The year of the Global Social License – 2015 Carbon Economy

The ‘social license’ is behind the shift to a carbon economy and the shift from the petro-chemical industries. The discussion moved from the automotive industry and how consumers willingly take up the new products that promote better environmental outcomes. It was further discussed that a similar change is influencing the other industries. The shift in the valuer attitudes is remarkable in that whatever economic theory you are predisposed to, or learnt in school, you will in all likelihood find value by participating in the carbon economy.

History has a way of repeating itself, and Adam Smith as the ‘father of capitalism’ described the ‘guiding hand’, which can be interpreted as a ‘social license’ that is part of 2015 regulatory thinking. Even those that follow Karl Marx writings will find a ‘social license’ forms a valuable and insightful regard to the specific mechanisms of an economic system.

We find that Marx and Smith diverged drastically in their political ideologies (not unlike the Labor and Liberal parties in Australia). However, their economic theories were similar in that both hold the labour theory of value as a core belief. Each believed that the number of labour hours put into an object created the value and thus the worth of the object. This is where the carbon economy differs in that the value is clearly in the hands of the valuer and not the politic as our government would like. It could explain why the traditional control mechanisms are not working, there is a disquiet in the community, and effectively communicating the political message ‘of value’ is seemingly on an uncomfortable setting.

The Austrian school of economics espoused its theory of subjectivity. From this theory, it follows that a product possesses value only if there exists a valuer. They say the object must be useful to a consumer in some way; if it is not, it is not valuable. The consumer’s feelings or subjective analysis give the object its value. Because of the laws of supply and demand, if the subject warrants a high value it will be commensurable with a high value.

The carbon economy can already show subjectivity of the price sets its value without regard to your politics. We say this as the carbon economy is already seen that the more desirable or valuable object on our connection to the trinity of human existence, with heaven and earth. The trinity concept is as much eastern as it is western in its connection. How high a price we are prepared to pay is to be proven. But, there is a universal willingness to try and it indicates this is the most logical reason for its value.

The carbon economy also indicates that the labour theory of value is incorrect because even though hours of labour might have gone into building an object, if no one wishes to purchase it, it has no worth and cannot be made commensurable with anything else. That not us saying that it is the indications of commercial reality that includes the need for sustainable outcomes to be demonstrated through the money practices of today and it strongly appears the social license is driving this trend.

For the success of the carbon economy lessons, from history you cannot ignore Marx and Smith. They still influence our current economy and we will still be affected by their ideas. Albeit these times do indicate a leaning to Smith is more fashionable. That said, Marx had brilliant insights into the workings of an economy and thought extensively about the mathematical side of economics. Political theory aside, Marx’s writings are valuable and insightful in regard to the specific mechanisms of an economic system. Smith is not called the “father of modern economics” for naught. The idea of the laws of supply and demand and the invisible hand can be found in high school and college economics teachings around the globe. Aside from the mistaken labor theory of value, Smith’s economic and moral theories are respected and employed in modern free trade economic systems today.

There is much debate about whether or not the so-called “moral Adam Smith” is compatible with the “economic Adam Smith.” Some believe there is a discrepancy between his discussion of morality and virtue and his thoughts on capitalism fueled by self-interest; Others brush off this claim as mere misunderstanding and say Smith’s “virtue” consisted of at least three major elements: prudence, justice, and benevolence. Prudence – a characteristic of self-interested conduct and economic pursuits. Justice (described as a ‘negative virtue’) – conduct in accord with public laws meant to restrain excessive self-interest. Benevolence (the highest form of virtue) – featured through private relationships.

Where carbon economics will not agree with Smith is that one may choose to relish only their commercial virtues; the person may become successful in business, but not be a completely moral being and have a place in our society. Carbon Economics would say they have no social license.

