During these carbon-constrained times scant attention is being paid to the challenges of the climate crisis in monetary conferences and in academic articles dealing with  monetary and financial affairs. Each area of human endeavor seems to exist in supreme isolation. It is time that  the dynamic interaction and the synergies between the international monetary system and the climate crisis social system be explored and be used to rejuvenate both systems.

            To that effect I am proposing that both the climate crisis, the global economic development, the climate justice  and the monetary communities begin laying the groundwork for a UN Commission on Monetary Transformation and the Climate Crisis, to be established by the Cancun COP 16 of the UNFCCC in December 2010 or at COP 17 in 2011, so that its results can become part of the political process of the Rio 2012 Earth Summit. It is further suggested that UNDESA’s World Economic and Social Survey (WESS) continues focusing into greater depth on international monetary system reform than it did in its Geneva workshop in early February in preparation of WESS 2010.

            Expressed in terms of global financial imbalances—the bane of our present economic malaise—and of global ecological imbalances—the bane of poor climate negotiations—the challenge becomes to find ways to resolve those two types of global imbalances creatively.

            Important for this daunting challenge is to find agreement on a value-based framework such as the Earth Charter that make all participants look into the same direction.

OJBECTIVES

·        To explore how a reformed or transformed international monetary system can be used as a means to strengthen solutions to the climate crisis and to promote global economic development

·         To explore how the recommendations of the June 2009 Report of the UN Commission of Monetary and Financial Experts can be integrated with reformed or transformed international monetary system

·        To evaluate the various proposals made for international monetary reform, particularly in respect to global reserve system

·        To evaluate various proposals that integrate the monetary system  with social system dealing with the climate crisis, particularly the Tierra Fee & Dividend system which is based upon a de-carbonization monetary standard

·        To explore the contents and process of climate negotiations and how they can be strengthened by a transformed international monetary system that uses present monetary reforms as basis for its transformation

·        Develop a Plan of Action

PROGRAM OF WORK

·        Determine the value-based framework that will guide the Commission

·        Review the fact of ecological indebtedness and its future role in climate change negotiations, using, among others, findings of the Cochabamba Conference of April 2010

·        Review the contents and process of the climate crisis negotiations and explore ways how they can be strengthened by their dynamic interaction with the international monetary system; Review the 2009 Commission recommendations in light of its potential for reducing the climate crisis

·        Review the present proposals for the reform of global reserve system as discussed in the WESS work shop’s background paper by professors D’Arista and Erturk and the UN-DESA Policy Brief #27 of January 2010 in light of reducing the climate crisis

·        Survey the present climate funding facilities, including the recent High Level Advisory Group, and the efficacy of pledging conferences and compare them with the needed budgetary transfers to fund climate mitigation and adaptation measures and development.

MEMBERSHIP OF THE COMMISSION

·        several members of the 2009 UN Commission of Experts

·        several staff members of the UNFCCC, UN/DESA, UNCTAD

·        monetary economists from academe and business

·        CoNGO representatives and their designees

CONCLUSION

            We live in a complex world where the role of governments of regulators and drivers is not to be decreased, but to be increased. This dual role cannot be accomplished without striving for policy coherence and international cooperation. A UN Commission on Monetary Transformation and the Climate Crisis has at least to explore the possibility and feasibility of having both rejuvenate one another and of bringing a coherent climate funding system into existence .

“Without vision, people perish” Proverbs 28:19

“Whatever you can do, or dream you can, do it. Boldness has genius, power and magic in it.”

Johann Goethe

There are at least four good reasons to pursue an international trade policy that includes frugality as one of its major principles. Frugality is a virtue that aims to use resources without waste, even use them sparingly. It is a virtue that is in ascendance given the economic and climatological constraints on the Earth’s resources due to an ever growing human population.

Frugal trade for consumers means becoming locavores—eating and drinking locally to reduce food miles. Frugal trade for local authorities and national governments means policies and programs that emphasize local agriculture and manufacture without engaging in financial or commercial protectionism. Frugal trade for transnational corporations, the IMF and WTO means corporate deglobalization and greater public regulatory oversight, fostering accountability and transparency.

          The first good reason is the climatic reason. I coined this term, the third F in fair and free trade, to emphasize that trade has to be placed within the context of a carbon-constrained world. By limiting international trade to frugal trade international trade would reduce the greenhouse gas emissions from international shipping and air freighting of exported goods. This obvious impact is the more important given that nations have not yet agreed on a mechanism of accounting for those emissions.

A second good reason is the economic one. Frugal trade is part of an economic theory and practice that places emphasis on living well within the Earth’s limits as they exist in a particular bioregion or watershed. This bioregional practice is a counterweight to corporate globalization process and emphasizes the need for deglobalization. What this means for the developing world is the ability to control transnational corporations in finance, insurance and real estate (FIRE), so that policy space is created for sustainable communities development in their own countries where local farmers need not to compete anymore with subsidized agricultural imports.

A third good reason is the ethical one. The frugal trade principle and policy can be considered to be just for people, species and planet. To a great extent, frugal trade is also fair trade because it places central the wellbeing of people and planet in a particular bioregion. It reinforces the trade action guide in the Earth Charter which declares that all trade is to support “sustainable resource use, environmental protection, and progressive labor standards” and that multinational corporations and international financial organizations are required “to act transparently in the public good, and hold them accountable for the consequences of their actions.”

A fourth good reason is the political one. It presents a philosophical counterweight to neo-liberal trade policies decreasing their legitimacy. It places the WTO and its General Agreement on Trade in Services together with the nationally uncontrolled (uncontrollable?) transnational corporations in the FIRE industries on the defensive. It presents an opening to have the UN Conference on Trade and Development regain the dominant international trade institution. The notion of frugal trade can become the fulcrum to highlight the unsustainability of the present international trade structures and of the monetary, financial, economic systems that support them.

