February 27, 2013 // Written by:
Modern interest-bearing bank-debt money creates the illusion of exponentially growing wealth and an unceasing demand for economic growth and/or inflation. In return, it has delivered instability and misallocation of investment, and encouraged myopic policy-making. To make the economy work for the planet, and therefore for the long-term interests of humanity, we need to change how money works. We need a feedback loop between nature and the economy. This report examines the potential of energy-related monetary instruments – currencies and accounting frameworks – to provide such feedback. Since energy is as fundamental to the economy as it is to the natural sciences, it is an attractive option upon which to base such feedback.
This report is a first attempt to systemically review the rich and burgeoning field of energy money proposals and projects. We present a new taxonomy of energy money to guide the reader through this work. It charts the functions of money, the important characteristics of energy, and the relationships between the two. From this we gain key insights:
- Renewable energy can be used to improve money’s key functions: a unit of account, medium of exchange and store of value
- Redesigning money can also be a driver of change within the energy system by creating targeted currencies that incentivise more ecologically sustainable consumption, mobilise investment in renewable energy, and encourage energy efficiency.
Such different objectives require different currency designs, and thus searching for a single ‘perfect’ energy money model is unwise. A more effective proposal would be to encourage a range of different and complementary schemes at local, national and international levels.
Global systemic reform
At the global level, there is a need for one or more stable reference units of value attached to the planet’s natural sustainable resources. For example, renewable energy used to produce kilowatt-hours (KWH) of electricty. This would help to ‘price nature into markets’, thereby improving the ecological efficiency of the economy. Similarly, concretely relating money to natural resources would make clear that such resources cannot be simply substituted for other inputs (labour or capital in the form of the productive assets), a misconception which lies at the heart of conventional economics’ understanding of production. To be effective, these kinds of models will probably require top-down monetary reform to create systemic change. Further research is required both on the concepts and into the practical considerations of their implementation.
Stimulating local and regional energy transition
At local or regional levels, ‘debit-energy currencies’ might be useful to promote more sustainable consumption. ‘Credit-energy currencies’ seem promising to fund investment in renewable energy production. These latter ‘self-financing’ currencies would be redeemable in local participating businesses and over the longer term directly with the producers of local renewable energy. Many of the case studies in this report illustrate the potential of local and more narrowly focussed energy currencies to engineer a low carbon energy transition from the ‘bottom-up’. Developments in internet and mobile communication technologies offer the opportunity for rapid upscaling of these kinds of models. For these a different research agenda is required: How can we best capture the lessons learned, disseminate the knowledge, replicate and scale-up the success, and transfer the models across national boundaries and different institutional infrastructures?
Redeemable energy currencies hold the opportunity for a reliable ‘store of value’ function of money as well as encouraging ecological credit allocation. Separate but linked currencies could be issued, perhaps by the same ‘energy banks’ or at a national level, as a means of payment without the need to be backed directly by energy if they are referenced to an energy standard. That way, the long historical tension between using one kind of money as a store of value and means of exchange simultaneously could be addressed.
Shaping an agenda for research and action
Ultimately, a unified global energy money system might be both possible and desirable, but the most likely route to this will be via incremental experimentation, innovation, and development of a multiplicity of new energy monies.
Energy money can potentially address some of the most systemic challenges facing our world and should not be left to academic and policy fringes. We call on a range of other actors, in addition to currency designers, to consider and support energy currency innovations, in particular local government and other public sector agencies, environmental NGOs and charitable foundations.
At the same time, energy money designers and thinkers should engage with civil society and public sector actors, understand their needs and identify how energy currencies can help them achieve their goals. Where schemes are stalled by regulatory or policy obstacles, promoters of energy monies should seek to mutually support one another in gaining acceptance and support among policymakers for allowing currency competition and innovation. Energy money offers an exciting research field on the intersection of physics, economics and ecology; the best minds from all of these fields are needed to further develop some of the ideas portrayed in this report.
In 1935, H.G. Moulton defined what he called “procreative property” as “the processes by which society expands its power to make nature yield its resources more abundantly”.
By adding the words ‘on a sustainable basis’, we could consider this the ultimate test of any money system – whether it promotes or inhibits such processes. The current system fails the test. Energy-related money shows great potential to do better and so deserves wider and more serious consideration. The idea of linking energy to money is not a new one, but perhaps it is an idea whose time has come.
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