A Framework for Addressing Climate Change
By: Gunther Sonnenfeld
Tags: Impact Investing, Economics, Environment, Ecology, Climate Change

Core Axiom: Climate change, like economics, and driven by economics, is highly compartmentalized, which makes it difficult to understand in terms of a solution set; yet, solutions are readily available and quickly deployable.

The Google search definition of climate change is: A change in global or regional climate patterns, in particular a change apparent from the mid to late 20th century onwards and attributed largely to the increased levels of atmospheric carbon dioxide produced by the use of fossil fuels.

Key phrasings of note:

“a change in global or regional climate patterns”

“a change apparent from the mid to late century onwards”

“attributed largely to the increased levels of atmospheric carbon dioxide”

Let’s unpack this further, by asking critical, inferential questions:

Isn’t there a major difference or significant discrepancies between global and regional patterns?

Why and how did this change apparently happen from the mid to late century onwards, and why not at a more specific starting date, and why not before that date?

If CO2 is critical to the advancement and health of say, all plant life, what are the real implications of CO2 in the atmosphere beyond the assumption or correlation of rising temperatures?

There are already answers to these questions, yet, as to their actualizations, they are stuck in the circles of debate.

This is obviously not the only definition of climate change. One major distinction to make is between climate change and climate variability. As the World Meteorological Organization defines the distinction:

“Climate change refers to a statistically significant variation in either the mean state of the climate or in its variability, persisting for an extended period (typically decades or longer). Climate variability is defined as variations in the mean state and other statistics of the climate on all temporal and spatial scales, beyond individual weather events.”

So let’s work with the main elements at play to establish the proper framing of a problem/solution set:

patterns

time

resources

Now let’s look at the sciences involved.

climate science : Also known as climatology; the study of climate, scientifically defined as weather conditions averaged over a period of time.

: Also known as climatology; the study of climate, scientifically defined as weather conditions averaged over a period of time. ecological science : The study of living systems, specifically biospheric studies.

: The study of living systems, specifically biospheric studies. environmental science: Interdisciplinary study integrating physical, biological and information sciences to include versions of ecological science.

Here we encounter a set of fundamentals which seem to elude these sciences in tandem, as well as the implied economics:

source of changing conditions (which are many)

rate of changing conditions (which are variable)

nature or disposition of changing conditions (which are relative)

In other words, climate patterning that is difficult to comprehend, let alone recognize. The mind might read this as something to the effect of:

“Many sources of variable conditions relative to the phenomenon known as climate change.”

Non-inferential, and incredibly inconclusive, when framed this way.

Let’s switch course, as a matter of arriving at a postulate — something to suggest or assume as true as the basis for reasoning, discussion, or belief.

If humans helped make climate change a problem, it is assumed that humans will solve it… But how?

So, let’s assume that climate change is predominantly man made. And by man made it is meant that a) it is partially caused by humans, and b) it has to be solved by humans.

Here’s a postulate we can work from:

Humans contribute to environmental conditions in two ways — through production and through consumption. Both are problems as sources of pollution and biospheric imbalance.

The question now is: What source is more significant, and how is it more significant in terms of prioritizing a solution set?

Well, we certainly consume stuff, and produce waste.

Yet, we are supplied stuff to consume, which produces even more pollution and waste.

The short answer is supply chains are the more significant source — they extract and do not restore the majority of the world’s known natural resources.

Let’s expand on this as a set of declarative statements.

“The primary source of climate change is resource extraction and waste across manufacturing supply chains which account for over 90% of the world’s waste and pollutants.”

A fairly substantive statement, substantiated with lots of evidence. Now let’s address a solution set based on this postulate…

“The solution is to overhaul supply chain processes to achieve zero net energy throughput costs and net zero carbon emissions. While ‘decarbonization’ is a reactionary measure using offsets or credits, the overhaul of supply chain processes themselves requires a proactive and integrative approach. This can be done through the use and respective mechanisms involving clean hydrocarbons (which are responsible for biodegradable plastics), regenerative renewable energy (which is responsible for removing fossil fuel emissions), and raw material conversion technologies such as thermal desorption (which are responsible for regenerating resources for net zero continued uses across supply chains).”

