MMT Carbon Initiative—a modest proposal

By J.D. ALT

With great interest, I’ve been reading about the “Terraton Initiative”—a program designed to enlist farmers to sequester one trillion tons of carbon in their soil using innovative and “regenerative” planting techniques. The initiative was recently rolled out by Indigo AG—a young and rising Boston company recently named by CNBC as “the world’s most innovative company.” Indigo AG’s mark has been the establishment of a sophisticated platform enabling grain-farmers across the country (and around the world) to differentiate the quality-characteristics of their harvest (e.g. organic, non-GMO, heirloom varietal, etc.) and connect directly with buyers seeking those quality-characteristics. What got my attention was the fact that Indigo AG, with its recently announced “Terraton Initiative,” is now proposing to help farmers deploy strategies to maximize carbon sequestration in their fields—and then pay the farmers $15 for each ton of carbon they sequester. (Current agribusiness farming techniques, promoted by Archers Daniels Midland and Monsanto—now Bayer—add 4 billion tons of greenhouse gas to the earth’s atmosphere each year.)

To put this in perspective, one trillion tons of CO2 is what human civilization has pumped into the earth’s atmosphere over the past 250 years. Indigo AG is proposing to take it all back—and sequester it in the world’s 3.6 billion acres of agricultural soils. End of global warming—end of the threat of climate change! (Of course, it wouldn’t be that simple since many of the changes are “baked-into” the foreseeable future by mechanisms already set in motion; nevertheless, pushing atmospheric carbon counts back toward pre-industrial levels would obviously be a considerable step in the right direction.)

There is, of course, another perspective: At $15/ton, achieving the goal of the “Terraton Initiative” will require paying farmers $15 trillion for their services. Indigo AG says it has already lined up a group of “buyers” who will get the ball rolling by purchasing (from Indigo AG) “carbon credits” which they can then use to offset their own carbon footprints—and even claim their products are carbon negative. Presumably, Indigo AG is making a profit in this transaction; if they’re paying farmers $15/ton they might be selling a credit to that ton for, say, $17. So, to achieve their goal, they’d have to sell $17 trillion worth of carbon-credits.

The only way this sounds long-term plausible is if the entire consumer world got on board with the idea of buying only carbon-zero—or carbon-negative—agricultural-based products. Which is unlikely—especially within the ten-year time frame scientists are telling us we are up against to make a significant move to limit atmospheric carbon build-up. Nevertheless, what Indigo AG is undertaking is intriguing (and highly laudatory) for several reasons:

1. The initiative is clearly part of a rational, large-scale climate-change solution that is founded on current and reasonably projected technological capabilities. One North Carolina farmer who has already been experimenting with existing “regenerative” techniques has sequestered 1.5 tons/acre in his fields. If that efficiency were doubled, the 3.6 billion acres of cultivated land, world-wide, would be capable of sequestering 10.8 billion tons of carbon per year through agricultural practices alone.
2. The initiative is not top-down, but a genuine, diverse, bottom-up endeavor. It will “employ” thousands of individuals and small businesses in creative efforts to develop and deploy agricultural carbon-sequestration strategies and techniques. The initiative includes additional monetary awards for innovative ideas that can be used by others to increase the efficiency of their sequestration efforts. It puts the true “initiative”—and the financial rewards—squarely in the hands of people on the ground.
3. No one is coerced to do anything. The only enforcement is a measuring regime to document actual sequestration levels achieved. The motivation to participate is wholly “market-driven.” The same North Carolina farmer who’s sequestering 1.5 tons/acre on his 1000 acres will earn an extra $22,000/year “for doing,” he notes, “what I’m already doing.” Others would likely be motivated to start “doing” the same thing—and earn the premium, as well, on what they’re already growing and selling.
4. There are profound collateral benefits to the initiative. The “regenerative” farming techniques will replenish the fertility and water-holding capabilities of the world’s top-soil—capabilities which have been virtually destroyed by the intense chemical fertilizer-insecticide regimes promoted, and insisted upon, by the major agribusiness suppliers. One can imagine the ghost of Masanobu Fukuoka (One Straw Revolution)—who resolutely demonstrated that “regenerative” farming techniques can, in fact, outproduce chemical-intense methodologies—rising in celebration!

The ubiquitous “only one problem” ….