The 5 G’s proposal by the managing director of the Brookings Institution as a way to building a binding and ambitious post-Kyoto climate governance structure is an important one. It was given public exposure in the 2009 Brookings publication Climate Change, Trade, and Competitiveness at the UN Headquarters on 23 February, 2010 in a discussion session organized by the UN University UN Office.

The 5G’s are derived from the “experience of how the global trading regime built confidence in a self-regulating system. The GATT/WTO system built on a small group of states who, through a general agreement, were able to gear up domestic action over a generation.” The fifth G is graduation and deals with the biggest challenge of global governance, like in the trade regime, i.e.  “how to graduate nations when they emerge from being developing nations into industrialized ones.”

It makes sense to consider this gradual approach to building an international climate governance treaty. First of all, groups that have formed at Copenhagen can continue working together and come up with a general agreement that is ambitious enough in terms of global targets to gear up their constituencies to greater climate action. Secondly, such regional general agreements (RGAs) do not pose a direct challenge to national sovereignty the wise reduction of which is one of the greatest international challenges. Thirdly, those RGAs build trust among the cooperating nations and between the groups of nations of the other RGAs because their General Agreements are being exchanged, compared and debated, hopefully leading to a race to the top.

The fourth G—generation—is a weak link in the 5 Gs approach because of the urgency of the climate crisis. We do not have some 50 years to get a climate governance treaty in place. It took trade politics a very short while, as shown by Walden Bello in his 2004 De-globalization, once the US found its national interest to lie in liberalizing international trade within a corporate globalization process. The UN Conference on Trade and Development established in 1994 was pushed aside and not given any compliance function besides a data gathering and debate tasks.

The Tierra Fee & Dividend system which addresses both the challenges of the economic and climate crises considers the RGAs approach to climate institution building important, but does not think that G4—generation-- and G5—graduation-- are needed in this approach. Instead, it proposes that the RGAs exchanges are conducted within the UN structure and that nations establish a UN Commission on Monetary Transformation and the Climate Crisis that would, among other agenda items, consider developing and adopting a de-carbonization monetary standard that would reduce volatility in exchange rates, and build a balance of payments mechanism that would deal with both global financial and ecological/climatic imbalances. In terms of the resolution of the latter imbalances the fact of ecological indebtedness of the industrialized countries has to be recognized, for, as Jagdish Bhagwati has suggested in the above Brookings publication, without “a substantial superfund for past carbon emissions” no real progress is possible.

          The final version of the  Klimaforum09  People's Declaration emerged at the very end of the Copenhagen Summit on Climate Change in December 2009, also known as  COP 15 after the Conference of Parties that had signed the UN Framework Convention  on Climate Change at the Rio Earth Summit in June 1992. During the  Summit’s tumultuous second week when  many of the leaders of the 192 nations had arrived and the negotiations had almost completely failed except for the emergence of the weak Copenhagen Accord, the People’s Declaration was a remarkable achievement by several thousands of civil society organizations (CSOs).

          There are many areas of agreement of the Declaration with the Tierra Fee & Dividend system. Most notable are its views on the need and urgency of transitions to sustainable societies and of system change, its demand of recognizing the historical fact of ecological indebtedness and its associated obligation for compensation, its views on the refutation of the cap-and-trade system and its market orientation and technology centeredness, its views on TNCs and the need for their regulation and, last but not least, its views on the need to de-globalize by focusing  more on local communities using the principle of subsidiarity according to which economic and social decisions are to be made on the lowest possible levels of social organization.

           However, there are main and minor differences between the Declaration and the TFD system. The main difference is that the TFD system adds an institutional innovation to the Declaration by its establishment of a carbon-based monetary architecture with its international reserve currency of the Tierra and its de-carbonization monetary standard that form the basis of debit and credit carbon accounts in the nations’ balance of payments. This addition would strengthen the financing for mitigation and adaptation measures. It would integrate the presently proposed funding under the COP and the funding for the MDGs and other UN programs for sustainable development. Thus, it would institutionally tackle the funding for restoring both the global financial and ecological imbalances that have to be considered together. 

          Though the Declaration applies the subsidiarity principle in its efforts to de-globalize the presently TNC dominated corporate globalization process, the TFD system places the development of sustainable communities within the concept of bioregionalism and frugal trade, thus enhancing the Declaration’s conception of sustainable local communities. This enhancement is also effected by the TFD system’s planning framework of contextual sustainability and its adoption of the Earth Charter which, to my great surprise, was not even mentioned in the 7 page Declaration.

          While the Declaration’s main strategy is to build a movement of the worldwide citizen movements to push for the Great Transition to sustainability, the TFD system presents the proposal of the UN Commission on Monetary Transformation and the Climate Crisis, as a practical step to bring the UN climate process forward.

Paul Krugman in today’s New York Times argues that the real story of the euromess lies “not the profligacy of politicians, but in the arrogance of elites” because these policy elites “pushed Europe into adopting a single currency well before the continent was ready for such an experiment.” Indeed, it was a bold experiment given that these policy elites were fully aware according to David Marsh in his 2009 The Euro. The Politics of the New Global Currency that they were choosing between a monetary union without a political union or the safer way of a monetary union as part of a political union. Like in all crises, weaknesses of systems are shown up and to be dealt with.

My focus here is to make a couple of observations about the euro experiment for the implementation of the Tierra Fee & Dividend system.

First, the Tierra Fee & Dividend system does not start out with a vehicle currency for a region, let alone the world. It starts out as an international reserve currency in its phase 1. Thus, nations can conduct their economic and fiscal policies without being LEGALLY constrained by the Tierra Treaty.

Second, by agreeing to the Tierra as a reserve currency nations learn to work together, so that greater political union will come possible in their efforts to have the Tierra become a vehicle currency. The 16 euro-zone nations will have profited in several ways by engaging in a monetary union without having a strong legally binding political union. They are now in a difficult patch, but their way out of this difficult patch is, as Krugman states, not a breakup which is “very nearly unthinkable, as a sheer matter of practicality.”

