Money, Renewable Energy and Climate Change

Abstract

This paper identifies how the structure of money and banking contributes to climate change described by Stern (2006) as the "The biggest market failure the World has ever seen". The paper also considers how an ecological form of electronic money redeemable into units of renewable electricity provides a basis for improving the efficiency, stability and resilience of the financial system. The use of renewable energy dollars with a demurrage charge also reduces the need for carbon taxing or trading. This arises because the interest cost of investments in renewable energy generators are shown to be around three times greater than those burning carbon. A form of money that eliminates interest such as with Islamic Banking or from a demurrage charge can make renewable energy more competitive. The private issue of cost carrying money competed so successfully with official money during the Great Depression that it was made illegal in Germany, Austria and the US. Demurrage money redeemable into renewable Kilo-Watt-Hours would introduce an inflation-resisting unit of account as its cost becomes largely fixed over the life of the generators. As renewable energy technology improved the purchasing power of ecological dollars would increase. Centrally banking would no longer be required.

Keywords: Climate change, Demurrage currency, Energy dollars, Islamic Banking, Monetary policy

JEL Classification: D49, E50, G28, N50, Q42