The stickler, of course, is: Where is the $17 trillion going to come from to pay the sequesters? It seems reasonable to presume that Indigo AG’s carbon-credit “buyers” will, at some point, fall short of that number. The “profit-motive,” in other words, will soon fail to motivate the creation of the necessary dollars by the Federal Reserve banking system. This seems—by definition—a perfect application for the principles of Modern Monetary Theory: The federal government, in other words, would instigate the creation of the dollars necessary to pay for the carbon sequestration efforts.

To be quite specific, the payments for the sequestered carbon would not come from tax collections. Nor would the payments come from money “borrowed” from the private sector. The payments would be made by the appropriation of new dollars created by the Federal Reserve for the purpose of funding the Treasury’s payments to the participating sequesters. The necessary deposits would be made to the Treasury’s spending account by the process of trading future Reserves (i.e. treasury bonds) for existing Reserves—and then trading the future Reserves for new Reserves created by the FED. (The same process, it should be noted, by which the Treasury has been getting its “deficit” spending money for a long, long time.)

But why limit what I’m now thinking of as the “MMT Carbon Initiative” to only agricultural carbon-sequestration in support of Indigo AG’s admirable efforts? Why not propose that the federal government will buy sequestered carbon—or its equivalent—from anybody?

For example, a kilowatt of electricity produced by a solar panel can be calculated to be equivalent to 1000 lbs. of sequestered carbon (carbon that would have been emitted to produce the same electricity with fossil fuels). Families and businesses that install solar panels, therefore, would earn their share of the $15/ton payments.

Importantly, there are many less obvious endeavors that would also be motivated (and financially assisted) by the sequestration payments. Two examples: The Salk Institute for Biological Studies in San Diego is developing plant species and hybrids with enhanced capability for storing carbon in their roots. Their success could be financed by the market established by farmers looking for plant varietals that enable them to increase their carbon sequestration payments.

The Marin Carbon Project is a group located in the San Francisco Bay Area that seeks to enhance carbon sequestration not just in cultivated soils, but in unoccupied rangeland and forest soils, by the large-scale recycling of organic waste—including food waste—into compost. When dumped into landfills, organic waste emits methane (a more potent greenhouse gas than CO2) into the atmosphere. When it is recycled into compost—and the compost is spread on soils whose capacity to absorb carbon has been severely depleted—the project has determined the revitalized soil can sequester up to 1 ton of CO2 per acre. Right now, this group is a non-profit sponsored by charitable fund-raising. The MMT Carbon Initiative could go a long way to help them expand their efforts.

How does the MMT Carbon Initiative differ from a carbon tax—or cap-and-trade system?

A carbon tax sets a price that emitters must pay for each ton of CO2 emissions they create. This cost-of-doing business is passed on to consumers who would, presumably, gravitate to products least affected by the tax (i.e. with lower prices)—creating an incentive for businesses to switch fuels or adopt new technologies to lower their emissions. This would create a virtuous cycle that would, through a decentralized, market-based process, reduce CO2 in the atmosphere. All good if you can politically get business to swallow a new tax that intentionally disrupts their existing business models.

In a cap-and-trade system, the government sets an emissions cap and issues “emission allowances” to meet that cap. Businesses must acquire and hold allowances for every ton of CO2 they emit. Companies buy and sell the allowances, establishing a price per ton of CO2 emitted. The net result, presumably, is that businesses are motivated to develop strategies and technologies to reduce their emissions—and are paid to do that by selling their unneeded allowances to other companies which must continue to emit more than their allowance. This has always seemed to me a round-about and complicated way to create the appearance that markets are magically undertaking the mitigation of climate-change.

The MMT carbon initiative seems superior to either a tax, or a cap-and-trade system, on at least two accounts:

1. It doesn’t disrupt anybody’s existing business plan. Instead (as illustrated by the examples cited above) it underwrites and incentivizes a lot of new and expanded business plans across a wide spectrum of economic endeavors.
2. It incentivizes, right from the start, a great many people (e.g. farmers) to take specific, concrete actions (“regenerative” planting and harvesting techniques) which will result directly in the immediate sequestration of carbon from the earth’s atmosphere. No waiting around for complicated cap and trade market-structures to be negotiated.

Will the MMT Carbon Initiative generate run-away inflation?

