The French green bonds are denominated in the currency of the issuers choice, overall the mix is: 84% Euro, 11% USD and 1.5% JPY. One French company denominated 16% of their green bonds in emerging market currencies, which demonstrates their ability to diversify risk.
Other avenues France is looking at is providing green market access to SMEs through ‘green securitisation’ platforms and a sustainable market section on the Paris Stock Exchange. With the imminent, the process of securitising sustainable business practice will be as simple as tokenising any equity and the French government wants global green bond issuance to hit $1tr by 2020.
It isn’t just the government in France that is pushing green finance but it is part of a larger décroissance or degrowth movement originating from France.
Degrowth is a social, economic and political movement based on ecological economics which advocates for the downscaling of production and consumption and is premised on findings published by MIT researchers in the 1970s, who projected the world’s growth trajectory into the 21st century using dynamic systems models.
In it the authors concluded that if the historic behaviour of the economic man continued in the same manner, it would push the world to a ‘natural limit’:
Degrowth of consumption and production is vital, it is argued, to reduce dependency on energy dense fossil fuels and make a quicker transition to renewable energies. The shift to renewable energy is in fact happening at a much slower pace than the mainstream narrative would have many believe: we are still in the weaning process off coal and just last century there was more coal burnt than there was oil.
According to renowned , the historical shifts to new forms of energy are much more gradual than believed and a significant move to renewable energy could be yet another 50 years away — which is far too long to avoid a tipping point.
In the infinite elastic demand model, demand is kept in equilibrium between quantity and price and assumes after any exogenous shocks in price or quantity they will return to equilibrium. This assumption of infinite elastic demand is the premise for chasing exponential GDP growth.
However, most economic models only assume there is one currency available to citizens. What will happen to demand and GDP when there are thousands or millions of complementary currencies to exchange the same good with?
There are only 180 official currencies in the world (all created by bank debt) which is a very high concentration for 8 billion people.
The many new regenerative currencies that people will use (whether earned for carbon friendly behavior such as carsharing or selling their excess solar power) will play a large role in the circular economy, replacing the need to continuously consume new things with money earned in one currency from just one source.
The essential concept of a circular, or stationary/steady-state, economy is where a constant supply of stock capital already in the system is met by demand of a steady growing population.
3. 1.5C or 2C? Reaching consensus on tipping points
Not only are we in the realm of an economic tipping point as the global economy has grown in complexity and interconnections but also an environmental one. An can be defined here as “a point at which an (ecological) system experiences a qualitative change, mostly in an abrupt and discontinuous way”.
Although we may not know precisely when and where the tipping is, the increasing frequency of early warning signs could tell of its probability increasing.
The many attempts to — such as a 1.5C or 2C temperature rise target— at international level have been unsuccessful largely due to the short-term self-interest of politicians to grow their economies and their (SEU) on the topic — decision weights people attach to an event based on their belief of the likelihood of the event occurring.
Humans are innately wired for instant gratification and self-preservation which leads to prioritizing short-term benefits that might be detrimental in the long-run. We tend to overpay for risk aversion as a last resort instead of moderating our risk over time — for instance, the industry thrives off patients deferring regular visits until faced with the choice of either costly treatment or ongoing . This behavior is alluded to in finance as .
In their model for ambiguous tipping points and climate change policy, Lemoine and Traeger found — and this is within generous parameters.
“The long-run risk literature in asset pricing finds that risk aversion is significantly larger than the willingness to smooth consumption over time… The policymaker is more averse to risk than to known changes in consumption over time. We have shown how aversion to uncertainty (or ambiguity) affects optimal policy in the face of poorly understood tipping points.”
Lemoine and Traeger, Ambiguous Tipping Points
Further, they found that “The lack of knowledge governing tipping point locations in the climate system is severe. We find a framework that explicitly incorporates the Knightian nature of this uncertainty leads to only small upwards adjustments of the optimal carbon tax”.
