Climate Finance | February 8, 2022

Positive externalities: Carrots as well as sticks for the carbon era

David Bank and Amy Cortese
ImpactAlpha Editor

David Bank

ImpactAlpha Editor

Amy Cortese

ImpactAlpha, Feb. 8 – Putting a price on carbon is only the beginning.

With prices on Europe’s emissions trading scheme topping $100 a ton and rising on other markets as well, the cost of carbon emissions and the value of avoiding or sequestering it are affecting corporate balance sheets, technology investments, financing for conservation and agriculture, and more.

To be sure, the weighted-average price of carbon on global markets is only $28 per ton, and carbon markets and carbon taxes still cover less than one-quarter of all emissions. But as markets grow and prices rise, carbon accounting is set to unleash an even broader economic transformation.

The value of the global carbon market, currently about $270 billion, could exceed the oil market by 2030, if not 2025, according to Trafigura, a big commodity trading house. Carbon could become a $22 trillion market by 2050, according to Wood Mackenzie.

“$1,000 carbon, here we come,” says Regen Network’s Gregory Landua. Landua told ImpactAlpha he sees that threshold being crossed within a decade as derivatives and speculators fuel rising prices.

Carbon quantitative easing

Long before then, the price of carbon will have changed the calculations, and operating practices, in steel, cement, agriculture and transportation, for starters. Higher prices could become a drag on economic growth and disproportionately hurt lower-income people, who spend a greater portion of their income on basic goods. 

Even a $50 a ton carbon price would add between 25% and 55% to today’s oil and natural gas prices, respectively. Credit Suisse estimates that every $10 per ton increase in the price of carbon emissions across the entire economy will lower global GDP by 0.4% and add a half-point to global inflation.


A model for “carbon quantitative easing” developed by Australian engineer Delton Chen proposes to finance global decarbonization by valuing – and rewarding – the “positive externalities” of emissions reduction without exacting such a cost on the economy, indeed without the public bearing the cost at all.

Similar to the liquidity created by the U.S. Federal Reserve and other central banks to stave off collapse in 2008’s Great Financial Crisis and 2020’s pandemic, Chen says a Global Carbon Reward could finance decarbonization without incurring new debts for governments, businesses, or citizens. It’s the ultimate win-win or, as the economists would say, free lunch.

“Positive externalities are a missing common good, a public good, that we will need and hopefully no one should pay for,” Chen told ImpactAlpha. The global carbon rewards would provide the level of “preventative insurance” required to avert catastrophe, he says. “It’s all calibrated around the probabilities, and limiting the probabilities of catastrophe, with the reward that nobody pays for.” 

Chen’s Carbon Pricing Matrix

If the plan sounds familiar, it may be because a version of Chen’s Global Carbon Reward figures in Kim Stanley Robinson’s 2020 climate-themed thriller, The Ministry for the Future, which has become a must-read for climate-techies. The book opens in 2025 with a heat emergency that kills 20 million people in India. Government leaders desperate to stave off climate catastrophe issue a global “carbon coin” to pay for a massive decarbonization effort, including by paying off oil companies to keep fossil fuels in the ground.

Robinson based his carbon coin on Chen’s 2018 paper, which advocated for a carbon currency to incentivize clean energy production, sustainable business practices and carbon removal (but not pay off oil companies). A new global Carbon Exchange Authority would issue the carbon currency and set its long-term floor price and appreciation. Central banks would guarantee that the value of the carbon currency, thereby drawing in private investors.

Chen’s Global Carbon Rewards initiative is looking to sign up governments for a demonstration project.


Putting a price on carbon opens the way for pricing a whole set of other “externalities,” both negative and positive. 

Landua’s ReGen Network is  building a public (and eco-friendly) blockchain-based registry where developers of more than 60 regenerative agriculture projects offer credits to companies looking to offset hard-to-abate emissions. The goal, says Landua, is the creation of “Web 3.0 tools to enable the connection of living capital into decentralized finance systems.”

Regenerative agriculture and nature-based solutions have co-benefits such as water quality, biodiversity and climate adaptation, he says. Co-benefits include ecosystem health, animal welfare and soil health. By tokenizing such ecosystem services, they could be valued and priced on top of the carbon asset. 

An insurance company, for example, could pay for the flood control benefits of reforestation or regenerative farming, or a municipality could pay for the water quality outcomes of a carbon offset. 

ReGen closed a $10.5 million funding round last year, mostly raised from its community of “validators” who support the ReGen blockchain ledger. It used some of that to make $1.5 million in grants to more than 40 open source projects pioneering work on ecological credits. 

Carbon credits generated by sustainable farming are giving farmers and land stewards a new business model. Wilmot Cattle Co. in Australia, an early project on the ReGen Network whose credits were purchased by Microsoft, increased the organic carbon content of its soil by 4.5% and removed over 30,000 tons of CO2-equivalent in two years by switching to managed grazing. The switch also improved the welfare of its cattle and the ecosystem. 

Microsoft’s purchase last year of 1.3 million metric tons of carbon removal, including from Wilmot, “opened the floodgates,” Landua said at the time.

But such credits fetch just a few dollars today. Ohio State University soil scientist Rattan Lai has advocated for farmers to be paid at least $16 per acre annually for ecosystem services. To transform conventional carbon-intensive farming to regenerative practices at mass scale, he has estimated, will require a carbon price of around $140 a ton. 

“I think we’re going to get these composite instruments,” Landua says. “They are going to be the premium assets.” 

Corporations “are going to be jumping in because they want to weave themselves in with their customers, as part of the story that starts to take place.”