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On National Carbon Accounting and Polysolutions
This week’s Messenger continues to be about Worldmaking but in a different vein from our focus in recent weeks. Carbon Futures are imaginations of a near future world (let’s say no later than 2050) in which climate change has been integrated into politics, policy making and everyday life. National Carbon Accounting is our first foray into Carbon Futures.
PS: if it reads like an Op-Ed, that’s because it is an Op-Ed.
PPS: We will be taking next week off.
The climate polycrisis - 'polycrisis' is a term made popular by Adam Tooze - refers to the interconnected and compounding crises related to climate change that are affecting the planet. It encompasses not only the physical impacts of climate change, such as rising temperatures, sea-level rise, and extreme weather events, but also the social, economic, and political challenges that arise from these impacts. In India, one can see the interconnections between seemingly different themes such as energy, infrastructure, health, migration and food production that are being impacted by climate change. Recognizing the complexity and interconnectedness of the climate polycrisis is crucial for developing effective strategies to flourish in the era of climate change. It requires a holistic approach that takes into account the diverse perspectives and priorities of different stakeholders, and that seeks to promote resilience, equity, and justice in the face of climate change.
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While it seems easier to pursue our response to climate change in a sectoral fashion, the very nature of a polycrisis means that tweaking one corner of the climate challenge leads to unexpected consequences elsewhere. Instead, we need a deep transformation, one that lays the foundation of a new economy that's sensitive to the planet. Just as digital infrastructure enables new startups and public services, we need to imagine 'carbon infrastructure' that creates opportunities for a flourishing future, infrastructure that takes the flows of carbon into account in the formulation of policy at every level: district, state and country.
The first step is measurement. We need to measure carbon emissions from that of individual citizens to that of the nation as a whole, for whatever can’t be measured can’t be traded or taxed. Once we have a measurement system in place, we can build an accounting system that helps us balance our carbon books. We are all familiar with financial balance sheets with their sources and their applications. What if the same thing is done for carbon? Existing carbon accounting methodologies such as those championed by Karthik Ramanna at Oxford are already capable of tracking carbon balance sheets at the corporate level. A national carbon accounting (NCA) system is both an evolutionary and a revolutionary generalisation of these ideas, since it will bring the entire nation under one carbon accounting framework.
Just imagine a world in which we file carbon tax returns alongside our income tax returns. OK, may be that doesn't make you happy since that's another layer of paperwork on top of an already heavy burden, but take a moment to consider the revolution in public finance that will emerge when carbon is valued as it should. Public finance is the primary mechanism of development. Governments apportion funds for developmental activities, with different needs competing for the exchequer’s purse. The revenue to fund the public exchequer comes from taxes, and that, in turn, requires that individual entities - businesses, households, etc - keep an account of inflows and outflows of money
'Money accounting’ is an integrated system, all the way from the spending of individuals to the RBI that helps us keep track of the circulation of money within the system. The keeping of accounts makes money visible and makes public finance possible - without the keeping of books, we can’t invest in developmental measures. More generally, through accounting, we learn about the stocks and flow of money throughout the economy, which allows planning at every level, from the household to the nation. The national budget would be impossible without bookkeeping.
In contrast, the stocks and flows of carbon are not tracked at a granular level anywhere in the world. As a result, there’s no possibility for a progressive carbon tax that penalizes large buyers of petrol more than the average consumer. A progressive carbon tax requires us to keep track of the inflows and outflows of carbon, i.e., national carbon accounting. Carbon accounting is a way for companies to keep track of the carbon they are producing, removing, storing and offsetting. It helps companies keep carbon books alongside their financial books. NCA will bring the concept of carbon books to the nation and will make it mandatory for businesses and individuals to declare their carbon inflows and outflows. It will make the circulation of carbon visible, and just as with financial accounting, other goods and services can be ‘financed’ using carbon surpluses, especially if there’s convertibility between the carbon accounts and the rupee accounts. Once we have an NCA, we will be able to set targets, make predictions about future emission reductions and track our progress against those goals. We can speculate about a future national carbon budget that helps us reimagine the entire economy, including new technologies and new forms of collective action.
NCA will not only help us meet our commitment to becoming netzero by 2070, it will help us create new livelihoods and new forms of organising our economy and our society. Everyone understands GDP growth and more recently, alternative measures such as Gross National Happiness are also becoming popular. By making transparent the carbon footprint of human activities, we open up the possibilities of new forms of public discourse and an alignment between development and ecological sustainability.
In short, NCA is a polysolution to a polycrisis.