Adam Smith began writing on the importance of a free-trade economic system while he lived in mercantilist England. Smith had the foresight to realize that the mercantilist system was flawed. Mercantilism stressed the need for “large reserves of bullion” to reap economic benefits. Smith disagreed with mercantilist theories and expounded on the importance of free trade. The Wealth of Nations sought to discuss just that, the wealth of the nation as a whole. Rather than focusing on how much land the rich had or what the king acquired, Smith discussed how each individual person could successfully reap his or her own economic benefits and thus add to the nation’s wealth. He cited that in a free trade economy, a person has the ability to earn money and should then use it to purchase other goods (or capital to create their own business) which will then lead to growth in the economy. Smith believed that by earning and spending money, the economy would be stimulated and thus grow.

Smith wrote The Wealth of Nations during the late 1700s, during which a mercantilist society still existed. He realized the need for a better and more efficient economy that would benefit each citizen and the entire nation at the same time. What you may not know is that Smith merely envisioned the free society, he did not actually live it.

Marx wrote in the late 1800s, when the industrial revolution was in full swing. He personally saw and studied the filthy and dehumanizing conditions in which British factory workers labored. That experience led him to think capitalism was the source of every ill in society. He was only exposed to the exploitation of workers who labored long hours for meager wages while rich factory owners’ reaped benefits. In addition to his geographical and historical background, there are two key reasons as to why Marx indicted capitalism for all the problems in the world, these also exemplify his error: He believed that the class in which a person is born is the one in which he or she will remain. He blames capitalism for entrapping human beings

The beauty of a capitalist system is that it is free—we can own property, start a business, and live our lives as we so desire, provided we are not harming anyone.

There is the issue: providing we are not harming anyone. This where the social license is best measured. It is the measure of the carbon economy. What we can hope is that we will live to see the carbon economy proven – those actions are not harming anyone!

Environmental Project risk – 2015, no option to do nothing

There is a rise of project risk if you ignore sustainable practices. Banks are introducing the need to consider that you be aware of that responsibility. 2015 is shaping itself as the review year of regulatory response and licenses to assign risk. It follows that we are on track to the need to focus on compliance action verses the risk of no action being greater. The evidence is you are endangered as a species or at best targeted by Australian jurisdictions if you ignore what your facility or business might do to reduce the risk. For instance environmental licensing regimes are being reworked so that compliance activity can be aligned with actual facility risks. These checked activities take into account the operator history and what is a nearby sensitive environment.

You may not be aware of AELERT – their website says:“We are a collective of environmental regulators from all levels of government across Australia and New Zealand.  We create a platform for environmental regulators to connect and collaborate in their work.

Member officers connect through AELERT to exchange resources, knowledge and experience about environmental regulatory practice and work together to drive continuous improvement and new approaches to the ‘regulatory craft’.”

What is growing from this collaboration is NSW will launch its risk-based licensing scheme on July 1, 2015, and Victoria’s three-year roll-out of its Licensed Operator Risk Assessment scheme will be completed in 2015, while Queensland is also well into a process of risk-profiling the sites it regulates.

The other issue is that compliance to regulatory needs has another element in 2015: It is called ‘social licence’ and is likely to be the dominant phase of 2015. Our opening paragraph referred to banks, and this form of license, and we quote:

“And it’s no good having the official go-ahead to build a coal port or mine if activists have made sure that no financial institution will back it (see related article).

Many environmental groups have become so dismayed at what they perceive to be a large-scale wind-back of environmental legislation that they no longer consider official processes capable of delivering a fair result. Their concerns have been magnified by the de-funding of public interest environmental lawyers (see related article), new restrictions in Queensland on rights to appeal decisions or even be notified about projects (see related article), and Tasmania’s new law cracking down on rights to protest (see related article).

For many groups, that means strategic community campaigning – ranging from blockades to shareholder activism – is now often seen as the best option.”

To Co2land org these license events are the equivalent to the actions of the political pendulum and as history displays no matter what the swing the middle is where it will travel.

