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The Adam Smith Plan to Save Markets and the Climate: The Climate is Too Big to Fail!


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This is a Proposed Plan B for financing the global climate crisis and the rapid transition to a clean energy economy. The existing funding mechanisms are woefully insufficient to meet the 1.5°C goal or 2°C limit. The goal of having $100 million/yr. by 2020 for the Green Climate Fund is wildly unrealistic, especially given US political developments and the unintended effects of Brexit.

Moreover, the IPCC has underestimated the rate of climate change and relied on far more extensive development of Carbon Capture and Storage (CCS) than is currently possible or incentivized to meet the 2°C limit. The stark reality is we simply lack financing at the scale needed to decarbonize both developing and developed economies, in the time frames needed.

In short, we need a "Big Bold Idea' that is much larger in size, that facilitates all stakeholders, including developing and developed nations, to decarbonize economies rapidly, and incentivize CCS to unleash rapid innovation.

Finally, the Fund addresses the interests of companies that find themselves with enormous stranded assets - fossil fuels. The plan incentivizes them to lead the development of CCS implementation from existing technologies used by coal, oil & gas plants to the progression of net-negative CCS (including BECCS and newer breakthrough technologies).

The Adam Smith Plan elegantly produces a Global Climate Fund of roughly $6.7 Trillion USD/year. The International Energy Association has projected $1.1 Trillion per year required for investments in the energy sector alone to meet the 2°C goal.

Adam's Smith described an "invisible hand" that could serve all interests even as people pursue their own self-interest. That is quite different than the existing paradigm which requires financial "sacrifice" by nations to help solve the global crisis; effectively a zero-sum game. The Plan utilizes a global funding mechanism to benefit nations, not only to reduce emissions but to deliver an economic shot in the arm to whole new industries and new jobs, while actually reducing risks to global financial institutions and investors from large Institutional investors (Insurers and Pensions), to Portfolio and Fund managers, to ordinary investors.

It's an offshoot of the Tobin Tax, a .05% tax on the estimated $5.30 Trillion/day of currency exchanges (FX), that yields a $6.7 Trillion Annual fund that can save the Climate, grow global growth and stabilize Markets.

A single private bank in London now closes FX of 18 currencies at the same time across all time zones. The bank is owned by 69 Member Banks and as such, we can avoid the perpetual obstacle of political resistance. Imposing a minuscule tax on the trade of the wealthiest on the earth, currency traders, which amounts to rounding errors for them, can finance the entire global transition to clean energy economies, with minimal administration of collection efforts, essentially acting as Adam’s Smith’s “Invisible Hand".

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The Adam Smith Plan to Save Markets and the Climate: The Climate is Too Big to Fail!

