Energising Money an Introduction to Energy Currencies and Accounting
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Energising Money An introduction to energy currencies and accounting Report commissioned by The 40 Foundation www.the40.org Energising Money 2 Contents Executive Summary ......................................................................... 6 Global systemic reform ................................................................... 6 Stimulating local and regional energy transition .............................. 7 Shaping an agenda for research and action .................................... 7 1. Introduction .................................................................................. 9 2. Nature and the economy ............................................................ 11 2.1 The problem of ecological overshoot ....................................... 11 Box 1. The notion of „capital‟ in conventional economics ............... 13 2.2 Economic theory and natural resources .................................. 13 Problem 1: Pricing nature .......................................................... 14 Problem 2: Man-made capital is not a substitute for nature ....... 15 Problem 3: Understanding the role of energy in the economy .... 15 2.3 Where does money come in? .................................................. 18 3. Money, the economy and nature ............................................... 19 3.1 The nature and history of money ............................................. 19 The origins of money ................................................................. 19 Money today: credit creation by commercial banks ................... 21 3.2 Problems with modern money ................................................. 22 1) Bank-debt money as ‗virtual wealth‘ ...................................... 22 2) Structural drivers of monetary and un-economic growth ........ 23 3) The negative effect of bank-debt money on store of value and means of exchange functions .................................................... 24 4) Discounting the future ........................................................... 25 5) Mis-allocation of credit leading to economic instability ........... 25 6) Mis-allocation of credit leading to social and ecological harm 26 3.3 The case for anchoring money ................................................ 26 1) Restoring trust ....................................................................... 27 2) Preventing ‗virtual wealth‘, instability and ecological degradation ............................................................................... 27 3) Promote the energy transition ............................................... 27 3.4 How to anchor money – what anchor? .................................... 28 1) Basket of resources ............................................................... 28 2) Single commodity .................................................................. 30 4. Energising money: monetising energy ..................................... 33 4.1Why energy? The conceptual historical roots ........................... 33 Energising Money 3 4.2A taxonomy of energy related money ....................................... 34 Box 2. Energy accounting metrics ................................................. 35 4.2.1What energy?........................................................................ 35 1) Energy as an accounting value ............................................. 36 2) Energy as a commodity ......................................................... 37 4.2.2Which monetary functions? ................................................... 37 4.2.3 Possible combinations – what works and what not? ............. 38 1) Non-redeemable units ........................................................... 39 2) Redeemable units (promissory notes) ................................... 41 4.3 Summary: Energy‟s place in the ecology of money ................. 49 5. Design and implementation of energy money .......................... 51 5.1 Designing and managing monetary functions .......................... 51 5.2 The golden rule of a stable value relation ................................ 52 5.3 Governance, scale and capacity issues .................................. 53 5.4 Summary: From theory to practice .......................................... 55 6. Conclusions and next steps ...................................................... 56 Appendix: selected energy currency and accounting projects .. 59 Endnotes ......................................................................................... 65 List of featured energy currencies Examples 1: currency concepts based on a basket of commodities ..................................................................................................... 28 Bancor (Keynes 1941) ............................................................... 28 Exeter Constant (Borsodi 1974) ................................................ 29 Terra TRC (Lietaer) ................................................................... 29 Ven ............................................................................................ 29 Examples 2: currency concepts based on a single commodity ...... 30 Currencies based on Grain/Food ............................................... 30 Currencies based on H2O .......................................................... 31 Currencies based on CO2 Emissions ......................................... 31 Examples 3: Emergy ..................................................................... 39 Examples 4: WAT (Japan) ............................................................ 41 Examples 5: “debit” based energy currency concepts ................... 42 CHARCOAL (Osaka, JP) ........................................................... 42 Kilowatt Cards (Robert Hahl, Falls Church, VA)......................... 42 RECS ........................................................................................ 42 Examples 6: “credit” based energy currency concepts .................. 43 Energy Notes (R. Swann) .......................................................... 43 Sonnenscheine (K. Vosshenrich, Steyerberg, D) and REGIOenergie (L. Schuster/K. Vosshenrich) ............................. 43 Eco-regional business partnership (R. Grandits) ....................... 44 ‗Solar shares‘ based on a shopping voucher (Waldviertler / Wegwartehof / Sonnentor) ......................................................... 44 Kiwah ........................................................................................ 44 Wära (historic example) ............................................................. 44 Energising Money 4 Examples 7: More complex energy currency concepts ................. 46 Renewable Energy Dollar (S. Turnbull) ..................................... 46 Ebcu (R. Douthwaite) ................................................................ 46 Petro unit and International Energy Clearing Union (C. Cook) ... 47 Human and Resource Economic system (Forty Foundation) ..... 47 List of figures Figure 1: Economy, nature and money ............................................. 10 Figure 2: Earth‘s ecological footprint with ‗business as usual‘ and ‗rapid reduction‘ scenarios, Global Footprint Network ................ 12 Figure 3: Conventional economics production process with substitutable factors of production ............................................. 14 Figure 4: Entropic production process with non-substitutable natural resources and waste ................................................................. 17 Figure 5: UK inflation since 1800 ...................................................... 24 Figure 6: Taxonomy of Energy-related Money .................................. 36 Energising Money 5 Executive Summary The world is facing an ecological crisis. Our economic system fails to properly account for the natural resources on which human prosperity depends. But attempts to remedy the problem, for example through environmental taxation, fail to address an elephant lurking in the room: the monetary system. Energy-related money offers a means of improving the qualities of the monetary system, while also stimulating the low-carbon energy transition we urgently need. Modern fiat bank-debt money creates the illusion of exponentially growing wealth and demands unceasing growth and/or inflation. In return, it delivers instability, misallocation of investment and myopic policies. To make the economy work for the planet, and therefore for the long-term interests of humanity, we also need to change how money works. We need a feedback loop between nature and the economy. This report examines the potential of energy-related monetary instruments – currencies and accounting frameworks - to provide such feedback. Sinceenergy is as fundamental to the economy as it is to the natural sciences, it is an attractive option upon which to base such feedback. This report is a first attempt to systemically review the rich and burgeoning field of energy money proposals and projects. We present a new taxonomy of energy money to guide the reader through this work. It charts the functions of money, the important characteristics of energy, and the relationships between the two.From this we gain a key insight, that energy can improve money, and money can improve energy; energy can be used to improve money‘skey functions: a unit of account, medium of exchange and store of value redesigning money can also a driver of change within the energy system by creating targeted currencies that incentivise more ecologically sustainable consumption, mobilise investment in renewable