Thirdly, the euro-zone nations and their 11 non-euro-zone EU member states will engage in the next couple of years in muddling through their high unemployment, deflation and other monetary, financial, fiscal economic and commercial problems while at the same time dealing with the demands of the climate crisis. They will probably come to the realization that 1. they cannot solve their regional problems without solving them in their international context; 2. that the international monetary, financial, economic and commercial systems have to overhauled in fundamental ways to deal with both the economic and climate crises, to mention only the two most important and pressing ones.

Fourthly, once that realization sets in and is being taking seriously they and the rest of the international community will be ready to consider the Tierra Fee & Dividend system and agree to establish the UN Commission on Monetary Transformation and the Climate Crisis as a major channel of investigation and negotiation that also would include the  results of the  two ad hoc working groups (AWG-LCA and AWG-KP) of the UNFCCC and the main demands in the Copenhagen conference’s Klima-Forum’s People's Declaration.

In his meeting with Senate Democrats yesterday several questions dealt with China’s currency policies. These questions and Mr. Obama’s answers show that an important cause of these policies and of the currency dispute is not being recognized.

China’s currency, the RMB, may be undervalued between 25-40% and this may look as currency manipulation by the US. For China its currency serves to make its exports expand and provide income for its national coffers. This export driven development model will be adjusted in due time, placing more emphasis on local consumption. As part of that policy change, the global financial imbalances will also be reduced.

The reason that this adjustment has not yet happened and that the dispute will continue for an unforeseeable time is that its fundamental cause is not recognized. It is the international monetary non-system with its floating exchange rates and a global reserve system that is based upon a national currency. As long as the US dollar continues to function as the main reserve currency, the international monetary system will be not only unsustainable and inequitable, and, therefore, unstable. Progressing to a non-national reserve currency as proposed by the UN Stiglitz Commission in June 2009 would constitute the beginning of real negotiations between the US and China. One is not to forget that China herself a few days before the London Summit of the G20 proposed the need for a “supranational currency”.

Once both nations and the G20 recognize the need for reforming the international monetary system by working towards a new global reserve system, this new system will also contribute to reducing the global financial imbalances that cause so much volatility and increased transaction costs in international trade.

However, the International Institute of Monetary Transformation believes that these nations have to go one gigantic, i.e. transformational step further. If they base the new reformed global reserve system on a carbon monetary standard with its synthetic accounting unit of the Tierra the international community would integrate the enormous challenges of the climate crisis into the operation of its monetary, financial, economic and commercial systems. The acceptance of its Tierra Fee & Dividend system would institutionally deal the present ecological imbalances by having nations include in their balance of payments a carbon account that like their current and capital accounts have to be balanced. This modified balance of payments would become an institutional mechanism where the carbon debts in countries in the global North can be settled with the carbon credits of countries in the global South. Nobody can argue that there does not exist a global ecological imbalance, caused by the atmospheric occupation of the industrialized nations since the beginning of the industrial age. It is their recognition of this ecological indebtedness and the ensuing responsibility that is key to successful negotiations within the framework of the UN FCCC.

Returning to the currency dispute one can consider it to be a golden opportunity for the US and China to make progress in their pursuit of all the good intentions reflected in their joint statement of November 17, 2009. Once they, as a G2 partnership, manage to forge a programme of work for their part in reducing the global financial and ecological imbalances all the other international groups--G7, G8, G13, G20, G77 and finally G192—will be able to contribute according to their “respective capabilities” based upon their “common, differentiated responsibilities”.

Finally the Obama Administration is making clear where it stands in terms of financial reform by way of Paul Volcker’s OPED piece in Sunday’s New York Times. Hopefully, president Obama himself engage himself in this reform with far more gusto than the warmed-over reformist proposals from his Clinton and Bush holdovers. It was they—Summers, Geithner, Bernanke—who, in their deregulatory zeal, contributed to the near financial collapse in the US and abroad. It was they who, with diminished regulatory zeal but still sizable belief in market fundamentalism, engaged in bailout programs that, unfortunately, did not address the real causes of this major market failure.

There is, however, one important monetary issue that was not addressed in the Volcker article and that has hardly been featured in the Obama Administration’s post-crisis monetary/financial policies. The proper resolution of this monetary issue would resolve not only the vexing problem of global financial imbalances, but also free up hundreds of billions of financial resources, particularly in developing countries. In its transformational version, the resolution of the monetary issue of global reserves could become a most important element in coping with the climate crisis because it would create an institutional channel for funding climate mitigation and adaptation measures.

The reformist version of a new global reserve system is presented by Professor Joseph Stiglitz, who, as chair of the Commission of Experts of the President of the UN General Assembly on Reforms of the International Monetary and Financial System, recommended part of such system in June 2009. For many years he has been writing and speaking on the need of a reserve system that is not based upon a national currency such as the US dollar or the euro. In his latest book, Freefall. America, Free Markets, and the Sinking of the World Economy (pp231-4) he points to the need for the Obama Administration to include in its financial reform proposals the monetary renewal of having a new global reserve currency that is not nation based. By being willing to replace the US dollar as the main international reserve currency the Obama Administration would not only cause many benefits to flow to the US economy and society, but also to global economic system. It would free up the hundreds of billions of dollars that are presently being held, particularly by developing countries, to be used for their local economies. They could even invest some of them at interest rates that would be about 6x times higher than the 0.5% of their presently held T-bills.

The transformational version of this new global reserve system has the same benefits as the reformist version: it resolves the global imbalances, boosts global aggregate demand by providing greater purchasing power to developing countries and would place the US monetary, financial, economic and commercial system on a sound footing, thus improving those systems globally. However, it would take one gigantic step forward by basing the non-national international reserve currency not on an outdated gold standard, but on 21st century a carbon standard. This de-carbonization monetary standard is based upon an integrated set of 15 energy items using information from the recent publications of climatologist James Hansen and journalist Al Gore.  It is part of the Tierra Fee & Dividend (TFD) system that stands in opposition to the cap-and-trade systems that Europe and, probably the US, have, unfortunately, adopted. The unit of account of this de-carbonization monetary standard is called the Tierra, Spanish for Earth. Annually, these Tierras would be allocated to each adult (and adolescent?) and become part of a nation’s carbon account in its balance of payments. While the resolution of global financial imbalances is an urgent and complex challenge, the resolution of the global carbon or ecological imbalances is similarly urgent and complex. Working towards the establishment of a Tierra Fee & Dividend system would set the global monetary, financial, economic and commercial systems on the right track in the urgent resolution of both types of global imbalances.  