  1. 1. THE ADAM SMITH PLAN TO SAVE MARKETS AND THE CLIMATE A Global Finance Solution For A Global Climate Crisis By Nancy Skinner, @ClimateTalker Inspired by the Founder of Capitalism and author of “The Wealth of Nations”
  2. 2. The Problem The Climate is rapidly destabilizing, beyond predictions by models used by the IPCC to arrive At the 2 Degree Celsius (Limit) and 1.5 Degree Goal. Source: Climate Interactive April 2017
  4. 4. We Can’t Get There From Here Without Looking at the Solutions Differently Since Paris 2015, the World has Changed ➢ Since Paris 2015, Brexit happened. It complicates participation in emissions trading with the EU. It also has implications for the EU’s Financial Transaction Tax (FTT), (which French President Hollande pledged should be dedicated to Climate Change) and created competition among EU nations for attracting Banking Businesses from the UK. ➢ Donald Trump won the US Election: While his pledge to pull out of Paris is not yet known, he has taken steps to undue the Clean Power Plan, a major portion of President Obama’s commitment to Paris. His Executive Orders have allowed oil companies to stop methane flaring from oil & gas operations, removed water protections that allow coal byproducts to run-off in waterways, reducing production costs, and proposed major cuts to EPA, NOAA, and NASA that pertain to Climate Change. The EPA has taken down it’s main data collection webpage, used by Climate Scientists worldwide. He has approved the construction of Keystone XL Pipelines and the Dakota Access Pipeline. ✓ France has just elected Emmanuel Macron to the French Presidency. While that assures that France will remain in the EU, exactly what policy changes from Hollande remain unclear, but bodes very well for Climate Change as he is a strong supporter of the Paris Agreement.
  5. 5. Elections and Consequences: The Fate of the Clean Power Plan is in Jeopardy
  6. 6. Trump’s Executive Order Reversing Fuel Efficiency Standards
  8. 8. The Global Financial & Banking Industry’s Big Risk: Climate Change
  9. 9. “The point is that the more we invest with foresight; the less we will regret in hindsight. Financial stability risks will be minimised if the transition begins early and follows a predictable path, thereby helping the market anticipate the transition to a two- degree world. “ “Your invitation to discuss climate change is a sign of the broadening of the responsibilities of central banks to include financial as well as monetary stability. It also demonstrates the changing nature of international financial diplomacy.” Governor of the Bank of England Chair of the Financial Stability Board – Mark Carney
  10. 10. The Insurance Industry Risk
  11. 11. Insurance Industry Effects ✓ Standard & Poor’s (S&P) recently suggested that current catastrophe losses may be undervalued by as much as 50% at the 1 in 10 and 1 in 250 return periods if the past decade were to be representative of future environmental trends. --Standard & Poor’s (2014), “Climate Change Could String Reinsurers that Underestimate its Impact” ✓ Given the widespread governmental acceptance of climate change and the global shift to reduce greenhouse gas emissions, there will likely be several changes and additions to existing climate change-related policies and regulations in the near- to mid-term. The severity of future climate change-related events depends on how Aggressive these policies are, both in terms of the size and timing of carbon emission reduction. --Global Risk Institute ✓ Several insurers/reinsurers have since participated in climate-related efforts including research collaborations with the scientific community, raising the awareness of clients and the general public, and conducting internal reviews to assess the risks and opportunities associated with climate change. Despite this involvement, the number of worldwide weather-related loss events has tripled since the 1980s, and inflation-adjusted insurance losses from these events have increased from an annual average of around $10 billion to around $50 billion over the past decade. --Global Risk Institute
  12. 12. Bank Industry Effects
  13. 13. “Clearly, the faith in the OPEC and non-OPEC deal has just been obliterated. There are whispers and rumors out there that the deal won’t even get extended,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund, said by telephone. “The proof just hasn’t been in the pudding in terms of this accord.”
  14. 14. The Oil Sector is in Upheaval and Volatile. US Natural Gas has caused a glut of oil supply. Natural Gas has all but decimated the Coal Sector. Worldwide supply by non-OPEC actors like Libya and others threaten the production cut extensions to be decided May 25, 2017 as Russia and OPEC meet to negotiate. With massive oversupply and competition, many analysts believe that market share concerns will over-ride artificial supply limitations, and a price war may ensue. The Paris Agreement has already fundamentally changed the trajectory of energy for the future. Nations like China and India are racing to clean air and investing in renewable energy while shuttering coal plants. Major corporations have long since been on board, where sustainability is a measure of progress.
