Making a success of the carbon transition
A series in 12 episodes
TABLE OF CONTENTS
The destruction caused by the excess greenhouse gases in the atmosphere is accelerating. And at the end of the day, the risk of a ‘last generation’ faced with desperate choices.
The carbon economy provides carbon performance indicators that balance every personal or professional economic decision between money and carbon, starting with purchases and their carbon content.
Investment decisions can also be balanced between money and carbon through the carbon profitability of each project and each financial product.
The transmission of carbon performance indicators (carbon content on invoices, carbon profitability on financial information) frees up customers’ choices and enhances the carbon quality of suppliers.
The different aspects of the transition (production, consumption, financing, use of space) can be managed using carbon content and profitability and a third indicator: the natural capture of an area.
Carbon content triggers fair carbon competition between goods and services, which freely pushes down their carbon content.
Carbon profitability enables humanity to set the minimum speed of its transition: the average carbon profitability to be generated by investments, and not just ‘green’ ones.
Large producers, particularly energy producers, must calculate and pass on their carbon profitability to their financiers, and then their financiers must pass it on to private individuals.
Episode 1 – Why the carbon transition?
A phenomenon that destroys living things
Scientists are observing an excess of greenhouse gases (GHGs or carbon) in the atmosphere. They note that this excess has a destructive power on living organisms through various disturbances, in particular climate change.
They describe the extent of the destructive power of excess carbon, unrivalled by other poisons that mankind spreads by producing or consuming. Carbon is in fact in all our products and in all our projects (the closest previous phenomenon, gases destroying the ozone layer, concerned a tiny part of human activity).
Accelerating destruction
Scientists also describe the accelerating destructive power of this excess carbon. It took eight generations of carbon-based growth for the most vigilant scientists to identify the problem, and then only two generations for the whole of humanity to see it. Scientists have a good explanation for this acceleration.
Two accelerations are man-made and man can learn to control them :
– Soil artificialisation and plastics in the ocean are destroying living things and accelerating the destructive effect by reducing the natural capture of land and sea surfaces.
– Human efforts to adapt to the destructive effect (air conditioning, dykes, etc.) accelerate the destructive effect by increasing emissions.
Two other accelerations are more threatening because they are external to man : they arise from the destructive effect itself, like a fire feeding on itself.
– The failure of living species to adapt accelerates the destructive effect by reducing the natural capture of carbon in the atmosphere (weakening of trees, etc.).
– Crossing thresholds (still very poorly estimated) in the carbon surplus could accelerate the irreversible destructive effect (melting of the permafrost, changes in sea currents, etc.).
Time is against humanity
So we have a scientific certainty : the increase in the destructive effect will be worse for each generation than for the previous one, until a new equilibrium is reached. Scientists’ cry of alarm at the acceleration of the destructive effect also expresses a common-sense concern for what might be called the ‘last generation’: the last of those who will have benefited from carbon, before a new equilibrium; or the last generation altogether, because it will inherit a choice between desperate solutions. To take a more cheerful image : our human species is the hare in a race with an accelerating killer tortoise. The moral is no longer that of the fable : leave ‘in time’, but to leave immediately ‘at the right speed’ so as not to lose (we’ll come back to this right speed in episode 7).
Paradoxically, the turtle’s slowness is not an advantage. How can you mobilise the entire planet for several generations in a row to deal with a slow but deadly catastrophe? Fortunately, there is a promise. Presenting it is the purpose of this series.
Episode 2 – The promise of the carbon economy
Money is not enough to manage the transition
We will not be able to manage the collective planetary challenge represented by the transition without sharing universal performance indicators : for companies, banks and public authorities alike; shared performance indicators from the head of state down to the individual.
Two money-based performance indicators coordinate all economic decisions today: prices for goods and services and profitability for projects and financial products. Unfortunately, they alone will not be able to inform the decisions of the transition:
– Two products of the same price can have very different carbon contents.
– Two production projects (or their financing) can have the same cash return but very different carbon returns.
Our proposal : carbon content and carbon profitability indicators
As it is out of the question to abandon monetary performance indicators, the transition requires all economic choices to be informed by a carbon performance that is the twin of the monetary performance. The carbon economy easily provides these twin carbon performances by counting carbon in the same way that the economy counts money. It simply transposes into carbon the universal economic measurement tool : accounting, whether national, corporate or financial.
