The answer, I think, can come from two complementary and non-exclusive sides: the tokenization of assets and the data of production processes.
Energy flows to the planet from the sun; Living organisms such as plants capture the sun’s energy, convert inorganic compounds that they assimilate (such as CO2) into organic compounds, transforming it into biomass. The economic systems are similar: money flows from one economic agent to another; a company’s products serve as inputs for other companies or for an end consumer in a vast network that processes and circulates energy, information and resources around the planet. And our well-being and future depend on the sustainability of these life forms or systems that we create around our societies and economies. It is important to recognize that the root cause of many of our social and environmental economic problems is that many of these systems are not balanced and are no longer sustainable in their current form. As Yuval Noha Harari says: “I hope that when we come out of this crisis, we will be able to listen to climate scientists when they warn us about what is happening on the planet”.
From an environmental perspective, global warming has shown that our production system has failed to value the contribution that nature provides to development, but rather has degraded it. For years, governments have tried to advance in creating public policies that reduce the emission of carbon dioxide and investment mechanisms for more sustainable final products. Unfortunately, they do not achieve their goal for two reasons. The first is associated with the lack of data on emissions throughout the value chain to the final customer; and the second is that the traditional monetary system uses a discount rate that is not consistent with the impact of the negative externalities of climate change.
Today there is a need and the technology available to advance and develop innovative tools and assets powered by data in order to ensure a correct allocation of investment resources. Thus, data from digitization and automation using different emerging technologies (for example, blockchainIoT, artificial intelligence, machine learning) could facilitate the creation of scoring depending on the level of emissions throughout the process.
The second challenge, related to the investment horizon of green projects, is related to the associated discount rates, on which there is no absolute consensus. It answers how much I should give up a lot of consumption today to reduce climate damage in the future. Should I invest today or should I wait? It also helps me decide which reduction strategy I should undertake to get the most benefit.
The truth is that the Nobel Prize-winning economist William Nordhaus proposed that the discount factor is 5%. Meanwhile, other economists, such as Lord Stern, proposed a discount rate of 1.4%. Is there really such a big difference? That’s right, there is no consensus. If Nordhaus were correct on the correct social discount factor, he would mean that the net present value of future climate damages is US$8 per tonne of CO2 emission. Given this low cost, few or possibly none of the current large-scale projects to curb emissions would make economic sense.
Why not better to have a monetary system that counteracts the weaknesses of the traditional monetary system in terms of sustainability? New technologies can help resolve the dissonance of investment horizons associated with the discount rate of green assets. For example, through the use of blockchainit is possible to tokenize (digitize) natural assets (stock) that have value in a certain context or for a certain community and generate complementary monetary systems. Alternatively, ecosystem services (flow) can be tokenized as an efficient way to introduce their economic value and interact in a global market in an economic microsystem that has the same time horizon. This would facilitate the carrying out of transparent transactions to finance initiatives, restoration actions, conservation, energy efficiency and territorial development that incorporate a comprehensive, sustainable perspective and in the terms that these assets and projects require, considering an adequate discount rate. In this regard, the economist Bernard Lietaer suggested that in this type of payment system the value of the monetary units was conceived in such a way as to decrease over time at a fixed rate. This would discourage the accumulation of currency, for example with a “delay rate” represented by the fixed rate.
These complementary payment systems for ecosystem services could be the reference unit of account for other specific complementary systems, depending on the type of ecosystem, as occurs in nature. And for it to work there should be some principles that ensure a system is sustainable. Some of these principles are: that they support a common public good; that all participants win; that the distribution of value is according to its contribution in the chain; that there is transparency of accounts and mechanisms for all participants; that there is democratic governance by its users; that it be a decentralized system in which it collaborates with other projects; and, of course, that there is guaranteed circulation of the currency.
It is evident that the traditional financial system has played a great role in the development of technology and the economy for the development of industrial revolutions, but not so with the sustainability of the planet…. And as Albert Einstein said: “If you are looking for different results, do not always do the same thing”. Now is the time to innovate and use available technologies to create new asset classes that represent the true present value of our natural resources and initiatives that seek to restore their balance.