Let’s expand on this even further, by addressing the attainable economic incentives…

“All of these mechanisms produce multiple new revenue streams for operators, while greatly reducing operational costs as a result of cutting emissions. There are also myriad ways to regenerate the financialization of said operations, and accelerate new integrations with incentives that benefit operators and consumers alike.”

Quite inferential, and openly conclusive, when framed this way.

If that’s the case, then the problem/solution set is a lot simpler than we might think. We can make significant progress in the next 5–10 years, and bring about an environmental transformation within the next 30 years.

How is this possible? In a very similar way to how industry has evolved over the last 200 years, and accelerated expansion in the last 50 — by integrating technology with scientific and economic disciplines.

If it’s not the case, then the problem/solution set is perhaps too complex to ever navigate through.

Nonetheless, ‘climate change’ is still ‘our’ problem.

Deconstructing a broken narrative into pragmatics, specifically around the uses of capital.

Remember, the mainstream narrative (the ‘metanarrative’) is that ‘climate change is scientifically undeniable and has global scientific consensus’.

However, there is not anything anywhere close to consensus as to its actual causes, nor its actual effects.

There are a lot of compelling data based on correlates like weather aperture, smokestack emissions, sequestration effects, water supply movement, and ground temperatures. And, that would make a lot of sense, given the disposition of the underlying sciences involved, and a lack of interpolation or integration between them.

Here, it is important to hone in on three primary economic disciplines behind the problem/solution set to ‘climate change’:

environmental economics — a sub-field of economic study focused on 21st century environmental issues.

— a sub-field of economic study focused on 21st century environmental issues. ecological economics — a growing transdisciplinary field that aims to improve and expand economic theory to integrate the earth’s natural systems, human values and human health and well-being.

— a growing transdisciplinary field that aims to improve and expand economic theory to integrate the earth’s natural systems, human values and human health and well-being. resource economics — the understanding and application of economic principles to resource management. Although related to environmental economics, the field is broader and covers economic principles and realms not traditionally considered to be related to the environment.

Environmental economics focuses on the correlations between environmental issues such as weather disparities, resource disparities and biological preservation in terms of time and cost.

Ecological economics focuses on the correlations between time and cost as they relate to the natural functions of human beings and living systems.

Resource economics focuses on time and management of the natural functions between these systems and industrial systems.

There is also the fairly new discipline of circular economics, which focuses on minimizing waste and making the most of resources.

A natural progression in logic it would seem, right? Unfortunately, this is not the case.

And this is precisely the place where we can contextually, albeit briefly, examine the role of CO2. With industrial and agricultural uses alone, it is evident that existing and emerging uses of CO2 in the development of industrialized resources and the resultant products are substantial. Just looking at them through the lens of reuse technologies paints the picture quite well.

So then, why isn’t the problem of ‘carbon emissions’ being framed as a ground resource issue first, rather than an atmospheric issue first? (Aren’t resources unnaturally extracted, processed and wasted, during which trace elements are emitted into the air, land and water?)

As a recent example, here is one solution proposed — a “profitable approach to cleaning the air”, yet, nothing in the way of dealing with the causal pollutants on the ground which create the toxic air. In other words, the process of converting one greenhouse gas into another holds promise for returning the atmosphere to “pre-industrial concentrations of methane, a powerful driver of global warming”, but does nothing to sustain or renew the natural resources wasted in supply chains that create those industrial concentrations in the first place.

It is interesting to note here that environmental economics is considered a sub-field to economics, which is incredibly broad and highly theoretical, and in the way of addressing carbon solutions, has limited relationship to resource economics, and to some extent, ecological economics. Meanwhile, ecological economics is transdisciplinary, but in practice, often does not give much consideration to resource economics, just as resource economics covers areas not ‘traditionally considered relevant to the environment’. Yet, all three disciplines, as interwoven practices, might actually be the most relevant in respect to a nearer-term set of solutions — such as what we are postulating with supply chain transformation.

