Money may not grow on trees, but it does grow at a much faster rate – particularly when created by banks as interest-bearing debt. In modern economies, nearly all money is created in this way. To maintain a stable money supply, debtors must repay both the initial loan and the interest on the loan. This means we need either economic growth at a rate in line with the interest on the debt and/or inflation, both of which we’ve had a great deal of in the past century.
But back in the real, natural world, there are limits to growth. The ultimate limit is energy, something all production requires. Humans require food to survive and re-produce. To create this food we need energy, energy that comes, ultimately, from the sun.
Part of the reason our economies have grown so fast in the last two-hundred years is that we have discovered a very rich source of concentrated solar energy in the form of fossil fuels, built up over thousands of years underneath the earth’s surface and in the sea beds.
We’ve become increasingly efficient at getting this stuff out of the ground, enabling us to maintain the illusion that interest-bearing bank debt money corresponds somehow with natural laws, although not without repeated financial crises and debt cancellations. It’s increasingly clear, however, that the cheap energy party is now over.
We need to create a better feedback mechanism between money – our universal unit of account, store of value and means of exchange – and energy, the universal source of life. We’ve released a new report today on energy currencies – the first attempt to review existing proposals and projects that link money to energy, or vice versa. We present a typology to help understand the different functions that these energy currencies can fulfil, in terms of both anchoring money in the natural world and encouraging more sustainable economic activity. We include case studies of a variety of different approaches to the problem:
1) Energy accounting systems, for example Howard Odum’s ‘Emergy’ framework. This values all commodities according to the solar power (emjoules) required to create themrather than their cost, which tell us nothing about their sustainability. If national currencies were denominated in emjoules, countries with more efficient energy use-age per capita (mainly developing countries) would see their economies become much more competitive and their debts massively reduced.
2) Debit-based energy currency systems, such as the US Kilowatt hour cards. These allow people topre-purchase energy on cards or phones, knowing their purchasing power will remain stable whatever happens to energy prices.
3) Credit-based energy currency systems, where tokens are issued in return for cash that is used to invest in renewable energy production. The tokens can be used in the future to purchase renewable energy from the newly built solar panels or windfarms. Such self-financing approaches could overcome what are often otherwise prohibitive costs for renewable energy projects, large and small.
The report includes many examples of local communities setting up small projects out of frustration with a lack of progress at national level. Now is the time for academics, activists, government and NGOs to work together to further develop and scale-up the most successful of these schemes and to provide seed-funding to test out many of the concepts that so far remain at an ideas stage.
The idea of linking energy to money is not a new one, but perhaps it is an idea whose time has come.