Note that initially these Tierras would be functioning as a reserve currency, but nations that are signatories to the Tierra International Clearing Union Treaty, can decide to have those Tierras function as a vehicle currency. This phase 2 of the TFD system would result in having the Tierra become a world currency that has organically and democratically emerged by the political will of nations, business and civil society in a joint search for equitable, sustainable, and, therefore stable international systems in finance, business and commerce.

The annual allocations of the Tierras have some resemblance to the emissions of SDRs by the IMF that the G20 have been considering. Mr. Soros, at the recent Copenhagen conference, suggested an allocation of $100 billion of SDRs to be allocated via the IMF’s quota system. Such allocation, if not translated into grants to developing nations, does not contribute to the resolution of either the global financial and ecological imbalances.  The Tierra allocations on the other hand take place within a transformed international monetary system that would contribute to both types of global imbalances. Are Mr. Volcker and the Obama Administration able to take this gigantic, i.e. transformational step forward? Are they, together with Mr. Bernanke of the Federal Reserve, willing  to confront the bailed out financial system and their Congressional lobbyists and to educate the US public and Congress about the opportunity of using a re-configured dollar as the pivot for a transformed international economic order?

For forty years professor Klaus Schwab has corralled business leaders, politicians and NGO leaders to come to Davos and to work together. In preparation for these annual meetings many other meetings are held and there are many ongoing initiatives that promote trans-institutional collaboration.

This week some 2500 participants, half of whom are corporate business leaders, will congregate under the ambitious theme “Rethink, redesign and rebuild.” As a matter of fact, the World Economic Forum (WEF) has a special initiative dedicated to redesign. “The Global Redesign process is integrating the Forum’s diverse communities through a series of meetings and activities structured to promote integrated thinking and develop concrete proposals to update and upgrade structures of international cooperation in a wide range of areas.”

Both the WEF and the world are at a dangerous crossroads, both are at an inflection point where hard choices are to be made, that bring either death or life to people, species and planetary systems. Though redesigning, particularly the redesign of global financial structures, receives top attention, the WEF rethinking focus is weak. It stops at some reformist proposals while the international monetary, financial, economic and commercial systems continue to their work, i.e. enriching the few, impoverishing the many and imperiling species and planet.

At this dangerous crossroads of an aggravating climate crisis, an economic crisis that continues to keep millions of individuals out of work, and a financial system that is still out of control transformational rethinking would include at least three major components. They are integrated in a transformational system, called the Tierra Fee & Dividend (TFD) system.

The TFD first of all addresses itself to the climate crisis and proposes a Fee & Dividend system rather than the going cap-and-trade system. The latter is a second rate carbon reduction methodology, because it is not fast, formidable and fair enough.

While this fee and dividend system or similar tax systems will soon regain the upper hand among the half dozen carbon reduction methodologies, the Tierra Fee & Dividend system’s second component of adding a carbon-based monetary dimension to this Fee & Dividend system is at the bottom rung of acceptance, because it has only recently been proposed and it demands an integration of three distinct disciplines. The International Institute of Monetary Transformation is working on a re-carbonization monetary standard with its carbon-based international reserve currency of the Tierra that would be part of an updated International Clearing Union, proposed by John Maynard Keynes during the Bretton Woods UN Monetary and Financial Conference of 1944. This carbon based monetary system’s international reserve currency and its Tierra International Clearing Union also derive some its rationale from the recommendations of the UN Stiglitz Commission of June 2009.

In order for this TFD system to work the public sector has to reclaim the money creation function from privately-owned banking systems and engage in efficient regulation of financial flows via the Tierra International Clearing Union which, in Soros’ words, is to be the “global sheriff”. This governmental role is to be fully coordinated across the G192, because otherwise “financial arbitrage” is going to take place, particularly by the TBTF financial corporations.

At this crossroads that is full of peril, but also full of promise, the choice becomes choosing between a route of muddling with some minor reforms here and there, and a route of transformational rethinking and redesign that addresses the economic and climate crises systemically and builds towards an equitable, sustainable, and, therefore, stable international monetary system that, as Barry Eichengreen has it, is the glue that binds monetary, financial, economic and commercial systems together.

He summarized the 10 years as follows: "Indeed, we were often asked at that time
whether the title wasn't a contradiction in terms. Sustainable banking was a niche pursuit,
there was no market for carbon credits, and renewable energy uptake was a fraction of
what it is today. Ten years on, I think it's safe to say we now have proof of concept. The
enormous increase in concern about environmental issues, especially climate change,
made concrete by government regulation and changing consumer preferences, has
permeated into nearly every corner of the financial sector and the businesses it serves.
....the past 10 years have, as we expected in the late 1990s, seen a sea change in how the
environment is perceived by the business and financial communities. In carbon, an
"environmental good" now appears on the balance sheets of literally thousands of
companies. An entire market, worth tens of billions of dollars, has been created to
channel finance to projects that reduce greenhouse gases."
Pitfalls were phased by him in the following way. "But the past decade hasn't been
without its ups and downs. While the Kyoto Protocol had been created two years before
our launch, its entry into force was to take another five years, severely testing the
business plans and financial reserves of early movers in that market. To this day,
regulatory uncertainty and political vicissitudes bedevil the market for carbon credits
more than perhaps any other."

