benefits more if the users of the assets obtain the most value from the asset rather than the owners of the assets selling for the highest price.
8. In a sustainable economy, most investment returns come from savings for the same goods, not increased prices and consumption.
9. A developed economy's productivity drops because capital becomes less productive as most investment transfers assets rather than creating or maintaining assets.
10. Most financial profits come by getting buyers to pay more for the same goods or services rather than less.
11. Most financial profits accrue to monopolies, oligopolies, and monopsonies.
12. Short supply chains are cheaper, more resilient and better able to handle climate change.
13. All humans die, but social structures live on. Building a resilient society means building stable social structures rather than an unstable society with great wealth for some and poverty for others.
14. Successful change happens when small changes are made to existing structures to make the structure more likely to survive a changing environment. To paraphrase, lasting change occurs when existing structures evolve rather than when change happens with a revolution.

The following outlines a permanent local electricity market incorporating many of the ideas above.

A Permanent Local Electricity Market (PLEC)

Imagine a group of houses behind a low-voltage transformer. Many homes have solar panels, and some have electronic metering and batteries. The owners of some of the houses work together to create a permanent market of local electricity assets where they generate, distribute, measure, consume and store electricity using each other's resources. Occupiers can opt in and out of the Local Market by selling their shares in the assets. In the Local Market, everyone pays the same for electricity consumed at the same time.

All investors receive a 5% per annum return in the form of new shares in the PLEC. However, they must also sell 10% of their old shares to occupiers. The occupiers pay for the transfer of shares through their electricity payments. The money never leaves the Market. Instead, shares change ownership. Occupiers can sell shares to other shareholders if they need the funds.

Occupiers buy electricity from the PLEC and pay the grid price. The PLEC invests profits in further assets. The new or refurbished assets are converted into shares and distributed across all occupiers according to the amount they pay — not the amount they own.

The PLEC integrates with retailers who integrate into the national energy market.

Distributors work with the PLEC to integrate the hardware into the overall grid.

Homeowners and other investors invest directly in the PLEC by purchasing shares. However, consumers become investors in the PLEC as most of their payments for electricity are converted into new shares.

Occupiers who want to pay less for electricity can sell their shares to investors. Investors who are not occupiers receive a 10% annuity for 20 years, and they can change their annuity at any time and as often as they like for no cost using the formula below, where shares are all valued at $1 each.

Shares * (1 + 5% * n) / n

A PLEC annuity lasts about twice as long as an allocated pension from the average Australian Superannuation Fund, so it is an attractive investment for savers and pensioners.

The cooperative model offers additional savings, particularly in the transfer of asset ownership. The capital moves incrementally with shares rather than in one large amount; hence, the PLEC eliminates the costs of selling, buying, and transferring an asset.

The approach works with any size PLEC from two to 100,000. However, if a PLEC is too small, it loses economies of scale, but it is easy to combine with another PLEC. In large PLECs, trust erodes, but the PLEC is easy to divide.

It is recommended that a local community bank and the ACT government initially become the lead investors for the PLECs, as any regulatory and operational changes need the support of the government and banks.

The Benefit of a PLEC

The following outlines the financial benefits of a PLEC approach compared to individual incentives to households.

Assume fifty houses in a cooperative. Each house wants 10 kW of solar panels, producing an average of 40 kWh daily. 50% of the electricity is consumed in the house, and 50% is exported to the grid for a feeding tariff of 6 cents per kWh. The savings of the other 50% are 30 cents per kWh. The cost of the panels installed is $6000. The panels last for 20 years, and there are no maintenance costs.

A typical individual with the funds to invest in solar panels will receive their money back from savings within three or four years.

A PLEC allows those with extra savings to invest in occupier houses where the occupiers do not have savings. The savings are shared between the investors and the occupiers, where the savers receive a fair return, and the occupiers receive the remainder. Everyone in a community becomes an investor, and the profits are distributed proportionately to the amount people pay for their electricity. Governments can distribute their profits to the economically disadvantaged.