  15. 15. FINANCING THE TRANSITION The International Energy Agency estimates that: “an additional USD 1.1 trillion in low-carbon investments is needed every year on average between 2011 and 2050, in the energy sector alone, to keep global temperature rise below two degrees Celsius. In cumulative terms, the world is falling further and further behind its low-carbon and climate-resilient investment goals.”
  16. 16. Where in the World can we get the Scale of Funds required to Decarbonize the World’s Economy? ON JUSTICE… If justice is removed, the great, the immense fabric of human society, that fabric which to raise and support seems in this world, if I may say so, has the peculiar and darling care of Nature, must in a moment crumble into atoms. THE INVISIBLE HAND… The rich are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus without intending it, without knowing it, advance the interest of the society, and afford the means to the multiplication of the species. Ask Adam Smith
  17. 17. The Solution Now, that the Climate is too big to fail! Rather than rely on national contributions to The Green Climate Fund, from nations that are finding that politically difficult or impossible, and which only goes to smaller nations primarily for adaptation… Why not impose a single global tax using the symbol that most represents a nation or a Union, it’s Currency, or Foreign Exchanges (FX), valued at $5.3 Trillion/day, using the most eloquent administrative means of collecting that tax, at the point of daily closure for such transactions, the CLS in London, a private specialized bank, a unit of the International Back of Settlements, the Bank for the world’s Central Banks and the world’s largest private banks and financial institutions. One Tax, FX, not as many transactions as the EU-proposed Financial Transaction Tax. A tax that the late Yale Professor, James Tobin, proposed as a means of stabilizing “hot money” and therefore the financial security of global markets and natural currencies. The other benefit is that the tax is paid essentially by the wealthiest on our planet, where increasing income inequality undermines national governance. The taxpayers bailed out Big Banks and Financial Institutions in 2008. Traders, who wouldn’t notice a rounding error can contribute to a $6.7 Trillion Annual Fund for decarbonizing all our economies and dealing with the seemingly intractable problem of stranded assets; the fossil fuels that can’t be burned.
  18. 18. The Foreign Currency Trades Dwarf all other Trading Markets * * Bank of International Settlements
  19. 19. The Math Take $5.3 trillion X .005*= $26.5 billion $USD/day NASDAQ estimates 252 Trading Days a Year so $26.5 billion times 252 = $6.7 trillion a year. * .5% A half of 1 % on trades
  20. 20. ✓ Stabilizes global financial market and currency risks. ✓ Provides the scale of funds necessary to decarbonize globally and rapidly. ✓ Creates global wealth with new clean energy industries, including Carbon Capture & Storage (CCS). ✓ Reduces ‘devastating’ risks to high-carbon portfolios, insurers and pension funds. ✓ Can be achieved simply by private global banking institutions ✓ Avoids political opposition to Climate Change (Deniers, Big Oil-funded PR) ✓ Requires no Congressional or Parliment approval or taxpayer funding. The Benefits of the Adam Smith Plan
  21. 21. The Financial Markets are systemically at risk as property damage, sea level rise, rapidly changing public opinion and smart money moves money out of heavy-weighted fossil fuel assets due to any number of shocks: A major extreme weather event, Institutional Disinvestment, or very real gluts and oversupply possibly causing oil futures to crash by 50%. * * OPEC and non-OPEC parties are meeting May 25th, 2017 to discuss continuing current production limits. A continuance seems unlikely.
  22. 22. The World is moving already to monitor Global Financial Institutions and the Impact for Secure Investments
  23. 23. The Good News Renewable Energy prices have dropped by 80% as installations increase the economies of scale. China has invested USD $321 billion in Renewables and half-built coal plants are being shut down. India plans nearly 60% of electricity capacity from non-fossil fuels by 2027 Expansion of solar and wind power will help exceed Paris targets by almost half and negate need for new coal-fired power stations. According to a report by investment firm Arabella Advisors, the more than $5 trillion in investment funds leaving fossil fuel stocks is double the market valuation it had reached just 15 months ago. Disinvestment is Accelerating Major global corporations are moving forward on efficiency and many with goals of 100% renewable energy. Including Wal-mart, GM Bank of America, Google, Apple and Facebook.