In the view of this opinion maker climate change is seen to have substantially entered the
business world which is served by his financial community. It has entered that world as a
carbon market where money can be made, particularly with the buying and selling of
carbon credits. It is significant that in the magazine's October issue a summary appeared
on its website---the hard copy monthly magazine costs about $600--entitled 'US carbon
market will be inefficient-- banker". It mentions that "a leading carbon banker has
warned of the risk of inefficiencies in the looming US cap-and-trade market." Note the
reason that he gives for this inefficient US carbon market. "Proposed reforms to
derivatives trading in the US, including restricting derivatives to exchanges, would make
an emissions trading market inefficient and will raise transaction costs, said Abyd
Karmali, a managing director at Bank of America Merrill Lynch in London, at the
Carbon Finance 2009 conference on 20 October."
Given this mindset of a carbon market that is not to be regulated, but at the same time
wants is to be stable for investors to invest their funds, the introduction of the tri-partite
Tierra Fee & Dividend system faces at least three major challenges in respect to the
environmental financing community.

First, the environmental finance community is to be willing to abandon cap-and-trade
carbon reduction methodology for the Fee & Dividend carbon reduction methodology
and willing to focus on the other areas of environmental finance that are part of its
financing programs. This challenge is probably less arduous than the other two
challenges, because the tides may be shifting from cap-and-trade to a Fee & Dividend
system anyway.

Second, the environmental finance community may object to the increased governmental
role in the international monetary and financial system as proposed in the Tierra
International Clearing Union, and in phase 2 of the Tierra Fee & Dividend system, in the
Tierra International Monetary Union (TIMU), both of which would be part of the UN
system. Being located in the London financial center, the magazine seems to express its
agreement with a recent court rule in the following summary in its November issue,
entitled "UK Treasury wins first round of RBS environment case". The summary reports:
"A High Court judge has quashed an attempt by three NGOs to force the UK government
to apply stricter environmental and social criteria to investments made by RBS, one of
the banks nationalised during the credit crunch. However, the NGOs have vowed to
appeal the ruling. Legal action launched in July by the World Development Movement,
Platform and People & Planet has suffered an early setback, after an oral hearing failed to
secure the court’s permission for a judicial review.”

Third, the environmental finance community would presumably most strongly object to
making the reduction of carbon the basis of a new monetary standard for a transformed
international monetary system. This re-carboniazation monetary standard together with
its accounting unit of the Tierra, in either its reserve or vehicle phase, and the other
components of the Tierra Fee & Dividend system’s monetary architecture would turn
their views on carbon upside down. Instead of making money on carbon, they are to view
carbon reduction and the other greenhouse gas emissions as main ingredients for
successful businesses that they want to finance, but outside a carbon market. They also
are to place great emphasis on the Carbon Disclosure Program so that companies can be
evaluated on their environmental, particularly carbon, impacts. It is also this demand for
carbon disclosure that the three main institutional investor networks, i.e. IGCC, Investor
Network on Climate Risk, Investor Group on Climate Change and the UNEP Finance
Initiative emphasized in their “2010 Investor Statement on Catalyzing Investment in
Low-Carbon Economy” issued at the UN Headquarters on January 14, 2010. It is
significant that the statement of this community of fiduciary investors who control a pool
of over $13 trillion had as its subtitle “Investors Urge Policy Makers to Act Swiftly”,
indicating their view of the important role of governments in creating the right financial
conditions that can lead to fast, formidable and fair approaches to greenhouse gas
emissions.

The January 9 blog post has been significantly improved after attending a panel discussion on Sunday January 10 and, especially  the reading and studying of Hansen letter of the chairman of the Carbon Trading Summit that is being held today.

Though I have abandoned the cap-and-trade approach for some time, had some positive opinion about cap-and-dividend and carbon tax approaches, have been in favor of the "Whole World" view approach of Cap & Share, I now go one step further. I have reanalyzed the Tierra Cap & Share approach with its monetary dimension and have decided to base the Tierra system on a variant of the Hansen fee & dividend. The two major differences, as can be seen below, are its inclusion of the concept of climate justice and its global orientation. So the TCS system is going to be labeled the Tierra Fee & Dividend or TFD system. Thus, the following 12 statements are reflective of this decision.

The reformulated position of the International Institute of Monetary Transformation’s tripartite TFD system in respect to the climate crisis and humanity’s pursuit of a sustainable energy future is the following.

1.      The climate crisis being the challenge of the 21st century on account of its present and future disastrous consequences for people, species and planet presents an unparalleled opportunity to transform present international systems that enrich the few, impoverish the many and imperil the planet. A paradigm shift is to take place in thinking and institutional renewal to profit from this unparalleled opportunity.

2.      Climate change being an ecological change has to be reversed ecologically, i.e. this ecological reversal is to take place through the efficient use of renewable energy technologies, the de-carbonization of industry and REDD. New strategies are needed to re-inhabit the Earth to fully make that ecological reversal and the pursuit of a sustainable energy future possible. Societies have to be re-powered quickly, formidably and fairly, so that low-carbon living becomes the norm.

3.      Ecological indebtedness of industrialized countries in the North is to be recognized as a historical fact with great ethical import. It was both market and centralized economies in the past that externalized air pollution leading to climate crisis and thus both economic systems are guilty of past and present  “atmospheric occupation”.

4.      Agreement on capping emissions is politically not possible globally; scientifically determined caps can be used nations to determine the price of a ton of carbon and legislate a schedule of carbon fees accordingly. The Copenhagen Accord of COP 15  “took note” of the need for MRV (monitoring, reporting, verifying) of carbon emissions;  COP 16 in Mexico City is to agree on a range of carbon densities and target dates; on the social and ecological costs of a ton of carbon; and consider the establishment of UN Commission on Monetary Transformation to investigate, among others, the feasibility of a carbon-based international reserve currency; decide to accept the offer of Brazil to host the 2012 Earth Summit.

5.      There is value for the proposed UNEP Technical Review panel to evaluate alternative "Whole World" view approaches which would also include the global fee & dividend approach proposed in the TFD system.