Also interesting to note is that environmental economists and ecological economists disagree on the relationship of human beings to natural capital — the world’s stock of natural resources, which includes geology, soils, air, water and all living organisms. This serves as a critical analog as we get closer to a new framing of what can actually be done to take far better care of the planet.

Regenerative economics has been introduced in recent years as a theory in which an economic system works to regenerate capital assets. A capital asset is an asset that provides goods and/or services that are required for, or contribute to, our well being. It is odd then, that a more formal bridge between natural capital and financialized capital hasn’t been established, especially when you consider that hundreds of billions of dollars have been earmarked for impact investments every year, with a very small percentage actually being allocated.

Regenerative economics has ties to regenerative agriculture, which is a conservation and rehabilitation approach to food and farming systems. It focuses on topsoil regeneration, increasing biodiversity, improving water cycles, enhancing ecosystem services, supporting biosequestration, increasing resilience to climate change, and strengthening the health and vitality of farm soil. Practices include recycling, downcycling or upcycling as much waste as possible, and adding composted material from sources outside the farm.

All of these processes present major opportunities for sustainable or regenerative returns on investment, provided that these opportunities can be properly contextualized in financial terms. They are also processes that can be *relatively* simple to integrate with current supply chains.

The challenge here is that regenerative economics and regenerative agriculture are not nearly the same things ontologically or mechanically, as many debates have sprung up between ‘purists’ and ‘theorists’. One of them is the distinction and/or tensions between financialized capital, capital assets and natural capital. Given that environmental economists and ecological economists already disagree on the relationship of human beings to natural capital, the challenge expands to include what people think can actually happen if, for example, investors are not enabled to see natural capital as related to financialized capital.

Nevertheless, it is also critical that people who think they are responsible for ‘saving the planet’, can come to a compromise over sensible uses of capital, in whatever form it may be.

This is a different proposition that shifts the mindset from ‘saving the planet’ to ‘being a part of the planet’ as a member or a caretaker/custodian of the biosphere.

There is no ‘saving the planet’. However, working with the planet might just ‘save us’.

Saving the planet isn’t possible, simply because that’s not the way nature works. Human nature, well, that’s a different story…

… That story is the custodial responsibility to the planet; in other words, ‘saving’ implies that you have the innate ability to create it and control it, which is a fundamental mistruth. It is also quite egoic — as if you can somehow, and quite righteously, ‘play God’ with a superorganism that has existed billions of years, eons before humans ever existed here.

Being a custodian implies something existential and pure — that as a caretaker of all knowable living things, you are aligned with the laws of nature.

A monumental distinction.

So now we can see nature for what it really is: A force well beyond our mental, physical and spiritual capacities. Which also means that our perception of what it can or can’t do is limited, especially in terms of time and resources. It is also something that we can work with in phases.

Which leads us to an incredibly important precept: Nature is scarce in the present moment, and abundant over time. Industry (or industrialization) is abundant in the present moment, and scarce over time.

Given our current technological obsessions, let’s use the analogy of a computer processor: You can use it, overclock it, and get more speed out of it, but it will overheat and will therefore have a shorter lifespan.

If you overclock nature on account of industry, it ‘overheats’, and shortens its lifespan. Overheating is not designated as a function of temperature per se, but rather as a function of temporality.

Case in point: Agriculture.

Agriculture — a general move towards an industrialized way of growing and harvesting crops — is a manipulation of time in order to optimize food production. As a result, the physical relationship between scarcity and abundance is muted, for the core purpose of producing more at the reoccurring and escalating cost of ignoring the recovery rate of the resources being used.