  24. 24. Source: World Resource Institute The Bad News It’s insufficient to meet a 2 C° Limit, let alone 1.5 C °. The funding of the transition to decarbonization, is woefully insufficient, chaotically decentralized, depends on doubtful Pledges, INDC’s remain underfunded, and time is running out even as climate damage is costing lives, economies & global financial stability.
  25. 25. Although public finance and investment will continue to play a critical role, particularly in low-income countries, large amounts of private capital are needed as well – and this will only flow if the right market signals are present within the financial system. Private financing of infrastructure that is high-carbon, not climate-resilient, or generally unsustainable still significantly outweighs private flows to sustainable infrastructure. Actions by regulators and policy- makers in the financial system can reorient incentives and reframe how investors view risks and potential returns. Reforms in the financial regulatory system and in the practices of central banks, combined with other policy reforms (e.g. to price carbon and support innovation and to use sustainability criteria when screening projects), can level the playing field between sustainable and unsustainable options and thus give a powerful boost to private investment in sustainable infrastructure. Private Finance and Central Bank Practices Can Push Infrastructure from Unsustainable Toward the only real path forward: Sustainable Infrastructure. Source: New Clean Economy Report 2016
  26. 26. What is the CLS?
  27. 27. CLS BIS US FED Member Banks Green Climate Fund Develop -ment Banks Stranded Asset Transition Fund CCS Plants A $6.7 Trillion Annual Global Climate Fund From .005% tax on $5.3 Trillion/day in FX Audit 1 Audit 2 Audit 3 Private Final Auditors Proposed Flow of Funds and Transparency Checks
  28. 28. According to Glen Peters, of the International Center for Climate and Environmental Research, The scale is the biggest issue. In an interview on Climate Talk Radio, Peters told me that we would need to have some 20,000 CCS plants at scales factored in by the IPCC, given technologies that are in infancy or don’t yet exist, which require the building of 4-5 plants a week. His fear is lack of financial incentive to do so. Coming full circle, given the IEA estimates that USD $1.1 Trillion are needed annually just in Renewable, Efficiency and decarbonizing energy alone is required to meet Paris Goals, And acknowledgement that industries with stranded assets (coal, oil in particular, with natural Gas to a lesser extent, will suffer financially and have secondary effects on portfolios, whether Individual, or institutional investors like Insurers and Re-Insurers and Pension Funds worldwide. Putting aside an allocation for those companies that risk stranded assets while have the most experience with CCS technologies, can be incentivized to build CCS with Net-negative emissions, as they also use CCS to reduce the footprint of built facilities and sunk costs.
  29. 29. “This situation is compounded by a lack of understanding and experience with CCS in the finance sector, and a focus on the additional costs of CCS rather than the overall competitiveness of low-carbon energy production in the long term. Governments, industry and the finance community need to work together to identify and develop the key features of a model incentive framework (as part of a broader emissions reduction Framework where one exists) that would encourage adequate CCS investment.” International Energy Association 2013 A Model for Incentivizing CCS Researchers and IEA have warned that INDP’s will not meet the 2 C Goal and that major investments in Carbon Capture and Storage (CCS) are required.
  30. 30. So can a $6.2 USD Annual Trillion Climate Fund spur economic growth in clean Infrastructure and call it a day? Not without global cooperation and major investments in Carbon Capture and Storage (CCS) Of the 120 scenarios explored by the IPCC in Paris, all of the relied on some amount of CSS, yet Only 5-10 INDC’s actually included CCS projects in their Pledges. CCS is the “Get out of Jail Free Card” that doesn’t exist anywhere near the scale assumed by and required as part of a 2 C goal. The financial incentives don’t exit for net-negative emissions CCS like BECCS that removes CO2 and permanently stores it in deep underground wells. The most experienced with CCS are the coal, oil & gas industries who have employed them To capture CO2 but for the purpose of increasing oil production of declining wells. These industries are most at risk of decarbonization and declining futures, yet can exchange stranded asset losses with building CCS plants at a massive scale world wide.
  31. 31. Existing Mapping of CCS Plants – An Open Market for Expansion Source MIT, Center for Carbon Capture & Storage