6.      The cap-and-trade carbon reduction methodology and to a lesser extent other capping approaches is fatally flawed, because

a.                   It is fast, formidable and fair. Cf. Dr. Michael Dorsey of Dartmouth College

b.                  It believes that carbon trading plus off-sets can cope with the global climate crisis

c.                   Cap-and-trade does not address itself to all sources of GHG emissions and is not  formidable enough, for it addresses itself to those that can measured and commodified. Apart from the dubious ethical issue of commodifying a global commons such as the atmosphere, and the opportunity for gaming in this unregulated carbon market,  it does not address itself to the emissions from land use, destruction of forests, etc. In other words, its scope and scale is too limited.

d.                  The results of the cap-and-trade system in terms of actual reduction of emissions are poor, its greatest drawback.

7.      The carbon tax carbon reduction methodology is a little more acceptable, because, unlike the cap-and-trade which focuses on the price of carbon in a volatile carbon market, carbon taxes are set by legislators who use the fiscal system to tax different carbon users, either upstream or downstream.

8.      The cap-and-dividend carbon reduction methodology has advantages over the methodologies in statement 6 and 7, because it does not permit offsets and returns the income of the auctions of the carbon emissions permits in a fair way to energy consuming families who have to pay higher energy prices.

9.      The Cap & Share approach is based upon an equal sharing of carbon emissions permits to all adults in a country or region or in the world. The latter, the global Cap & Share, would create ecological debtors in the North and ecological creditors in the South. Various ways are devised to trade those permits that are not needed by an individual with a low carbon footprint

10.  There Fee & Dividend approach to reducing carbon emissions and in the process push the private sector to develop alternative energy technologies does include carbon emissions permits that are issued or auctioned under a carbon cap. It is fee based to upstream users of fossil fuels by having a schedule of prices per ton of CO2 legislated the revenue of which are returned to legal residents. The Fee & Dividend approach does not include a global dimension with its demand for climate justice

11.  The  Tierra Fee & Dividend system adds an international monetary dimension to the  Fee & Dividend system that includes the historical fact of ecological indebtedness of countries in the North.

12.  The Tierra Fee & Dividend System also includes the monetary dimension of carbon-based international reserve currency of the Tierra, which is part of a UN based International Clearing Union as proposed by John Maynard Keynes in 1944 .These  Tierras are monetized carbon emissions permits, that like in a monopoly game, are equally distributed to residents 15 years and older. This “quantative easing” by Tierras becomes part of a nation’s carbon account in its balance of payments, thus constituting an institutionalized funding mechanism for mitigation and adaptation measures and development. In order for the tripartite TFD system to work the public sector has to reclaim the privilege of fractional reserve banking from the privately-owned banking systems, so that the regulation of international financial transactions via the Tierra International Clearing Union becomes possible and transparent. Banks become utilities which would also not engage in securities dealing.

Today’s New York Times critically deals with China on its front page (“China Rises Above Recession, Inviting Scrutiny”) and its main editorial (“It Isn’t Working for Anyone Else”). In both pieces China’s currency policy is attacked as not being permitted to float as other currencies do. By its unnatural attachment to the US dollar it is able to reap profits while upsetting the fragile recovery efforts of the rest of the world.

What can be done about this beggar-thy-neighbor currency policy? Nations such as the US have already taking protectionist measures by slapping exceptional tariffs on Chinese tires and anti-dumping duties on steel pipes. Others will follow in order to force to abandon its cheap Renminbi policies.

This increasingly conflictual situation shows how poorly the present international monetary system works with its floating exchange rates: one important trade partner refuses to stick to the rules of the “non-system” and the trading world is at edge, particularly in a time of economic distress after the near collapse of the international financial system has passed for the time being.

What is needed is monetary transformation both internationally and nationally. Nations have to start seriously thinking of returning to a fixed exchange rates that are based upon an agreed upon standard. A beginning of this process was made when the UN Stiglitz Commission of June 2008 proposed to move away from a national reserve currency such as the US dollar, euro or yen. It was China who proposed a “supranational reserve currency” in the lead-up to the G20 Summit in April 2008.

Nationally, nations have to reassert themselves and remove the fractional reserve  banking privilege from privately-owned banking systems which have to compete using this money creation function. In this transformational process nations are also to separate from these transformed banking utilities their securities dealing which, in the case of the US, means restoration and updating of the Glass-Steagall Act of 1933. 

The TCS system, developed mostly to deal with the monetary dimension of the climate crisis, proposes carbon standard with the Tierra as its international reserve currency. It further proposes that nations after agreeing on a cap, hopefully in Mexico City, monetize the carbon emissions permits for each adolescent and adult into Tierras. These Tierra reserves become part of a nation’s carbon account in their balance of payments, which like their other two financial accounts, have to be balanced. Ecological debtor countries in the global North, based upon the acknowledgement of the historical fact of atmospheric occupation and the acceptance of the value of climate justice, are to settle their carbon debts with the ecological creditor countries in the global South. This financial flow, created by the monopoly-like infusion of Tierras into the global financial system, would institutionally provide the greater part of the funds to the latter countries for their mitigation and adaptation measures and development needs.

Part of this proposed TCS system is an updated version of the International Clearing Union and its Bancor proposal that John Maynard Keynes brought to the Bretton Woods UN Monetary and Financial Conference of 1944. Besides administering the Tierra reserve system, this Tierra International Clearing Union would also the clearing house of all international financial transactions, thus bringing transparency to the regulation of those flows.

Given that these changes go beyond being reformist because of their transformational nature, present international financial institutions such as the IMF are to evolve into new institutions where some of their resources, but not their present neo-liberalist and privatizing, can be utilized.

On January 13, 2010 the second carbon trading summit will be held in New York City where utilities, corporations, banks, hedge funds, carbon aggregators and brokers are considering how they can profit of the emissions market that is projected to reach $1 trillion by 2020. It is significant that the three expensive workshops that are offered mostly deal with carbon offsets, the weakest part of US and EU-ETS’s cap-and-trade legislation.

At the same time a citizens Climate Justice protest will be held, in preparation of which non-violent training, panel discussions and other sessions are being planned.