Once the local community is self-sufficient in electricity the cost of electricity is expected to be the cost of maintenance, replacement of assets, and operations. Agent-based modelling predicts this will be about 20% of the current prices.

Deploying Permanent Local Markets

Permanent Local Markets create profits by reducing money transfer to achieve a given outcome. Regular Markets create profits by increasing the money transferred to achieve the same outcome. This means existing regulations and systems are designed for profits from increased transferred money rather than from reduced costs. The ACT government may have to change regulations and processes to allow this.

Governments also use the same business models to evaluate their expenditures. This is particularly problematic for infrastructure expenditures that aim to reduce the cost of everyday goods and services.

By encouraging Permanent Local Markets for goods and services, the cost of living will drop, and people with little wealth will gain and become part of the economy, increasing economic activity that brings value to all.

Today, decisions are made on money allocation based on the idea that money has a time value. In contrast, Permanent Local Markets remove the time value of money and gain profits by increasing the speed of money transfers to achieve the same outcomes.

Governments could immediately work with community banks to fund Permanent Local Markets and use agent-based modelling to justify the change. There is no need to wait for this inquiry to finish to test the assertions made in this submission. The government could review agent-based models of Permanent Local Electricity Markets and Permanent Local Housing Markets. If the results are as outlined here, they could start working with Community Banks to set up trials.

Obtaining Canberra citizens for the trials will be easy if the ACT government and a Community Bank are involved. Many local investors will be willing to provide the money to build the operational systems if the finance is provided through a Permanent Local Market of investment money.

A Similar Structure that Rebuilt Vienna After the Second World War

Sixty per cent of Vienna’s population live in rented accommodation where the housing is rented using a similar idea to Permanent Housing Markets. You can listen to Vienna’s housing strategy story on ABC Rear-Vision How this city became one of the most equitable and affordable in Europe. Permanent Markets bridge the gap between private capitalism and socialism. Permanent markets bring the best of both socialism and capitalism, which is made possible with new computing and communications technologies. Permanent Markets can be thought of as Capitalism that cares.

A Just Productive Sustainable Economy

An economy that devises social structures using the previous evidence may create a just transition to address Climate Change and keep the planet liveable. Humans are continually adapting their social behaviour and can adjust again to survive. The following are some low-cost adaptations the ACT Government can make to its behaviour.

• The ACT government encourages and supports the idea of permanent asset markets where an asset goes into an organisation and remains within it until its members agree to move it to another organisation. The asset is moved within the organisation between members, meaning the transfer of ownership is incremental via the purchase and sale of shares representing assets.
• The ACT Government becomes an investor in disadvantaged citizens’ permanent asset markets rather than giving grants and rebates. As an investor, the ACT government representatives can assist in the organisation’s governance. This is important for disadvantaged citizens like government housing tenants and women’s shelters, who need more investment experience.
• The ACT Government removes any regulations preventing citizens from investing in permanent local markets.
• The ACT Government use agent-based economic modelling. Agent-based models better predict outcomes, allowing governments and organisations to monitor financial progress and alert unsustainable financing.
• Make agent-based modelling available to individuals to monitor their financial behaviour and change their finances before they exclude an individual from economic activity.
• The ACT government deal with banks that aim to strengthen local communities rather than banks whose primary goal is to reward non-local shareholders.
• ACT government encourages citizens to work together in cooperatives and companies that follow BCorp principles rather than each acting as an isolated entity seeking to maximise its returns.
• In the ACT, “rewiring suburbs” is an existing conceptual framework to enable a Just Transition to an energy-sustainable future.

Summary

Permanent Local Asset Markets require regulatory approval and the participation of finance suppliers who can use their existing systems to offer traditional financing with modified bookkeeping. This allows asset users to acquire assets without needing to monetise assets. The ACT government can assist with regulatory approval, community banks can provide financing and existing systems, and shareholder cooperatives can provide market governance structures.

Modelling shows that transferring long-lasting assets is a fraction of the current cost. The savings generated will finance a Just Transition for the ACT for little or no cost to taxpayers.