In the case of goods and services, the carbon economy supplements the monetary performance (price) with a twin carbon performance : the product’s carbon content. This is the sum of the net upstream emissions involved in producing what is sold (just as price is the sum of upstream costs). This indicator is already known by various names (footprint, or cumulative emissions, or sum of upstream scopes 1, 2 and 3, etc.). The carbon economy simplifies and standardises its calculation. Producers can easily provide customers with the price AND carbon content of what they are buying, with their quotation and then with their invoice.
Episode 3 – Carbon profitability, the great unknown
The challenge of the transition is to build a different economy that uses as little carbon as possible. It is therefore a challenge that is being built today in the choice of projects financed toda
What triggers certain projects and blocks many others is largely and often solely the hope of a return in money. Anyone with money to invest is interested in the profitability of the investments on offer. Those who need money, for example a company, explain to their banker or shareholder that their project is going to be profitable and deserves their money.
The challenge of the transition is to have two indicators of profitability in terms of money and carbon : the investor or saver could freely arbitrate between investments by reconciling money and carbon.
The twin definitions of silver and carbon returns
There are many definitions of profitability, but the core is always the same : the investor compares the cost of his investment with the return he expects to make on it in the future. Dividing the result by the investment gives the rate of return. This is as true for insulating a bedroom as it is for the 600 billion dollars of investment in AI that has been announced at the beginning of the year.
The carbon economy simply transposes this comparison from money to carbon: it calculates a carbon profitability by measuring the carbon result of the investment (the energy saved to heat the room) as a percentage of the carbon content invested (for example: the carbon content of the room insulation work).
In this way, we can calculate the carbon profitability of each project :
– Some projects have a positive carbon profitability (such as this insulation project) and it is important to identify the best carbon profitabilities.
– Others predict a negative carbon profitability, but it is just as important to identify the least negative carbon profitabilities : everyone prefers a gain to a loss, but also a small loss to a larger one.
The transition informed by carbon profitability
Carbon profitability is the invisible beauty : invisible, because it is not yet visible on financial products; and beautiful because it would improve all financial decisions.
With carbon profitability, each producer of a financial product could pass on to his customer the expected profitability in money AND in carbon; and also pass on to him the profitability of his investment over the past year, in money AND in carbon.
The previous episode highlighted the fact that informed financial choices were impossible until we knew which of two financing options with the same profitability in money terms had the best carbon profitability. The carbon economy frees up this information, which is essential if the transition is to succeed.
Episode 4 – The power of transmission
Passing on the carbon performance of products to the customer, alongside their cash performance, would unleash a powerful transition by giving individuals the freedom to choose and producers and financiers the freedom to act.
Individuals would gain the freedom to choose
The additional information provided leaves individuals free to make choices based on their money and carbon preferences. It gives them a new opportunity to take concrete action on certain decisions : ‘I prefer the carbon criterion, “it’s worth it”’. They can act on all their purchases, but also on all their investments, and give a helping hand to the future transition.
Concentrating carbon information (product or investment) on ONE performance federates the multiple motivations of individuals with regard to carbon: for themselves, their family, future generations, the rest of the living world and biodiversity… Whether weak or strong, these motivations all point in the same direction, since no one will choose the poor carbon performance for the same money performance.
Producers and financiers would gain the freedom to act
The message from individuals will carry weight: producers and financiers are anticipating what their customers expect. Communicating carbon performance stimulates effort, and effort justifies communication (‘What’s the point of being carbon competitive if nobody knows?’; or ‘My customer will imagine the worst if I don’t tell him’). Focusing on ONE performance (carbon content and profitability respectively), which is easy to understand and calculate (see next episode), makes life easier for the producer or financier. At last, they have a clear set of rules and a measurable performance for their products that they can monitor and value. Carbon risk becomes carbon opportunity: a universal, measurable performance whose importance in relation to money will increase as carbon destruction continues to worsen.
Transmitting carbon performance for a successful transition
The success of the transition therefore depends on good practice on the part of producers and financiers, who pass on the carbon performance of their offer to their customers :
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- The carbon content of the product is sent to the buyer with the quote or invoice.
- The carbon profitability of the financial product is passed on to the investor (first with the information brochure, then with the dividend or interest).
How can this become general good practice? The quickest way is for the public authorities to reward transparent producers and financiers who ‘pass on’ the carbon performance of their products. This is possible at all levels and in all countries. A Transmission label is simple and cost-effective, because it gives professionals advantages that are in the hands of each authority: on public markets, on public funding, on visibility… We’ll come back to this later.