There are climate change as a smooth process (shown in figure a below) in which there is no tipping point and the ecosystem responds gradually by itself or alternatively by an abrupt discontinuous change of state (b and c) from which it is more difficult to return. Lemoine and Traeger found that climate policy adjustments remained small even when there is a significant hazard or major losses faced by a , such as in b and c.
When working across borders and cultures to find universal agreement on a topic as contentious as climate change, SEU and the incentives for policymakers and corporate executives to prioritise short-term goals over long-term (i.e. voter and shareholder approval) it is unlikely we will find international consensus on temperature limits so, collectively, individuals may be the best chance to avoid an environmental regime change.
4. Decentralizing to create more ‘antifragile’ systems
In trying to bring equilibrium and stability (QE stimulus and bailouts) to such a complex system as the global economy it has lost its resilience to shocks and grown “too-big-to-fail”. The government intervention to keep many financial institutions afloat when they would otherwise have perished has created a false state of stability in the global economy.
Black Swan author Nassim Taleb advocates decentralizing our systems to make them more ‘antifragile’ — a process of shrinking the centralized models of government and finance to increase their robustness.
“Antifragility is the property of all those natural (and complex) systems that have survived, depriving these systems of volatility, randomness, and stressors will harm them. They will weaken, die, or blow up. We have been fragilizing the economy, our health, political life, education, almost everything … by suppressing randomness and volatility. … stressors.”
Nassim Nicholas Taleb
Professor Marten Scheffer who focuses on change in complex systems posits the loss of resilience in a system will eventually be reflected in it being unable to get back to original positions after disturbances. Through this lens we can see why after each recession since the 1980s when the US government has lowered interest rates it has been able to get them back to the point they were previously but instead grew public and private debt — the ten-year treasury yield is a barometer for the economic system losing its resilience.
Unlike the last epoch of record corporate and private debt, during 1920s-30s, which was paid down during the existential crisis of World War II, the dismantling of our current debt edifice could come by force of facing the climatic crisis.
Decentralized autonomous organizations
Proof-of-stake blockchains and in particular those ambitious protocols developing on-chain governance will gradually shrink the size of our institutions and corporations by removing much of the bureaucracy and human decision-making from their operation.
The first step towards this was The DAO (decentralized autonomous organisation), which before its premature end was the first -based venture capital fund in which holders voted on projects to invest and the smart contract automated the buying and distribution of dividends.
Tezos’ ‘self-amending protocol’ enables the to upgrade itself based on improvements voted by Tezos stakeholders; its governance becoming more decentralized and autonomous over time. is a distributed alternative to the designed to handle large transaction throughput and tailored to streamline corporate operations.
Its ‘ about ’ and ‘virtual voting’ protocols obviate the need for decision-making between people in an organization by extrapolating what decision they would make based on previous votes and decisions they made in the past. One example could be whether to release a patient’s medical records to a certain party.
Tokenizing environmentalism instead of token environmentalism
Ant Forest, the game on Alipay’s mobile app and the world’s biggest payment processor, in which users can offset the carbon emissions of their purchases and exchange carbon credits between friends. A year after launching in 2016 who had contributed to the planting of over 8 million trees.
How does Alibaba manage one of the world’s biggest tech companies in the world’s most populous countries with a network of companies that span multiple industries from e-commerce and banking to social media?
Alibaba CEO Jack Ma has said:
“Management. The word is there for regular companies. At Alibaba, we treat it more like governing an economy, as we have to manage so many companies’ dependent upon us as partners… By 2036 we will have built an economy that can support 100 million businesses for billions of users. We won’t own that economy. We will just govern it.”
This style of governance of organizations and economies is exactly what expedites: a future in which countries and governments will be run more like cooperative organizations than the centralized top-down structure today and organizations will be run more like economies as internet native companies scale to sizes that transcend national borders and encompass communities bigger than any country.
5. How Bancor supports local currencies
There are many regenerative local currencies in existence without the use of such as the was one of currency projects.
Backed by the national currency in Kenya it targeted the lack of waste management services and where hundreds of tonnes of waste was being dumped in front of households. By paying residents in Eco-Pesa, which could be spent at local businesses across several regions, and plant thousands of trees.