What is the position of the International Institute of Monetary Transformation and its TCS system in respect to this Summit and to carbon trading in general? The following 12 statements are part of its tripartite carbon reduction approach of the TCS system.

1.      The climate crisis being the challenge of the 21st century on account of its present and future disastrous consequences for people, species and planet presents an unparalleled opportunity to transform present international systems that enrich the few, impoverish the many and imperil the planet. A paradigm shift is to take place in thinking and institutional renewal to profit from this unparalleled opportunity.

2.      Climate change being an ecological change has to be reversed ecologically, i.e. this ecological reversal is to take place through the efficient use of renewable energy technologies, the de-carbonization of industry and REDD. New strategies are needed to re-inhabit the Earth to fully make that ecological reversal possible.

3.      Ecological indebtedness of industrialized countries in the North is to be recognized as a historical fact with great ethical import. It was both market and centralized economies in the past that externalized air pollution leading to climate crisis and thus both economic systems are to be blamed by engaged in this “atmospheric occupation”.

4.      Agreement on capping emissions is to be guided by science, not politics. As such the Copenhagen Accord is wholly insufficient, though the MRV (monitoring, reporting, verifying) agreement is valuable as a first step towards a FAB (fair, ambitious and binding) agreement.

5.      There is no efficient solution to the global climate crisis unless a global and "Whole World" view is taken: the pace of a “nation-by-nation” approach does not match the urgency of resolving the climate crisis.

6.      The cap-and-trade carbon reduction methodology is fatally flawed, because

a.       It does not take a "Whole World" view approach

b.      It believes that carbon trading plus off-sets can cope with the global climate crisis (offsets are dealt with in two of the three workshops of the above Summit, one focusing on the international, the other on the US scene.)

c.       Cap-and-trade does not address itself to all sources of GHG emissions, for it addresses itself to those that can measured and commodified. Apart from the dubious ethical issue of commodifying a global commons such as the atmosphere, and the opportunity for gaming in this unregulated carbon market,  it does not address itself to the emissions from land use, destruction of forests, etc. In other words, its scope is quite limited.

d.      The results of the cap-and-trade system in terms of actual reduction of emissions are poor, its greatest drawback.

7.      The carbon tax carbon reduction methodology is a little more acceptable, because, unlike the cap-and-trade which focuses on the price of carbon, carbon taxes are set by legislators who focus on the quantity of emissions themselves. Moreover, this methodology has greater international application than cap-and-trade, but still does not take a "Whole World" view approach

8.       The cap-and-dividend carbon reduction methodology has advantages over the methodologies in statement 8 and 9, because it does not permit offsets and returns the income of the auctions of the carbon emissions permits in a fair way to energy consuming families who have to pay higher energy prices. However, it, as in the Van Hollen legislation, lacks an international focus because it does not start out with a "Whole World" view approach.

9.      There are several "Whole World" view approaches to climate crisis of which global Cap & Share and Kyoto2 are examples. They and others are due to be evaluated by UNEP Technical Review panel in the near future.

10.  The Cap & Share approach is based upon an equal sharing of carbon emissions permits to all adults in a country or region or in the world. The latter, the global Cap & Share, would create ecological debtors in the North and ecological creditors in the South. Various ways are devised to trade those permits that are not needed by an individual with a low carbon footprint.

11.  The Tierra Cap & Share system adds an international monetary dimension to the global Cap & Share approach by having the carbon emissions permits become Tierras, constituting a country’s reserve currency, the amount of which is based upon the number of  residents 15 years and older. These monetized carbon emissions permits would become part of a nation’s carbon account in its balance of payments, thus constituting an institutionalized funding mechanism for mitigation and adaptation measures and development. The system would operate in a similar fashion as the International Clearing Union concept proposed by John Maynard Keynes for the Bretton Woods UN Monetary and Financial Conference of 1944. By introducing this carbon-based international reserve currency which operates like an updated Keynesian Bancor, the international monetary system becomes part of humanity’s battle to drastically and effectively reduce GHG emissions from fossil fuels and land-use by re-powering societies and re-inhabiting the Earth.

12.   In order for the tripartite TCS system to work the public sector has to reclaim the privilege of fractional reserve banking from the privately-owned banking systems, so that the regulation of international financial transactions via the Tierra International Clearing Union becomes possible and transparent. Banks become utilities which would also not engage in securities dealing.

There are three main parts to the TCS system which are like the three legs of a stool. They support this tripartite monetary proposal to deal with the climate crisis. Though they are inextricably connected, each of these three components can be considered to constitute a subsidiary argument to the TCS system as a whole. The fourth argument consists of the feasibility of having these three components combined into one system, i.e. the TCS system.

I will indicate in each argument the level of acceptance as I presently believe to be the case.

1. Monetary argument for a carbon-based international reserve currency

• Need to move away from present reserve currency—increasingly acceptable given the June 2009 UN Stiglitz Commission’s report
• Need to be base the new international reserve currency on a carbon standard rather than basket of currencies, purchasing power parity, etc—not yet cogently presented publicly. The TCS system book would be a primer.

2. Cap & Share carbon reduction approach argument

• Advantages over cap-and-trade, cap-and-dividend and other carbon reduction methodology – uphill battle since early 1990s
• Advantages over other "Whole World" view approaches—will become evident after the UNEP Technical Review of these approaches.

3. Public control of money creation and regulation of financial flows

• Regulation of financial flows accepted, though reform legislation weak. Flows to be part of a Tierra International Clearing Union system
• Substantial movement in the US and UK to remove the fractional reserve banking from the privately-owned banking systems.

4. Feasibility of having all three arguments for the tripartite TCS system

• TCS system is not publicly presented yet, so public acceptance is not known
• Widely accepted is the notion that innovation is often a new way of using existing ideas—so acceptance of parts or the totality of the foregoing three arguments is the beginning of the acceptance of the TCS system.

Four of the six main challenges are the four arguments presented above. Though parts in the four arguments are acceptable to a certain degree, while other parts are still unacceptable, all four arguments still present a challenge, particularly also their combination in argument 4.

