ERIC REGULY
September 8, 2008 at 7:27 AM EDT
ROME — The world is awash in green programs – good, bad and ugly. British Columbia has a carbon tax. Germany is shaking down taxpayers to fund outrageously high subsidies for solar and wind power. Britain slaps a tax on old, gas-guzzling cars. The United States and Ontario spend billions propping up the ethanol industry. “Eco-houses” built virtually anywhere qualify for some sort of credit or subsidy (even though it is greener to renovate old houses instead of building new ones).
The list goes on and on, an incomprehensible jumble of voluntary and involuntary programs, each expensive to administer and fund, and each on its own guaranteed to have a negligible effect on carbon reduction.
There has to be a better way. What is needed is a simple, transparent, comprehensive strategy, one that can be cloned by any city, state, province, region or country.
Ron Dembo’s new plan to use “green credits” to reduce carbon emissions might just be the answer. Think of it as an Aeroplan for frequent greenies. You would get points for good behaviour and trade them for cash or tax credits so you could buy that SUV of your dreams (just kidding). Ever so quietly, he has been talking to various governments about the plan and is coming to Italy later this month to speak about it.
Mr. Dembo, 59, is not your standard environmentalist. He is a South African chemical engineer turned applied mathematician.
He taught at Yale for a decade and now lives in Toronto, where he made his fortune at Algorithmics, the company he founded in 1989 to develop risk-management software for banks and investment firms. Algorithmics became the biggest name in this business. He sold it to the Fitch ratings agency group in 2005 for $175-million (U.S.).
By then climate change was the hot issue and Mr. Dembo decided to use his wealth and mathematical savvy to launch a new career as a “committed environmental advocate,” to use his words. The result was a not-for-profit organization called Zerofootprint.
Using Algorithmics-inspired software, Zero allows individuals, governments and companies to measure and manage their carbon output, and buy carbon offsets. The money goes to fund forest regeneration in Maple Ridge, B.C., tire recycling and methane capture, among other projects.
Like many of us, Mr. Dembo was baffled by the number of green programs available to individuals and businesses. He started to count them. In Ontario alone, at least 47 initiatives exist, from rebates for hybrid car purchases to subsidies for geothermal heating. Britain has twice the number of carbon-related programs. “You have to hire a consultant to get your lifestyle greened,” he says.
The green mishmash inspired him to come up with the vastly simplified “green credits” strategy. The idea is inspired by loyalty programs like Canada’s successful Aeroplan and AAdvantage, set up by American Airlines, which has 63 million members – almost twice the population of Canada. Joining it, like joining a loyalty scheme, would be voluntary.
Here’s how it would work. The more you do to reduce your carbon output, the more points you would get. The sponsor government would design a rewards scheme for verifiable success in reducing your environmental footprint. It might decide that one green credit is worth $1.
If your electricity use falls by 100 kilowatt hours a year – the government would have to have access to your electricity bills to verify this – you would get 100 points.
Ditto if your heating oil consumption falls by 100 litres. Bigger efforts, like trading your Buick land yacht for a hybrid car, insulating your home to a certain standard, or buying an ultrahigh efficiency gas furnace might get 1,000 points or more.
At the end of the tax year, you would be able to swap the points for cash or a tax credit. Or you could sell the tax credits to someone in a higher tax bracket, effectively creating a green currency.
At a 40-per-cent personal tax rate, for instance, the green credit would be worth 40 cents. It would be worth half that at a 20-per-cent tax rate. The trade between the two tax rates could be done at, say, 30 cents, effectively earning 10 cents for both the buyer and the seller.
We know what you’re thinking: Nice, well-intentioned idea, Mr. Dembo, but what are you growing besides trees at Maple Ridge? Few governments run surpluses. How would this grand scheme be funded? Could we trust the government to run it efficiently, or would the Ministry of Green Credits turn into a money-sucking beast like Canada’s gun registry? Would the credits not be open to abuse and fraud?
Mr. Dembo has answers to most of these questions (to be fair, the idea is fresh and in outline form only). The biggie is financing. By definition, the more successful the program becomes, the more the government would have to pay.
Yes, carbon output could fall dramatically, which is the whole point of the exercise. But it could also bleed government treasuries dry. Imagine the headline: “Green credit funding wallops education and health budgets.”
Mr. Dembo’s response: True, but think of the savings if the green credits work their magic. Some of the funding would come from collapsing the dozens of redundant green programs. Potentially billions of dollars of indirect funding would come from infrastructure that no longer would have to be built.
Energy savings inspired by the green credits might mean that, in 2015, one less nuclear or gas-fired electricity generating plant would have to be built. That alone would be worth a fortune. If cars are driven less, road maintenance budgets might fall. That sort of thing.
The bureaucracy question is entirely valid. The government would have to get involved to set up, monitor and regulate the credits program, of course. But it would not have to run it. It could instead be managed by any business with a sophisticated consumer loyalty program and related back-office software and management systems, like Aeroplan or the credit card companies.
To be sure, the green credits idea is far from perfect.
The plan is far better suited to individuals and small businesses than big, polluting industries like oil and nickel refining. For them, a carbon cap-and-trade system is more sensible.
And because the green credits would be an opt-in, opt-out scheme, the government would run the risk that sheer laziness would make it unpopular and therefore next to useless in lightening the carbon footprint.
But in the end, consumers respond to financial incentives. If those are enticing enough, and if the program is easy to use, it would have a good chance of success.
Mr. Dembo is open to suggestions and willing to help any government anywhere to set it up. His idea may not be the answer. But neither is the horrific jumble of green programs already in place.