In other words, if you grow food faster than I eat it, you lower the value of your crops, as well as the labor that goes into it. If I eat faster than you grow, you might maintain the value of the crops in terms of price, but it’s likely that you’ll commodify the labor and the quality of the product you’re putting into the market. In either case, you are not properly managing scarcity or abundance, because you are not properly managing your time and your resources.

An interesting thing to note here is that time zones were implemented in the late 19th century to account for the loss of production of crops over seasonal periods, and at once, to optimize the same production processes and outputs. Hence the economic evolution, or ‘de-evolution’, from agrarian societies to industrialized agricultural societies.

With that said, emerging disciplines such as agro-ecology look at whole ecological systems to design and develop, for example, ways to increase farming production over smaller pockets of time, while decreasing the land mass used for that production. With this, we can begin to understand how myopic and wasteful industrial methods really are, to include how ‘margin deficient’ they become over time in terms of profits. And you would think advances in technology would alleviate this. The problem here is not the technologies themselves, but how they are used.

Using the analogy of the computer processor, the current models entail lowering the value of what you use, and the labor that goes into it. Although now, you can profit at a higher margin because the resources and the people used to make your processor absorb the cost, mainly because you don’t have to replenish them — they can be replaced and/or automated. So you’re essentially profiting at a cost to the resources used to make your processor work, and as well, the future value it holds.

This is an example of net zero cost. And depending on how we align the elements, the outcomes can turn on a dime, literally, for better, or for worse.

Breaking out of the self-fulfilling ‘Eco-Prisoner’s Dilemma’.

Now we can better understand the primary disconnects between nature, science, economics and technology.

One narrative that predominates society writ large and indirectly blights climate change logic is ‘the Singularity’, which is the idea that humans and technology will reach a point of unison, at which time we will somehow reach ‘unlimited abundance’.

This is not only fallacious, but completely discordant with the laws of nature. There is also the grand misassumption that ‘technological acceleration’ will somehow allow (some of) us to ‘live forever’, when in reality, biological organisms (to include us humans) are here to live, to die, and to be reborn — in the same way natural resources renew or regenerate.

Hence, the conundrum in which we find ourselves.

Science and economics, in particular, must be reoriented so that we are focused on understanding nature much in the same way we must understand ourselves, such that we do not have to ‘steal time’ at the expense of creating industrial overabundance, and the illusions that surround it, particularly with technology.

In other words, when we ‘steal from nature’, we steal from the future.

If we extract natural resources from the earth and do not allow them to recover, we continue to expand the recovery periods, while shortening the time it takes to restore them.

Again, we steal from the future. Which means we’re stealing from ourselves.

To use a personal analogy, think of yourself as a child. You might steal something from your mother’s purse, with the rationale that you are not stealing from your father, when in reality, they are one and the same.

So…

We achieve a balance with our physical relationships to nature

We manage abundance when that balance is achieved

We co-create multiple futures based on that managed abundance

As to what this actually means in terms of *immediate* socioeconomic and socioecological outcomes, let’s return to the postulate that reinforces our axiom up top.

Returning resources back to the earth as a means to wipe out debt by regenerating revenue.

We’ve established that supply chains are the primary problem and solution set given that they extract resources well beyond rates of recovery. Now we can see what inverting that reality looks like in present-future terms.

Supply chains regenerate resources as assets that regenerate revenue; specifically, energy, raw materials, water, land and labor. So basically, a bridge between natural capital and financialized capital. Regenerating assets create jobs; both scale quickly when resources are managed in balance with renewal rates and recovery times; in other words, the rate at which resources are managed according to actual supply and demand. Well managed, regenerating net zero resources produce revenues that can be sustained, with tax revenues that can be reinvested back into the economy as surpluses. This would mitigate and then cancel out deficit spending against tax receipts — the historical marker for economic health — such that supply chain transformation would happen at an exponentially accelerated rate commensurate with balanced supply and demand.

So, simplified even further:

We create and regenerate renewable resources, in part, using our current infrastructure

We regenerate revenue in doing so

We reinvest that revenue back into the real economy

Natural capital and financialized capital working in tandem, if not wholly considered as single, synchronizing units of value.