It will have become obvious that the proposed TCS system, however valid and useful, is far from being adopted in the next couple of years. It constitutes a monetary transformation not simply a monetary reform. People are accustomed to adopting reforms, far less so transformations, let alone in a field that is arcane to most.

What may happen is the growing acceptance of the two foundational challenges and parts of the four challenges that are associated with the components of the tripartite TCS system and their integration. It is up to enlightened states and effective CSOs to help advance the larger vision of a fair, sustainable, and therefore, stable international monetary system that would be used to reduce the ecological indebtedness of countries in the global North for the benefit of people and planet in both the global North and South.

It is within this time frame that I have been presenting in this blog and its website a transformational proposal that would have dramatic and beneficial impacts on both the economic and climate crises which, in greater or lesser severity, will be with us for many decades to come. It is a proposal of such radical (transformational) changes in international monetary, financial, economic and commercial systems that it will be characterized as impossible, fantastic, unworkable. Indeed, it may seem like that in the short term, but seen in the larger arc of international global governance, the proposal would infuse into the maelstrom of ideas an idea whose time has to come in the near or medium future.

In pursuing this very ambitious idea of restructuring the world’s monetary system and placing it in the service of funding of climate mitigation and adaptation measures I am inspired and motivated by the sentiment that early 20th century German sociologist Max Weber elaborated in  Politics as a Vocation. He considers politics to be a “strong and slow boring of hard boards”, which takes both passion and perspective. “Certainly all historical experience confirms the truth—that man would not have attained the possible unless time and again he had reached out for the impossible.” Steadfastness of heart is needed, otherwise “men will not be able to attain even that which is possible today. Only he has the calling for politics who is sure that he shall not crumble when the world from his point of view is too stupid or too base for what he wants to offer. Only he who in the face of all this can say ‘In spite of all!’ has the calling for politics.”

Within this noble notion of politics that many professional politicians seem to have forgotten, I consider the TIERRA CAP&SHARE framework a manifestation of that noble notion of politics as it infuses into the political process an ambitious policy proposal that advocates a radical departure from present narrow national objectives to a firm international governance structure and process, starting in the monetary field.

Now that the Copenhagen conference has ended with its ups and downs and all its energy before and during its two weeks I want to assess it in respect to THE TIERRA CAP&SHARE framework that has been suggesting in this blog and the TIMUN website.

First of all, I believe in setting high policy goals as is evident in the monetary transformation framework that I have been developing for over a year. This policy ambition is wedded to the belief that you only loose when you give up. So, the enormity of the TCS framework is not to lead to paralysis, but a steadfast engagement, preferably with deadlines and guideposts.

Second of all, given the enormity of reaching a legally binding climate agreement among 193 nations, the Copenhagen Accord can be seen as an important step towards working together towards such agreement.

Thirdly, the following assessment can be made about the essential elements of the Accord and the TCS framework:

• Capping: the Accord sets target below 2 degrees C—the TCS cap is to be set at 1.5 C or 350ppm, using Jim Hansen’s interpretation of the climate data. The intent of Measuring, Reporting and Verification of a nation’s target under that cap is essential.
• Cap & Share approach: Accord did not go exclusively for the cap-and-trade approach, so TCS approach and other "Whole World" view approaches can still become realities, particularly if the UNEP Technical Review panel is going to subject them to a peer-reviewed scrutiny. Support for these approaches rather than the "nation by nation" or even “group by group” that was used during the Conference can be found in the reports the two working groups of the UNFCCC which advocate looking into different ways of negotiating.
• Funding: promises of $100 billion annually by 2020, but only some $30 billion for period of 2010-12 were made. These are promises, not binding obligations. Adopting TCS framework means annual transfer of Tierras which would create as extra liquidity, so that nations with their present financial and economic problems need not use those scarce resources. These Tierra allocations would work somewhat like the SDR allocation proposal of George Soros.
• Level of cooperation: notwithstanding major ups and downs during the two week conference the 190+ countries’ heads of state, ministers and especially the 25,000 CSO participants have recognized the problem and are willing to take action. Now one of the real challenges is to transform the international monetary system by basing its international reserve currency on a carbon reduction monetary standard and monetizing the carbon emissions permits that are allocated on an equal basis to all adults on the planet.

Fourthly, I consider positioning the TCS challenge in this ongoing climate change process in the following way.

• Emphasize the TCS framework as a transformational monetary mechanism of funding for mitigation and adaptation measures and sustainable development. It requires a restructuring of the international monetary system that would update the Bretton Woods UN Monetary and Financial Conference of 1944 and respond to policy recommendations by the UN Stiglitz Commission of June 2009.    
• Demonstrate that this TCS framework can be a workable version of Lord Keynes’ proposal of an International Clearing Union at the 1944 UN Monetary and Financial Conference at Bretton Woods.
  • Show the differences with Davidson’s Multilateral International Clearing Union, who, being one of the world’s preeminent interpreters of Keynes, also proposes an update.
  • Show how the Tierra international reserve currency of TCS framework is an option of a non-national international reserve currency replacing national ones such as the US dollar.
  • Show how the 7 functions of central banks as proposed by Frederic Mishkin can be exercised within the TCS framework
• Suggest a workable deadline for the Tierra as a or the supranational international reserve currency in which nations begin to transfer their present reserve currencies in SDRs by 2012 and engage in the enormous political challenge of having those SDRs transferred into Tierras as part of a transformed international monetary system  that could start functioning under UN governance by 2020.
• Emphasize the urgency to structurally deal with both the economic and climate crises by restructuring the international monetary system, which is the glue of the international financial, economic and commercial systems. Thus besides advocating dealing with the climate crisis economically by introducing a new green deal,  financially by funding the green technologies in both Northern and Southern countries and commercially by shortening and optimizing transportation distances the TCS framework would emphasize building into the international monetary system structures and processes that, institutionally, promote the reduction of GHG emissions and other climate forcings such as surface reflexivity associated with land-use.