Fifteen carbon pricing bills were introduced in Congress between 2019 and 2023. None were passed. While other countries, such as Sweden and Finland, have imposed carbon taxes since the early 1990s, the U.S. and other major powers lag behind when it comes to progressive, climate-related fiscal policies. Currently only 16% of climate finance needs, the necessary investment to reach net-zero emissions, are being met. It is time for a new approach to climate economics. 

Brought to mainstream attention by Kim Stanley Robinson’s 2020 climate fiction novel, “Ministry for the Future,” digital carbon currencies incentivize reducing fossil fuel emissions. While carbon taxes punish polluters, carbon currencies, or, as Robinson calls them, carbon “coins,” reward sequestration. They deserve consideration from world governments looking to create effective climate policies. 

A carbon coin is, in theory, quite simple. New coins backed by central banks would be minted for those who sequester a specified amount of carbon over a given period of time. For example, one coin could represent one metric ton of carbon dioxide sequestered for 100 years. Once in the market, coins could be traded for any other type of currency. Central banks would also support a price floor so the currency couldn’t crash, yet its exchange rate would rise above that floor as the market realizes its value. In addition to awarding carbon coins for direct capture of carbon dioxide from the atmosphere, coins could also be earned by choosing not to emit the greenhouse gas. An oil company, for example, could be awarded a large sum of carbon currency if it chose to leave its reserves in the ground. This policy would both place a price on carbon dioxide emissions as well as incentivize fossil fuel companies to trade in their oil reserves for carbon coins and invest in sustainable energy. In the long term, these oil companies could divert their resources and labor to become 100% renewable energy companies. 

Traditional carbon taxes fall short in many ways that carbon currencies do not. Carbon coins do not create direct costs for citizens or businesses. Costs would instead be guaranteed by a coalition of global central banks, meaning that users of the currency would be protected against the risk of it losing its exchange value. This would encourage private trading of and investment into carbon currency. 

One of the most daunting challenges of overcoming the climate crisis is the enormous cost of transitioning away from a fossil fuel-based economy. In 2019, the World Bank estimated that necessary climate-related global infrastructure investment would total $90 trillion by 2050, almost 90% of 2022’s global GDP.

While taxes may be able to raise the funds required for green infrastructure investment, they do not address one of the principal issues associated with financing climate solutions. It is problematic for much of the rest of the world that the U.S. dollar is the most widely held reserve currency, because the U.S. Federal Reserve does not prioritize monetary policy that is in the global common interest. Central banks hold large amounts of reserve currency to mitigate risk from high exchange rates and to facilitate international investments or transactions. Carbon coins could replace the U.S. dollar as a new global reserve currency and measurement of value. With a new carbon-backed global currency, foreign central banks’ goal of maintaining stable exchange rates without reliance on the U.S. dollar could be reconciled with world governments’ goal of sustainable, green economic growth. 

Once coins are minted to those who mitigate pollution, they act similarly to Keynesian stimulus, a form of quantitative easing. Americans are no strangers to these sorts of economic policies — the stimulus checks issued by Congress during the COVID-19 pandemic worked in the same way. When the U.S. government pumped money into the economy, Americans reacted by spending more, helping pull the country out of a recession. Injecting coins into the economy would encourage spending and investment into sustainable, carbon-free initiatives. 

A common criticism of carbon currencies is that they are unrealistic due to the cooperation they would require from global central banks. But any reality in which humanity mitigates the worst effects of climate change will require unprecedented levels of cooperation from all facets of society. A carbon tax complimented by a carbon coin would encourage the collective action that humanity needs to solve the climate crisis. The combination of positive incentives (carrots) and negative incentives (sticks) has been shown to increase collaboration among self-interested groups. This would leverage people, businesses and corporations to strive towards net-zero carbon emissions. 

Although popularized by science fiction, carbon currencies are gaining traction in academic and political circles. The most prominent group currently advocating for a carbon currency is Global Carbon Reward. The GCR policy proposal uses a carrot and stick method that provides a roadmap of how to incentivize all levels of society to decarbonize without burdening low-income countries. It is structured around the goal of the 2015 Paris Climate Agreement: to keep global temperature from rising more than 1.5 degrees Celsius from pre-industrial levels. Achieving this will require emissions to be reduced by 45% by 2030 and reach net-zero by 2050. Delton Chen, founder of the GCR project, plans to propose an international treaty for global carbon emissions reductions and sequestration as early as 2025. 

The world can no longer delay its response to the global climate crisis. Solutions exist, and it is time for our political and financial leaders to embrace them. Carbon currencies have the potential to close the climate finance gap and help decarbonize the atmosphere. They deserve recognition from central banks and policymakers as a legitimate, feasible answer. 

Ethan Bittner is an Opinion Columnist from Santa Rosa, Calif. He writes about the global climate crisis and American culture. You can reach him at [email protected].