A recent example of this in the United States is a utility plant in suburban Chicago that regenerates all the power it needs to run by using the waste that it collects.

If you think about how the resource part and the capital part of this system create a mechanism for self-sustainability, then you really begin to see how the gradual reduction of capital costs produces natural gains, which are essentially non-speculative profits based on a balance in efficiency and output (more on this in a moment). This also changes what financialized capital actually is and how it can function.

The utility plant is a great example of resource and capital efficiencies staying in balance, which positively affects their flows. Wastewater is used to energize the plant, the plant produces power, the power is redistributed to local vendors, the secondary effluents are composted or converted and reused as (non)industrial byproducts, and the cycle continues. Now imagine any supply chain using a similar process(es) — your financialized capital used to invest and operate the system regenerates its value through natural processes and natural gains, meaning that nothing is speculative other than the proposed future value of the assets themselves. Even then, that proposed future value isn’t really all that speculative given that you can use, for example, a lien or a promissory note on the initial construction/production contracts.

Not so ironic, the oil and gas industries do this very thing to build infrastructure, and the typical payouts on construction loans as investments can happen within 18–24 months, if structured properly.

As for financialized capital itself, we have plenty of alternatives to choose from.

Complementary currencies — currencies or mediums of exchange that are supplements or complements to national currencies (fiat), which are usually not legal tender, whereby their use is based on agreement between the parties exchanging them — have been around for decades, and are proven to provide various means for supporting local and regional economic systems. The advances in cryptocurrencies and underlying blockchain technology reveal to us an adjacent path for removing financial intermediaries as well as establishing better stores of value and real mediums of exchange. Perhaps even more important is in how these approaches can stave off flationary risk, and with respect to regenerative asset development, how they can create what my group calls non-flationary value.

The premise driving non-flationary value is that underutilized capital (fiat) is used for purchasing power in emerging markets (the historical precedent), whereby complementary cryptocurrencies are backed by regenerative assets to stabilize and sustain manageable market value.

Coming back to the example of the utility plant, a non-flationary use of resources translates to a non-flationary use of capital. So, we eradicate debt, regenerate revenue streams, and reproduce natural assets all at once.

With all of these elements combined, we are realistically embarking on a seismic 10–15 year shift, with a 30-year benchmark for transformation. Think it’s impossible? If industrialization created a massive shift within 50 years, and the Internet did it within 15, who’s to say we can’t make significant headway within 5 to 10 years?

What if you were also told that supply chain solutions are already in tow, some already in development, and some already have been deployed (as briefly mentioned in the expansion of our postulate) — what would you imagine then?

We can expand further, reinforcing our core axiom and set of postulates:

There is plenty of financialized capital ‘sitting on the sidelines’ — in the trillions — waiting to be invested into alternative assets. Alternative assets, in the form of natural or fungible resources, are a major hedge, if not the only hedge, against inflationary risk. Why? Because these resources are always needed, and reusing them means that we can move away from flationary conditions since we don’t have to inflate or deflate their value — they have uses we can see and measure without speculation. Alternative assets produce new skill sets which create new jobs — and with increases in labor force participation, you also add to that hedge against inflationary risk because you strengthen the middle markets, as well as spawn new microeconomies, from which economies as a whole inherently thrive.

Another way to look at this is that if supply chains indoctrinate these principles, companies don’t have to evade corporate taxes because the regenerating revenue streams create new tax revenue. This is a huge boon in the equation, given the capital flight coming out of equities (stocks and bonds) which affects reinvestment into the real economy. You also have to consider that corporate tax revenue — not personal income tax revenue — can substantially and expeditiously offset the debt that countries owe to central banks such as The Federal Reserve or the ECB, with or without instruments like carbon credits or green bonds.

To put this further into perspective, global debt-to-GDP is around 318% (a whopping $247 trillion), which means that the debt countries carry overall is over three times the rate at which countries produce goods for internal use and for export. This has a unique implication when we consider capital costs and natural gains.

