Money, Markets and Climate Change
CONTEMPORARY ISSUES FOR HETERODOX ECONOMICS, Lynne Chester, Michael Johnson and Peter Kriesler, eds., December 2008
23 Pages Posted: 23 Nov 2008 Last revised: 4 May 2009
Date Written: May 3, 2009
Climate change has been identified as “The biggest market failure the World has ever seen”, (Stern 2006). This paper identifies the cost of finance as an influential element of this market failure and how it can be removed. One approach would be to use a renewable energy backed currency to build a complementary more efficient, stable and resilient financial system. The equivalent investment cost per kilowatt-hour (kWh) of generating electrical power from renewable sources is typically a number of times greater than that from burning carbon. This makes the financing cost of renewable electricity generation a number of times greater. However, the operating costs of most renewable electricity sources are significantly less, as the cost of fuel is eliminated and labour costs reduced. The incentive for markets to allocate resources to burning carbon rather than to invest in renewable power would be reduced if the cost of finance for renewable electricity generation was eliminated. Two approaches are considered: (i) Selective monetary policies to introduce interest free Islamic Banking and/or (ii) The introduction of kWh vouchers to pay for renewable electricity that could be used to create an alternative decentralised global currency. The resulting renewable “Energy Dollars” would create a unit of value independent of any increases in the costs of coal, oil, gas or taxes on their consumption.
Keywords: Climate change, Demurrage currency, Energy money, Financial system, Islamic Banking, Market failure, Monetary policy, Seigniorage, Stamped script
JEL Classification: D49, E50, G28, N50, Q42
Suggested Citation: Suggested Citation