Foreword

For several decades now, the Progress Foundation has contributed to the intellectual fabric of Switzerland through its 54 Economic Conferences, workshops, and, since the year 2000, its books. Over the years, this has resulted in eighteen books, mostly in German, some in English, with nearly one published every year. These are primarily anthologies that either prepared or further developed the themes of the Foundation’s events. The books often addressed developments and trends very early on, from the role of envy in society (“The Economy of Envy,” 2000) to political correctness (“Freedom of Speech,” 2020), from the right of member states to secede (“The Political Economy of Secession,” 2005) to Switzerland’s relationship with the EU (“Small State Switzerland—Obsolete or Success Model?” 2017), and Switzerland’s self-identity in the modern world (“Switzerland Has a Future,” 2021). In addition to strongly economically focused books like “The Denationalization of Money,” 2014, or “From Credit to Debt,” 2019, the Foundation has maintained a broad thematic spectrum and a great deal of interdisciplinarity, true to its mission. Examples include “The Right to Self-Determination,” 2003, “Fear of Dangers or Dangers from Fear?” 2005, “Trust—Anchor of a Free Order,” 2007, “Religion, Liberalism, and the Rule of Law,” 2015, or “Total Data—Total Control,” 2017. Through all these books, the Progress Foundation has sparked discussions, contributed insights and perspectives, and laid the groundwork for later, broader public debates, especially within relevant interested circles.

However, media consumption is changing—brevity, speed, and easy electronic accessibility are prevailing over thoroughness and long-term relevance. We want to reflect this in the Progress Foundation’s publications as well. With this essay by our Vice President Konrad Hummler and his two co-authors, we are starting a series of writings that align in spirit with our previous book series but introduce some innovations. First, the new writings will be significantly shorter, typically 40–80 pages, compared to the books. Second, this will allow the content to be more focused, often featuring only one essay, as in this case, or perhaps three or a maximum of four texts.

Third, this will make production less demanding, enabling us to publish a lecture text more quickly after a conference, for example. Fourth, this should allow us to publish two or even three writings per year more frequently. Fifth, we will occasionally publish an English version, particularly with regard to our sister institute, the American Institute for Economic Research in Great Barrington, Massachusetts. More importantly, as a Swiss-American foundation, we are focused on Switzerland’s economic and social order while also being deeply interested in fundamental, globally relevant questions. Sixth, we will produce a small print run in-house for our patrons and a few selected interested parties, but otherwise make the writings freely available as PDFs.

I am very grateful to Konrad Hummler for allowing us to begin our series with “The End of the Commons—Reflections on Sustainability.” This thesis paper is an excellent example of the ambition we have for the series, although we may not always achieve it as well as in this essay. At the end of 2020/beginning of 2021, Konrad Hummler published an essay under the title “Distorted World. A Position Paper on the State of Goods and Financial Markets in the Wake of the Coronavirus Crisis” or, in English, “A World of Distortion. A Position Paper on the State of the Goods and Financial Markets in the Wake of the Coronavirus Crisis,” which received an exceptionally strong response and, unfortunately, has proven accurate in many ways. We hope, and are almost certain, that his new, unconventional reflections—this time on climate and the environment—will generate similar interest.

In this spirit, I wish you all an exciting and thought-provoking read.

Gerhard Schwarz
President of the Progress Foundation

In Brief

Carbon, C, part of the Earth’s crust and oceans, is combined with oxygen and other atoms in natural and technical processes, resulting in heat. Humans have used this process since ancient times, initially for cooking and heating, and increasingly over the past 300 years for mechanical, chemical, and thermoelectric purposes. The carbon compounds formed, which are mostly gaseous, are recovered in nature with the help of solar energy and temporarily or permanently stored in solid form on Earth. Human overuse seems to have disturbed the balance of this cycle.

Our thesis paper first demonstrates that the use of C by humans is a classic economic process. It can be described with theoretical means, as can the problem of overuse, which is attributed to the “tragedy of the commons.” The economic remedies for dealing with a commons problem are known and evaluated in this paper. Their effectiveness depends heavily on the existence and magnitude of the given information and transaction costs.

The authors of this thesis paper point out the dramatic reduction, even elimination, of these information and transaction costs over recent decades due to technological development. This represents a secular, irreversible real change in interactions between people. Its comprehensive significance is not yet fully understood or assessed. In connection with the consumption and recuperation of C, the authors consider it highly likely that new property rights and a new market will emerge as a result. This market would then ensure the formation of a new, sustainable equilibrium by compensating C users for the C recuperation at a market price.