Capital costs would entail fixed, one-time expenses incurred on the purchase of land, buildings, construction, and equipment used in the production of goods or in the rendering of services. In other words, it is the total cost needed to bring a project into commercial operation.

Natural gains entail the margin attained on fixed expenses and amortized costs which are offset by the returns, or revenue, that a commercial project garners. Amortized cost is that accumulated portion of the recorded or ledgered cost of a fixed asset (smart contracted, in cryptoeconomic terms) that has been charged to expense through either depreciation or amortization. Depreciation is used to ratably reduce the cost of a tangible fixed asset, and amortization is used to ratably reduce the cost of an intangible fixed asset.

Therefore, a natural gain would mean that capital costs remain low, while amortization remains high, or ‘appreciably stable’, as there is no longer a need for ratable reduction. In other words, no need for interest rates, or interest rate adjustments.

If you regenerate the resources used for a project, you lower your cost basis (your costs to capital), and shrink your margins over time, thus expanding your return basis.

In other words, the more you regenerate, the more profitable you become.

Then, as more large, regenerative infrastructure efforts become more profitable, we move away from a reliance on debt, and as a result, more debt is offset or wiped out.

Natural accounting practices.

With all of this said, at the resource level, there are in fact implemented solutions to the natural accounting of natural capital + natural assets — more specifically, the metric set of EP&L (environmental profit and loss) — as evidenced by the innovative efforts of groups like Kering and Armonia. As well, there are global natural asset assessment methodologies such as true cost accounting. As with anything truly innovative, they are evolving, and evolving quite rapidly.

Regarding carbon credits and offsets, programs such as REDD+ (Reducing Emissions from Deforestation and forest Degradation) have proven to be a solid mechanism for reinvestment with groups ‘on the ground’ — agro-ecologies and the like. In fact, a number of economists from varying disciplines have been integrating strategies around offset approaches with the investment in new types of debt (interest) and credit (non-interest) structures. These structures shed light on what’s possible in terms of leveraging natural assets in responsible ways. What have been considered to be ‘voluntary market systems’ are fast becoming natural asset ecosystems, and the adaptive standards for quality verification, financial oversight, and operational efficiency are improving at a steady clip, in part thanks to blockchain technologies.

From a resource perspective, think about the implications here, in terms of a viable ‘debt jubilee’ running concurrently with the proliferation of regenerative natural assets— involving regenerative asset creation, toxic asset conversion, distressed asset conversion, and an ‘inverse derivatives’ or an ‘originals’ market. Financialized capital would become naturalized capital literally overnight.

In open conclusion…

While supply chain transformation is not the only solution (how can it be?), it is what seems to make the most sense in terms of prioritization.

Reality is, a ‘total solution set’, will be both ‘top down’ and ‘bottom up’, and constantly evolving with newly emerging approaches.

To you entrepreneurs, it is the moment in which you can think about how your ventures regenerate value and how they integrate with whole systems, not just single markets.

To you investors, this is the moment in which your capital takes on a synchronous form of value on impact, and multiple types of return.

To you foundation directors and civic servants, this is the moment in which expedient, strategic coordination, along with distributive leadership, leverages that value in a highly focused manner, resulting in the highest impact.

To summarize in simple terms:

Lower capital costs

Higher, accelerating rates of return

Multiple forms of regenerating value

There are no more excuses for what can only be the right thing to do, with the right purpose, and the right action.

Doom-and-gloom climate change scenarios aren’t for ‘realists’ — they’re for people who often refuse to see past what they already believe to be true.

And as we all know… the truth is relative. As are the mechanisms available to us in how we build, integrate, invest and sustain both natural resources and the revenue streams that spring from them.

Future posts will address the forms of collapse we face economically, ecologically and as a civilization, and what transition planning actually looks like to move through all of it.

Until then, perhaps sit with what is presented here, and consider the possibilities of the solution set. We’re going to get through this. We already are.