Episode 5 – Three carbon signals to guide the transition
There can be no effective transition without shared carbon signals. While the destruction caused by excess carbon in the atmosphere is worsening, efforts to make the transition remain ineffective, if they do not lead to violent discharges. This is inevitable as long as everyone does not have the information on how to act effectively without it costing them too much; ‘everyone’ applies to individuals, businesses, banks and, of course, public authorities.
Three carbon signals are enough to guide the transition : for each product, its carbon content; for each surface area of the planet, its natural carbon capture; and for each form of financing, its carbon profitability. Each fills a major carbon information gap.
1. The carbon content of the product, to guide consumption and production
We lack the right carbon signal to choose between products. Two products of the same price can have very different carbon impacts, with or without carbon tax. Knowing the carbon content of what we buy, alongside the price, sheds light on two dimensions of the transition :
– the transition in consumption : consumers are choosing products with minimum carbon content.
– production transition : producers reduce the carbon content of their products to a minimum.
2. Natural carbon capture from the surface, to guide land and sea use
We don’t have the right carbon signal to decide how land should be used. Mankind will never achieve zero carbon without the help of the carbon captured from living organisms associated with each surface area : no energy and few goods are ‘zero carbon’. Humanity therefore needs a sufficient and sustainable flow of natural captures. This requires detailed monitoring and a better understanding of the link between human actions and natural carbon capture. Knowing the natural carbon capture of each surface sheds light on the third dimension of the transition :
– safeguarding natural catches so that they absorb the carbon that will remain essential for human production and consumption needs once the transition is complete.
3. Carbon return on financing to guide all projects
We don’t have the right carbon signal to choose between financing options, even though they are building tomorrow’s planet, and two financing options with the same return on investment can have very different carbon impacts. The carbon profitability of financing sheds light on the choices made over time in terms of production and consumption. It also sheds light on the fourth dimension of the transition, its speed :
– a speed of transition sufficient to ensure that the living conditions of the last generation (the one to complete the transition) are still bearable.
Episode 6 – Carbon : for fair competition
This episode shows how the carbon content of products (the first carbon indicator) is the basis for steering the transition.
Carbon Content has the force of a simple message: between two equivalent products, the one with the least carbon is the best for the transition.
Transmitting the Carbon Content with the products means shedding light on the billions of purchases and sales that take place every day, without imposing anything on anyone; and thus triggering a voluntary transition and a virtuous dynamic.
Individuals and the carbon content of products
The simplicity of the Carbon Content is appreciated by individuals. It brings together their different motivations in a single signal: quality of life for their loved ones, for future generations, for the living world, for biodiversity, etc. It gives them an opportunity to act according to their values – whatever they may be – in a concrete and not just symbolic way: consumers who prefer a product with less carbon, at the same price and quality, send producers a powerful economic message that moves up the production chains and triggers carbon competition.
Producers and carbon content
A simple indicator also makes life easier for the producer. To manage their environmental competitiveness, they need product carbon performance that is shared with their customers. The performance indicators required of companies are complex and do not relate to products. As a result, 22 million European SMEs have no environmental indicators, and those of large companies say nothing to their customers. Carbon content is a quality that is easy to calculate (we’ll come back to this later). It is in the producer’s interest to work on and pass on this quality, because he knows that quality, and therefore Carbon Content, sells more, at a higher price and for longer.
Public authorities and carbon content
A voluntary transition can be put in place, a virtuous loop that gradually reduces the carbon content of products. Public authorities can easily and at no cost bring about this deployment.
– We have talked about creating a Transmission Label to promote producers who pass on the carbon content of their products, and to give them advantages such as markets, public funding and visibility.
– Public authorities can also simplify their environmental regulatory requirements by focusing on the carbon content of their products.
– They can reassure their citizens and producers that carbon competition is fair: by requiring imports without rigorous carbon content to be accompanied by a prudent flat-rate indicator alerting buyers, which could be reinforced by a customs tariff based on carbon performance.
Carbon Content goes beyond fair competition
The transmission of the Carbon Content and carbon competition will not be enough to ensure a rapid enough transition. But the Carbon Content has two other merits.
– Public authorities can reinforce this without budgetary expenditure, by indicating which products are more and less efficient for the same use; or by balancing subsidies for the most carbon-efficient products with taxes on the least efficient products (such as the car bonus malus).
– The Carbon Content enables us to measure the Carbon Profitability of projects and, through this, to monitor the speed of the transition, the theme of our next episode.
Episode 7 – Speed of transition
This episode sheds light on an obscure (and much debated) issue of transition : the speed at which humanity is moving through its transition. For the sake of simplicity, let’s pretend that Humanity with a capital H is a single person.
