A framework to avoid the Tragedy of the Commons.

The problem of reducing emissions is a classic “Tragedy of the Commons” problem. Each of us know that reducing our emissions is good for us all but it only works if everyone does it.

This blog gives a way of solving the “Tragedy of the Commons” through a market in technologies to reduce greenhouse gases.

There are three related areas with respect to reducing greenhouse gases:

1. developing infrastructure to generate energy without producing greenhouse gases;

2. developing strategies and infrastructure to save energy consumption; and

3. developing carbon sinks.

The problem of global warming can be resolved through investing money with these goals in mind. The issue – at both international and national levels – is in finding the most efficient, yet fair way to allocate resources to infrastructure to reduce greenhouse emissions.

We know that the best way to allocate resources is through fair and free markets. Reducing emissions is an investment problem not a pricing problem. If we spend money wisely we will solve the problem. How we collect the money to spend on infrastructure is relatively unimportant. That is if we can devise a method that is seen to be a fair and reasonable expenditure of money it will get wide acceptance and adoption.

A Market Place for infrastructure to reduce emissions

We already have a market place in infrastructure to reduce emissions. You can invest in wind farms, solar farms, insulation, hybrid cars etc. The problem is that it is not economically sensible for an individual to do so. That is we have sellers but we do not have buyers.

Let us collect money somehow. A tax on all polluting energy is a good way to do this as it makes polluting energy more expensive.

Let us now distribute this money in inverse proportion to the amount of energy each individual consumes in their household. Let us call this money Rewards for Frugality. Rewards however, must be spent in the infrastructure market place.

That is Rewards must be spent on any approved infrastructure project that will reduce greenhouse gases. It could be used for solar hot water heaters, to buy new shares in a geothermal company (not buy existing shares), to purchase a bicycle etc. Implementation of this strategy requires a communications infrastructure such as a mobile phone network and a mobile phone network could classify as an infrastructure project under the international fund. See Edentiti Rewards for ideas on how a market place can be implemented.

How might it work?

The infrastructure market is established by paying people Rewards in inverse proportion to the amount of energy they consume. Individuals are not required to receive Rewards and if they cannot think of a way to spend their Rewards they can sell them to others. Participants who break the rules of the market are excluded from the system for a period of time.

The Rewards must be spent on infrastructure that reduces greenhouse gases. This approach will work because it is seen as a “fair trade” and like all good trades both sides win. It is important to note that the market is in infrastructure not in carbon, nor in emission permits, nor in energy. It is a direct way of addressing investment – not an indirect way.

The system is easy to understand – If I use less energy then I am rewarded but I must spend my Rewards to reduce emissions. This solves the Tragedy of the Commons as the funds I receive is spent on infrastructure that benefits the whole community as well as myself.

The system is easy to implement but the details will depend on the communications infrastructure available in the country. Systems can be implemented with mobile phones but more complex systems can be implemented if there is a widely available broadband Internet.

The cost of implementation is low and running costs are expected to be less than a percentage point of investment dollars spent.

The system leads to stability in prices and is guaranteed to work. Emissions targets can be set and can be achieved for a known amount of investment which is determined by the size of surcharge on energy.

How much money do we need to invest?

The following calculations are indicative but with ongoing development in renewable energy technologies the figures are conservative.

Each Australian, on average, consumes for all reasons about 75,000 kwhs per year of energy. It costs $3,000 to build a solar powered or geothermal power source capable of generating 1 kw continuously for a year (or about 9,000 kwhs). Thus an investment of $25,000 will produce all the energy needed for an Australian to be greenhouse neutral. This equates to a total of $500 billion for the entire population at current prices. If this amount is spread over 10 years, it becomes an investment of $2,500 per person annually. The running costs (excluding financial costs) of renewable energy sources are about 1 cent per kwh or half the running costs of coal fired stations. The capital cost of coal fired stations is about $1,000 so the capital on greenhouse free energy investment is repaid in 22 years with today’s prices. At the end of 22 years the nation has an energy source fully paid for and generating energy at 1 cent per kilowatt hour.

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