How Money, Sex & Power Can Save The Planet

...Or, the case for implementing carbon emission taxes and trading to quickly address climate change.

The facts…

It is becoming likely we will breach the 1.5 degrees Celsius (1.5C) marker set by the Intergovernmental Panel on Climate Change (IPCC) and edge close towards 2.0 degrees Celsius (2.0C) with terrifying consequences including:

·??????37% of us suffering extreme heats every 5 years (British Columbia experienced a temperature high of 49 degrees Celsius in 2021);

·??????13% of landmass undergoing an ecosystem shift leading to mass species extinction;

·??????coral reefs declining by more than 99%; and

·??????severe depletion of global fisheries, an essential protein source for 3.2 billion people providing 17 percent of the world’s animal protein.

For even a 25% chance of not breaching the 2.0C limit, Nature Magazine states that no more than 1tn mT of carbon can be emitted between 2000 and 2050 (738bn mT emitted to date from 2000). As the world started to wake up and spent a few trillion dollars over the last ten years trying to decarbonize ($503 billion in 2020 alone), carbon emissions are still unfortunately increasing. Even as the pandemic slowed that growth for 2020-2021 (25.23bn mT from average of 33bn mT/year from 2000), emissions in 2022-2023 is estimated to exceed 55 billion mT.

A simple calculation indicates that with roughly 207bn mT left in our balance sheet and reverting back to the average annual emissions, we would only have around 6 – 7 years left before the nightmare scenario becomes reality.

…demand a call for action.

With Malaysia having the unfortunate distinction of being one of the top CO2 emitters in ASEAN (225m mT in 2019), the Government recently committed to reducing economy-wide carbon intensity (against GDP) by 45% by 2030 as compared to the 2005 level. It was also announced in September 2021, that carbon taxes will be included in the 12th Malaysian Plan (details of the framework e.g. the tax base, tax rate, tax administration and use of revenue have yet to be revealed) and has since approved the Ministry of Environment and Water’s proposal to develop a voluntary Emissions Trading System (ETS) and Domestic Emission Trading Systems (DETS).

It was also announced that a Climate Change Action Council (MyCAC) has been set up and tasked to “set policy direction in climate change mitigation and adaptation?strategies and actions, driving the green economic growth and catalysing green technology and low-carbon growth at all levels.” Bursa Malaysia, the domestic stock exchange, has also been tasked to develop the DETS and announced ambitions of becoming carbon neutral by end 2022.

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That’s where money, sex and power comes in…

Talk is cheap and easily forgotten. Things must go beyond announcements into successful implemention of ambitions if we are to have a fighting chance. This will be extremely challenging especially when it is about climate change as it involves a huge cast of stakeholder groups who are only motivated to act if their different (and often times opposing) needs and requirements are met. Taking a leaf from organisational transformation and change management, we could quickly galvanize the different groups to work towards a common objective by pushing the three most ‘common’ buttons that motivates nearly all of us (I’m cheekily calling it the ‘MSP Model’):

A.????Money – ????????makes the world go round;

B.????Sex ????– ????????not the actual act but the feeling of being desired or having desirability; and

C.???Power ?– ????????ability to influence others.

(admitted simplification and with due deference to other models such as Maslow’s ‘Hierarchy of Needs’, Herzberg’s ‘2 factor theory’ and Alderney’s ‘ERG theory’).

…to quickly activate powerful tools to combat climate change.

It is generally accepted that the 2 most powerful and efficient ways to address climate change are:

1.????Carbon taxes

For Malaysia, the electricity, transport and oil and gas sectors account for 70% of total emissions (223m tons of Green House Gases (GHG)?in 2014). It is estimated that if nothing is done, the climate change impact from these emissions would result in cumulative social and economic costs to Malaysia (e.g. extreme events, health effects, food security, livelihood security, migration, water security, cultural identity) which could be upwards of RM40tn by 2095 (study by UM and UTM). But the studies also showed that with proper policies implemented, the costs could be slashed to RM5.3tn. With the imposition of a robust carbon taxation mechanism on the above sectors (the Penang Institute proposed starting with RM35 per t/CO2e gradually increasing every 2 years to RM150 per t/CO2e in 8 years), the Government could see immediate results of producers reducing emissions to avoid taxes and collecting average additional revenue of at least RM21.8b to RM24.6b per year. The large portion of the tax revenue should then be channeled towards further incentives, tax breaks and benefits to ensure the burden is not passed on to the end consumers as well as to spur further investments into sustainability transition efforts for producers.

Using the MSP model, the Government is recognized (Sex) for developing and implementing a positive tax regime and gains revenue from the taxes imposed (Money) while avoiding losses incurred in climate impact (Money). The politicians forming the Government are lauded for being progressive and is given further mandate from the people by winning votes (Power). The People are also happy as they are now able to consume desirable sustainable products (Sex) that are of high quality at a subsidized price (Money) and feeling that their inputs have galvanized action (Power). Other bodies (e.g. private outfits and/or NGOs) can also gain revenue (Money) from services and consultancy provided to the manufacturers and regulators (Sex and Power).