The pendulum for carbon pricing was set in 2014 with the repeal of the Carbon Tax, and the reliance on the Emission Reduction Fund to take the battle over the policies of what Australia should use to reduce emissions. To again to use out quoted source:

“But 2015 will mostly be about how deeply the nation should cut them. In Australia, one legacy of the 2014 struggle over carbon policy is that we will have two major reviews of suitable targets – one led by Prime Minister and Cabinet (see related article) and another by the Climate Change Authority (see related article).

Both will be important. Although the PMC review will represent Australia’s official position, other governments are likely to judge the Government harshly if its proposals fall far short of what the Climate Change Authority suggests. Meanwhile, businesses themselves will come under increasing pressure to set corporate emissions reduction targets that are based on climate science.

There is now an international campaign – with high-profile backers including CDP, the World Resources Institute and WWF – urging companies to do so.”

Our current Government has introduced an emission reduction scheme – albeit with a $0 baseline and it is called Direct Action Plan. The Senate referred to the Environment and Communications References Committee for inquiry and report on the matter on 10 December 2013. All good to go now and you expect no problems!

Then SAI GLOBAL, 2 February 2015 reports in the Carbon + Environment Daily that in the climate change arena, “nervousness about the capacity of Direct Action to deliver emission cuts and about the Federal Government’s commitment to renewable energy will lead to growing pressure for states to pick up the perceived slack.

The actions of the NSW, ACT and South Australian governments show they already consider they have a major role to play in helping their citizens deal with climate change, and the newly-elected Andrews Labor Government in Victoria has indicated it shares this view.

As well, both NSW and Victoria are reviewing coastal legislation in 2015, a task that will inevitably have a strong focus on climate change adaptation.”

Co2land org is taken back to the Howard years of government and recalls the shift from Greenhouse Gas Abatement Actions to Climate Change Adaptation strategies. So if this all sounds back to the future it really only means the makeup of our current government is recycling its policies as business as usual. A rebadge of funding here and there of course. If you think this is cynical it is not meant to be it is a concern that we are seeing the continuing rise of risk and that even the most strident of climate change deniers are acknowledging risk is risk, and exposure to risk requires assessment to minimize the fallout. That is a fact it is not a political position and it is common to survival.

An excellent example of taking risk seriously is Cotton Australia where in their periodical Cotton Matters, 28 January 2015 they write:

“The Australian cotton industry supports programs to reduce emissions through improving efficiencies and a first assessment indicates the draft method is technically sound. However, Cotton Australia considers that at this stage it could be challenging to garner involvement due to a potentially inadequate benefit:cost. Implementing a project involves administrative obligations and costs (e.g. for independent audits) as well as the need to manage financial risk.

Nevertheless, businesses in the carbon market are working to develop smarter services and products to help manage complexity, risk and reduce project costs. A sufficient price for carbon would help overcome these.

For these reasons, the researchers, economists and technical specialists at CottonInfo eagerly await the results of the first Emissions Reduction Fund reverse auction the coming months of this year to firm up the likely carbon price and revenue potential for future projects.”

From this Co2Land org finds the price of carbon will prevail, and the mid point of the pendulum will not be $0. There will be ‘degrees’ of difference that will set the price and price has the capacity to reduce greenhouse gas emissions adequately and effectively.

One risk for the Emissions Reduction Fund (ERF) is as the federal government’s centrepiece for emissions reduction, and it relying on being used to purchase lowest cost abatement, and participation in the ERF is voluntary and open to everyone is that it may be window dressing.  The key is the reference of being ‘open to everyone’. The issue is that interested parties must establish a project, which must follow the rules outlined in a ‘method’. What is not well know is that a minimum block of emissions reduction from the method exists and set by an arbitrary decision process. In short individuals may not particulate without complexity. Complexity by virtue of the need to be fully aware, upfront behaviour of how the detail and requirements in undertaking a project: the risks, costs as well as the benefits are presented. That said the other aspect is the market is immature and finding who to trust as having your interests as a ’license’ is a risk.