At first blush (which is usually how far economic pundits go on the topic) it would seem that adding $17 trillion to the world economy (by paying people newly created dollars to sequester carbon) is—almost by definition—going to create run-away inflation. Right? How could it not? One day, everyone is buying stuff with X no. of dollars, the next day they’re buying the same stuff with X+17 trillion dollars—so how is the price of everything in the world not going to explode off the charts requiring people to carry money around in wheelbarrows to buy a loaf of bread? Man the barricades against MMT! Prepare for America’s decent into the realms of Venezuelan chaos!

But please put these visceral ideological juices aside, and give some thoughtful, rational (and, above all) self-interested consideration of what is really going to unfold with the MMT Carbon Initiative I’ve just outlined:

Dollars are not going to be “dumped” into people’s bank accounts. They’ll be deposited incrementally—and only in exchange for the accomplishment of real, useful tasks. And it’s the real tasks—and the outcomes they achieve—that are the most important things. We’re trying to confront, here, an existential threat to human society. So what if one of the residual effects of accomplishing that goal is that a can of Coca-Cola ends up costing $2 instead of $1? When I was a kid, a bottle of soda only cost ten cents! And, in the process of getting from 10 cents to $1, I’ve never once carried money around in a wheelbarrow. In other words, so long as prices rise incrementally—reflecting the incremental expansion of human endeavors and accomplishments—inflation doesn’t matter. And the MMT Carbon Initiative embodies the very idea of the incremental expansion of useful human endeavors.

Keeping fossil fuels in the ground

The final argument I’ll make for the MMT Carbon Initiative is that it is potentially a passive (i.e. non-regulatory) strategy for keeping fossil fuels in the ground. To have a profound effect, the initiative doesn’t need to accomplish this—but it is enticing to play with back-of-envelop calculations that suggest it plausibly could accomplish it. And there probably wouldn’t be a bigger game-changer in the race against global warming than significantly limiting—for a period of, say, 10 years—the extraction and refinement of fossil-fuels.

My back-of-envelop calculations are based on the presumption that oil and gas companies want to figure out a profitable way to transition to alternative fuels and energy systems. The MMT Carbon Initiative—paying anyone $15/ton for sequestered carbon—could get their attention (and participation). Here’s the calculations (using quick, google-search numbers):

• A barrel of crude oil = 0.5 tons of carbon emissions. Leaving a barrel of crude oil in the ground, therefore, would earn $7.50 from the MMT Carbon Initiative.
• Average cost to extract a barrel of crude oil from the earth = $25/barrel. Average cost to refine that barrel of crude oil into burnable fossil-fuel = $3/barrel, for a total cost of $28/barrel extracted and refined.
• Assuming an average net profit of 20%, oil and gas industry earns $5.60/barrel of crude it extracts and refines.
• Therefore, if the crude oil were left in the ground, under the MMT Carbon Initiative, the oil and gas industry would earn the same $5.60/barrel profit plus a nearly $2/barrel premium!
• If the $2 premium (from the MMT Carbon Initiative) were applied to research and development, $127 billion/year would flow into the development and deployment of zero-carbon energy systems.
• Over ten years, this would amount to a $1.2 trillion investment in zero-carbon energy solutions by the oil and gas industry—an investment which, hopefully, would secure a transition to a zero-carbon business model for the energy sector.
• There would, therefore, be virtually zero need to recommence the extraction of fossil-fuels after the ten-year research and development effort. The entire world-economy would now be operating on a new business model—and, according to the IPCC’s latest reports, just in time.

It should be noted that the MMT Carbon Initiative, itself, for the same reason just illustrated, could be given a ten-year time limit. Ideally, at the end of that “decade of sequestration,” not only would the world be operating on a zero-carbon energy model, but atmospheric carbon would be re-established near pre-industrial levels. An astonishing collateral benefit would be the transformation of world agribusiness into a “regenerative” process that builds topsoil, conserves water, and produces healthier food.

Perhaps, a decade hence, the experience of accomplishing all this will have brought us together around the realization that we can, as a collective society, use a modern understanding of money to accomplish things we didn’t think possible. At that point perhaps we could genuinely—and with an effort equal to what we’d just undertaken—focus on saving the other species on the planet that we’ve put gravely in danger.