  32. 32. ✓ Provide the world sufficient funding to decarbonize and meet the Paris 1.5 C Goal. ✓ Use a single tax on one Financial Transaction, Currency, which both includes all wealthy and non-wealthy countries alike, at least the wealthiest among them, and eliminates the problems of the proposed FFT in a post-Bexit EU. ✓ The global wealth tax, as it may be called, is essentially the partial repyment of global Bank Bailouts by taxpayers as a result of the 2008 Global Recession and Banking Collapse and will help politically in this environment. ✓ But the Global Climate Fund will also be distributed to all countries, to create new industries and jobs in a Marshall Plan-style rapid mobilization of expansion of existing renewables, battery, storage, smart grids and distributed. Global GDP would actually grow. ✓ Member Central Banks and private banks will be given earmarked capital to finance and therefore profit from the decarbonization building and infrastructure. ✓ Some amount should be given to companies with stranded assets, coal, oil & gas, to persuade their transition to being clean energy providers, as their technical abilities are significant. The Bottom Line: From Zero Sum to Thriving & Survival
  33. 33. NEXT STEPS : BIG BOLD ACTIONS The Adam Smith Plan is conceptual, but is based on the ever-changing reality and gap between achieving our 1.5 C ° goal and 2 C ° limit, and the limitations of existing INDC’s and the funding shortfalls of these by nations. The beauty of the plan is that the institution that could administer the plan, CLS, is a Private Bank, regulated by the US Federal Reserve (Chaired by Janet Yellen), and its private Memberships, which include Federal Banks and major private bank and financial institutions. This unique private nature, may allow action to proceed much more rapidly than national Governments, Congress, Parliaments, etc. as most major nations are already Party to CLS, and use the Bank to close FX Trading, across multiple time zones, including 18 currencies presently. The CLS has vastly minimized foreign currency exchange risk. It may just be a tiny tax on the wealth of nations, it’s currency, may minimize risk to our Climate, our Financial Institutions and our survival. Anyone else got any big ideas? There are more than welcome!
  34. 34. A Note From the Author: The Adam Smith Plan, as I’ve named it here is indeed a “big bold idea”. It comes from a lifetime of working to both solve the Climate Crisis and move to a Clean Energy Economy, where whole new industries are grown and new ones are born and along with them, the jobs and income that the peoples of all nations need so desperately now. It is the result of changing political and economic winds that after 20 years of UNFCCC and COP talks and the pinnacle of Paris 2015, saw our hopes Dashed as a fever of nationalism threatens the work of millions of scientists and diplomats; where Denial is somehow exalted and masses of people fear so much, they don’t see that its their fear that endangers them. Change is hard they say. Not changing is harder I believe. We have never faced such a complex global problem that required cooperation because we are all dependent on the outcome for own survival; our human interest make us realize our inter-dependence. Strange that our last best chance comes at a time when nationalistic, tribal-like influence are sweeping the globe like a pandemic. But being human means being fearful of change, especially when the reality is that wealth is being concentrated increasingly in smaller number of hands, while billions struggle to get by in industrialized nations and to survive with enough food, water and shelter as many in undeveloped countries.
  35. 35. But all fevers break; especially ones that I call testosterone fevers. At the very crucial moment that Mother Earth needs us to nurture and rejuvenate her, a strong headwind of powerful forces are projecting or provoking violence that has the power to annihilate life on earth. Brexit, followed by the election of Trump and rise of Russia flexing its power as an oil-financed regime are all cause for concern. On the bright side, China has shown a reversal on climate change Change and now leads the world in investments. Saudi Arabia and other oil-rich countries have also looked beyond the next quarter or election, and are preparing for the transition to a Clean energy economy. I applaud those efforts, where humans seek solutions for humanity. The sun and wind are not companies to whom monthly bills are due – just upfront investments in our future. The Adam Smith Plan does indeed rely on the “invisible hand” of capitalism to direct resources where they need to be. It’s an elegant global solution that distributes wealth, health, and a sustainable future for the pale blue dot we all call home. It’s just a start, as all transformative ideas are. I rely on my fellow travelers to refine and fine tune what appears to be our next best Plan B. Nancy Skinner