2.????Carbon trading

This mechanism is contained under the Clean Development Mechanism (CDM) and the Cooperative Mechanisms established under the Kyoto Protocols which is designed to help (principally) industrialized countries to monetize carbon emissions efforts by:

a.????imposing maximum allowable amounts of emissions a year (“Cap”) failing which hefty fines are imposed on offending parties; and

b.????enabling a mechanism for parties to ‘buy’ carbon credits from those who emitted less than the Cap imposed (“Trade”) on them.

A very simplistic example using the California regime:

Party A and Party B bought Caps of 100mT CO2e each for 2021 at the auction organized by the California regulator (California Air Resources Board or CARB)). Party A only emitted 90mt CO2e for 2021 (thus having a 10mt CO2e ‘credit’) while Party B emitted 110mT CO2e. Party A sells the 10mt CO2e credit at the California Carbon Credit Market (“CCCM”) (prices fluctuate according to supply and demand) and thus makes a profit if the price bought at auction is less than the price sold at the CCCM. Party B evaluates whether it is cheaper to pay off the fines imposed on the excess of the 10mt CO2e or to buy and offset the amount from the CCCM based on current prices. From the trades at the CCCM, Party A is motivated to make a profit (Money) and Party B is motivated to avoid a loss (Money) as well as being stigmatized as a ‘rule breaker’ (Sex). CARB on the other hand, makes revenue from the auctions (Money) and the trades (Money) and also decides the reserve prices for the auctions and regulates the trades (Power). Certified auditors will also charge fees (Money) to ensure that the carbon emissions by Party A and Party B are the amounts as claimed (Power and Sex).

The illustration above can be done at an international level in developed nations and through the respective trading platforms in each recognized jurisdictions. Malaysia (not being a developed country) can only participate under identified projects (e.g. sustainable forestry, land restoration, energy efficiency and renewable energy projects) that generate “certified emission reductions” for use by an investor from a developed nation and which can then be recognized under the respective Cap programs they are under.

A simplistic example of the above (avoiding technicalities like ‘Additionality’ requirements):

Developed Country Company (DCC) enters into a carbon emissions reduction project with Malaysia Company (MC) for RMxxx to replant 1,000 hectares of deforested land. It is agreed that all carbon amount absorbed (sequestered) by the replanted trees can be credited to DCC for offset to any Caps imposed by its resident country’s government. Therefore, the DCC avoids / reduces fines for any excess of its Caps (Sex and Money), MC gets RMxxx (Money) and recognition for doing sustainability efforts (Sex) and the Malaysian Government gets tax from any profits from the transaction (Money).

Saving the planet is still possible but only if we do it right and do it right now.

The best solutions are always the simple ones, but they are not necessarily easy to do. For Malaysia specifically, before carbon tax and trading can be fully implemented, real issues need further debate, refinement and development such as:

·??????Developing a National Climate Change Strategy encompassing a whole Government and country approach including doing a full inventory and emissions value of every component in Malaysia’s flora and fauna and placing sustainability KPIs with the highest levels of government Ministers (dare I say it, the Prime Minister) and Ministries

·??????An empowered national body to provide oversight of the entire Cap and Trade process, establishing and regulating market rules and conduct, provide proper certification and audit of carbon emissions and credits, implementation of national projects and initiatives and high powered MSP model based engagement and communication with the correct narratives for each respective stakeholder

·??????Establishing a pricing structure for each CO2mTe to form the base of a robust tax regime as well as a dynamic, market driven trading infrastructure. This will also enable local players to quickly benefit from the CDM structure as it will enable a benchmark to set an equitable ‘fee’ structure for developed country players to pay in carbon emissions reduction projects conducted

·??????Creating a new sustainability curriculae in all institutions of learnings and making sustainability a viable career path paying top dollar for talents (including on the ground personnel like rangers)

·??????Ensuring there are no moral hazards in existing activities e.g. loggers cutting down existing forests and ‘selling’ the rights of reforestation for carbon credits

·??????Setting up the infrastructure for Malaysia to join the international carbon trading markets system

·??????Lobbying the UN to recognise the real and tangible value of existing mega forests ecosystem and ensuring developed countries pays equitable ‘fees’ to host countries to ensure its continued health

·??????Activating the royal institutions where the respective rulers will carry an enduring legacy for the people and ensure that the sustainability and climate change agenda remains at the top most priority of each state government no matter which political party is in power at that time.

With less than a decade to go before seeing irreversible changes happening to our planet, we no longer have the luxury of waiting for someone else to come to our rescue. Climate change is a whole world crisis that requires a whole human approach, which demands us to embrace everything that makes us both divine and mundane. It was human ingenuity in the first industrial revolution that started this problem but it is also human intellect, creativity and compassion that is using the same problem and making it have real economic value for state, industry and people with carbon taxation and trading. If it takes ‘sexifying’ and providing ego gratification as well as money to ensure real and lasting action (amplifying it further with the promise of reward or punishment if certain action is or is not done), then it’s time for us to come off our high horses and get down and dirty. We all need to embrace our base self so long as we ensure our feet of clay will now tread lightly on the earth of our home… And at the end of the day, celebrate our collective humanity.