A market is any place where the sellers of a particular good or service can meet with the buyers of that goods and service where there is a potential for a transaction to take place. The buyers must have something they can offer in exchange for there to be a transaction.
The difficulty with applying market forces to Public Goods (or in alleviating Public Bads ) is that – by definition – there is no market. For a market to exist there have to be buyers, sellers, goods for sale, currency for purchase, and ability for trades to occur freely. In many things – particularly Public Bads none of these exist.
Let us take the removal of greenhouse gases from the atmosphere.
If we make the assumption that it is necessary for continued human existence on this planet for humans to remove greenhouse gases from the atmosphere until they are at an acceptable level then it is necessary to not only reduce emissions but to remove green house gases from the atmosphere. To remove gases – not just reduce the addition of gases – is going to require investment. If we also assume that the best way to direct the flow of investment funds is through some form of market mechanism then it is going to be necessary for us to invent a market that will achieve this purpose.
Carbon Credits have been invented to create a market in greenhouse emissions. In their current form they can only lead to the reduction in emissions of greenhouse gases not to the reducation in greenhouse gases in the atmosphere. To achieve the purpose of a reduction of greenhouse gases a market mechanism has to be devised that will be ongoing and will reduce the level of greenhouse gases.
GreenHouse Rewards is one approach that will achieve this result.
As well as having a market for Carbon Credits let us also create a market for investment in technologies that will reduce greenhouse gases. That is, we invent a currency that can only be used for investment purposes in technologies, research and systems that will reduce greenhouse gases. We will call the currency GreenHouse Rewards. There will be an exchange rate conversion between Carbon Credits and GreenHouse Rewards and GreenHouse Rewards can be bought and sold on an open market. However, GreenHouse Rewards can only be used to invest in technologies and systems that remove greenhouse gases or stop them entering the atmosphere. There will be an independent body financed through GreenHouse Rewards to specify which systems can use GreenHouse Rewards.
Thus we have another market that complements and supplements Carbon Credits. The currency is GreenHouse Rewards. The sellers are the people who hold the Rewards and the buyers are the approved technologies and systems who invest in ways to reduce greenhouse gases. The sellers will make their choice on which technology to invest in and will presumably make a choice on the one that will give the greatest return for their investment. This may or may not be the technology that removes the most green house gases but that may be a consideration in the decision of the sellers. The point is that the investment is distributed through a market mechanism and will go towards a reduction in green house gases.
How do the GreenHouse Rewards get their value? They can come from any source but perhaps the most effective is a tax on processes that produce green house gases directly or from organisations like insurance companies who will benefit from a reduction in greenhouse gases. Thus if a herd of cows produces methane gas then the herd of cows will be taxed according to the amount of methane produced. If a power plant emits greenhouse gases then it will be taxed according the amount of the greenhouse gas emitted. If a car produces greenhouse gas it is taxed according to its emissions.
The third part of the system is who gets the Rewards and how they are distributed. For political reasons it is important that the Rewards initially go to the same nation or group of people who pay for the GreenHouse Rewards. Thus if an Indian coal plant produces greenhouse gases then the Indian people will receive the GreenHouse Rewards. Rewards could go to everyone in the population that pays the tax on an equal basis or they could go to those people who behave in ways that tend to reduce greenhouse gases. Thus people who do not own cars could get Rewards or people who walk to work or who do not commute could get Rewards or people whose household energy bills are less than average could get Rewards or ….. The mechanism for distributing Rewards will be determined through an independent body but people who change their behaviour in ways that reduce greenhouse gases will tend to get the most rewards.
GreenHouse Rewards will produce a pool of funds that has to be used on ways of removing greenhouse gases. It can be established independently in any jurisdiction or with any group and it is not necessarily bound by regular political or geographic boundaries. It could start within a small jurisdiction such as a single State and then others could join. It may even be economically beneficial as the taxes are used for investment purposes and it may be that these investments will produce significant returns as well as reduce greenhouse gases. The distribution of the investment will be determined in the marketplace for investment funds to be used for reducing greenhouse gases, the funds will come from those who produce greenhouse gases and the Rewards are distributed to those people whose behaviour tends to reduce greenhouse emissions.
Importantly the effect of the system can be measured and it can be adjusted to better meet the overall objective of reduction in greenhouse gases in the atmosphere.