Grassroots Economics is currently working with , a non-market making exchange that provides constant liquidity across community currencies, in the . This will ensure its currencies are convertible to real goods and interchangeable, solving what Bancor describes as “the double coincidence of wants”. Money can be more easily scaled and distributed through airdrops into wallets (Kenya has more phones than ATMs) and project funding can be accurately tracked.
Bancor has been described by its late chief architect as facilitating a “peaceful transition from the conventional national currency networks to a post-industrial space.”
Bancor will tie in with digital governance protocols such as Aragon which acts like a traditional trade association for DAOs. Where throughout the industrial age business has been organized nationally either by communist or capitalist structure, in the information age we will see the first form of digital sovereignty.
We are living in the first epoch in which individuals have the ability to create their own form of currency. With it will come the issuance of many local backed by commons (land, air, water, minerals etc) people will instead have the choice and even be incentivized to offset their own emissions and that of companies.
Elinor Ostrom’s principles of a resource-backed currency
According to economist , the first woman to win a Nobel prize in the field for her work on resource economics and governance, are:
- Define clear group boundaries
2. Match rules governing the use of common goods to local needs and conditions
3. Ensure that those affected by rules can modify the rules
4. Develop a monitoring system
5. Use graduated sanctions for rule violators
6. Provide accessible, low-cost dispute resolution
7. Make sure the rule-making is accepted by authorities
8. Bottom up responsibility for governing the common resources
For the first time in history, all these criteria can now be fulfilled in a currency by on-chain voting protocols — one of the evolutionary steps in .
6. Crypto’s role in decarbonizing and regenerative farming
Since it has taken so long for countries to agree on temperature limits the next 10–20 years will vital to remove carbon from the atmosphere and reverse climate change, known as regenerative practices. Swedish furniture giant IKEA is making plastic from co2 removed from the atmosphere and industrial carbon capture is now an option for most large companies. However, they still need an incentive to do so.
Nori is a carbon marketplace striving to create the first universal price on carbon removal in which One NORI represents the equivalent of one tonne of CO2 removed. Unlike other existing carbon credits which exchange the right to emit carbon, this is a digital certificate of carbon removal which would appeal to corporations trying to boost their sustainability image — similar to the certification of organic or Fair Trade — or players in the supply chain that want to prevent soil erosion.
The marketplace for carbon removal credits brings together suppliers of carbon removal, verifiers of the removal process and buyers of NORI . Paul Gambil, founder of Nori describes it as “the Stripe of carbon removal.”
Regen Network
The creation of soil is also known to sequester carbon and is the aim of the practice of regenerative farming. is another project using to generate and incentivize trusted attestations about the health of ecosystems to the Regen Ledger. Using its own open-source “ecological protocols” Regen will also allow users to issue ecological upon it.
Users earn the XRN on Regen for their data input and this allows organizations to allocate funds and distribute them to specific projects that need funding according to the data.
Microtransactions for IoT
Graph-based technology (opposed to based) such as Hashgraph, facilitate the exchange of value for data or electrons between machines. Projects such as , and are already using to decentralize the energy sector — developing applications for microgrids, electric vehicle (EV) charging, however, this use case is still in early stages.
Conclusion
allows for a new decentralized way of organizing society in exciting ways from the ground-up instead of the centralized top-down capitalist and socialist models we’ve had before — the latter has collapsed several times before and the former is arguably on the verge of collapse.
On-chain governance protocols allow individuals for the first time in history to issue and organize a currency around society’s needs instead of individuals being forced to accept a currency that no longer works in their favor.
If we are in a transition phase of economic and environmental tipping points it will have unpredictable effects socially. Already we are seeing the foment of environmental and social inequality among the Yellow Vest movement in France. This should serve as an early warning sign.
We will explore ’s potential to improve our social systems in Part III. View Part I here.
Published at Mon, 18 Mar 2019 01:08:06 +0000