The speed of humanity’s carbon transition
Humanity produces what is necessary for its immediate needs (consumption) and its future needs (investment). It is on investment that we are counting to face up to the carbon threat: to build ‘almost’ zero-carbon production and consumption; and to protect the living organisms whose capture makes this ‘almost’ possible.
The carbon result of the investment is the variation in the flow of carbon into the atmosphere. And the carbon rate of profitability of the investment is this variation, divided by the emissions required by the investment (its carbon content). Humanity can track this rate, year after year, and project it into the future.
The carbon profitability rate of global investment can be likened to the speed of the transition : if it is negative, the transition is moving backwards; if it is positive, the transition is moving forward, and all the faster the higher the projected rate. To accelerate your wealth, it’s better to invest at 50% return than at 3%. The same applies to carbon, to accelerate the transition.
What the average carbon return on global investment tells us
The low-carbon world of tomorrow is being created by investing today. The ‘global carbon profitability’ performance indicator reminds us that the success or failure of the transition depends on collective financial performance over the (very) long term.
Contrary to popular belief, tracking 10 or 20% of specific investments labelled ‘transition’ or ‘green’ will never produce a decent average result. It’s the WHOLE investment (and therefore the whole saving) that needs to be tracked. Financiers know that if they want to guarantee an average rate of return for a portfolio of investments, they need exhaustive monitoring, because the cash losses from investments that are not monitored can cost much more than the gains from monitored investments.
This is all the more true in the case of carbon: cash losses on an investment are generally capped at the amount invested (thanks to limits on the investor’s liability). The carbon loss on an investment can go well beyond the carbon invested.
The minimum transition speed
Another essential aspect of the speed of transition is that we can calculate not the ‘right’ speed (which is a political decision) but a minimum speed: the minimum carbon efficiency to be respected. This can be determined on a scientific basis, depending in particular on the maximum duration of transition that humanity (and the living organisms on which it depends) can withstand without tragedy. This minimum speed simply transposes the logic of money financiers to the carbon economy: they call the discount rate the minimum rate of profitability below which they will not finance.
Episode 8 – Financing EdF or Total Energies?
Focusing on carbon profitability in the energy sector
Humanity must achieve a minimum carbon return on average investments, and not just for ‘green’ investments (episode 7).
It is logical to start with the carbon profitability of investments by large energy producers, the No. 1 issue in the transition. A large energy producer must therefore calculate and pass on to its financiers its carbon profitability, projected and then realised, in other words (episode 3) its carbon result divided by its carbon investment. The energy producer knows his carbon investment. The Carbon Economy gives them their carbon result, based on the collective carbon result of energy producers.
The collective carbon result of energy producers
The Carbon Economy applies two principles:
– It clarifies the service provided (in this case energy) with a common unit of measurement of its quantity: the unit of the universal system where it exists, i.e. the joule for energy. National carbon accounting gives the average amount of carbon needed by producers to produce one unit: a “carbon content per joule”, which is their collective carbon competitiveness. In France, for example, it takes around 50 micrograms of carbon per joule, less for electricity (28), more for petrol (70).
– It measures producers’ collective carbon performance by the impact on the transition of year-on-year variations in “carbon content per joule”: a benefit if their average carbon competitiveness falls, a loss if it rises.
The carbon result of a particular energy producer
Each energy producer contributes to this collective carbon result. They make a profit if they reduce the carbon content per joule by the amount of the impact on the transition (and a loss if they increase it). There are two ways of achieving this:
– Improve its own carbon competitiveness. EdF will generate a carbon benefit, for example, by extending the lifespan of a power plant; and Total by reducing methane leaks and/or favouring the most carbon-competitive energies.
– Vary its sales (in joules): sell more if its carbon competitiveness is better than the average for producers, sell less if it is worse. To increase its sales AND generate a positive carbon result, Total must improve its carbon content per joule (around 64) below the average of 50 micrograms.
The carbon efficiency of each financial product
In the future, each energy producer could pass on its carbon efficiency to its financiers (or have financial analysts calculate it for them) so that it reaches the individual, helping them to balance their financial choices between money and carbon. Individuals overwhelmingly trust financial institutions to choose what they finance with their money. They will therefore be able to compare the carbon yield of a Total share and an EdF bond, but above all they will be able to compare the carbon yields of current accounts, Livret A savings accounts and life insurance products, and worry about losses.
Financial carbon competition will then emerge, gradually pushing carbon profitability upwards and carbon emissions downwards.