The path to this ideal-type, more sustainable world is fraught with obstacles and pitfalls. Thus, the thesis paper qualifies both steering taxes and end-use oriented control mechanisms as suboptimal. The authors’ independent proposal involves compensating for the external costs of C use at the source of its creation and corresponding passing along the value chain to the end consumer. The funds thus generated would be available to compensate carbon recuperation (to forest owners, farmers, industrial managers).

Politically relevant is the fact that the proposed market solution for the carbon commons problem largely avoids complex administration and citizen-unfriendly control mechanisms. The only prerequisite is an enforceable consensus on the tolerated level of carbon emissions (“Net Zero” or equivalent limitation goals) in clearly defined legal jurisdictions around the world.

A | Introduction

Can one still write a relevant contribution about frequently discussed topics such as climate and sustainability? Is an aspirational “clarification of thoughts” still meaningful when positions seem to be firmly established and allegedly only statements of belief are required, either in favor of climate activists or climate deniers? Is there still room for further, creative ideas, or is all the terrain already occupied?

It required, among other things, external pressure for the authors to address the major topic of climate issues. The rational behavior of companies regarding foreseeable additional regulations in environmental and climate protection was one trigger, a clear view on the sense or nonsense of so-called “green investments” in capital markets another, as well as the classification of the “ESG criteria” (E stands for Environment, S for Social, and G for Governance) in the recommendations for investment behavior of banks and institutional investors.

However, this alone would not have been sufficient to motivate us to write this paper. Rather, it was the on-site observation, namely the sight of massively shrunk glaciers in the Aletsch and Morteratsch areas, that contributed to not taking the climate issue lightly and mentally dismissing it with a shrug. We remain skeptical enough not to simply follow the climate hype. The surfing of governments and politicians, especially by zeitgeist-sensitive institutions like the WEF, on the green wave must be approached with suspicion. Our smaller strategic think tank, M1AG, follows the motto:

“We believe no one. We trust everyone.”

This also, and perhaps even especially, applies to the present topic.

Economic theory can, in our view, contribute significantly to a better understanding of the actual problems and also provide some guidance, if not actual recommendations, for shaping the future. This is the goal of this paper. After an initial overview and fact preparation (Chapter B), we describe in a third chapter (C) the economic impacts of some key technological developments and changes on the social and economic structure of the world. In a fourth part (Chapter D), we outline where these changes will lead. Without preempting the results of these considerations, it can already be announced here that one must prepare for comprehensive upheavals. The fifth chapter (E) describes the path from the current situation to a fundamentally new world order. It will be rocky and potentially even dangerous. This is because it will involve, among other things, the reallocation of property rights and significant value changes in existing ownership. Additionally, distortions, wrong paths, and misinvestments are already emerging due to the mentioned hype. In a concluding chapter (F), we point out fundamental and far-reaching societal action options.

B | The Unknown Commons

In 1494, the Franciscan monk and mathematics professor Luca Pacioli (1455–1514 or 1517) published his summary of contemporary mathematical knowledge, Summa de Arithmetica, Geometria, Proportioni et Proportionalità, in which he described the “Venetian method” of commercial bookkeeping. This helped double-entry bookkeeping achieve widespread adoption; his work was translated into many languages and repeatedly reprinted. Thanks to double-entry bookkeeping, it was now possible to understand economic processes for the first time and move from a purely static view of states to a cash flow accounting approach. The innovation of double-entry bookkeeping can be mentioned in the same breath as the near-simultaneous introduction of the printing press. Without the latter, there would have been no Renaissance, Reformation, or Enlightenment, and without the former, no such stupendous economic upswing as seen in modern times. Business management without information on the dynamic components of an operation is simply unthinkable.

Double-entry bookkeeping first and foremost clarified what money was spent on and how to increase the residual size of equity. Presumably, the Medici family became wealthy in this way. Cost control remains a very essential element of business management to this day. The justification of the market economy by Adam Smith and later the establishment (increasingly governmental) of institutions to ensure property rights are based on the equivalence of owner benefit with the optimization of the residual size of equity. With Adam Smith, there was also a moral motivation for economic activities, pointing to the prosperity-enhancing public benefit of market exchange and trade, the famous “invisible hand.”

However, as fundamental and correct as Pacioli’s double-entry bookkeeping was for subsequent economic development, it was also incomplete. It only captured the observable, visible internal costs of an economic activity, but not the indirect, invisible external costs imposed on unknown third parties. Although pollution of waterways by textile manufactories and factories should have been an early topic for systematic consideration, and air pollution, especially in coal mining areas, was becoming threatening, it was the economist Arthur C. Pigou who introduced the concept in the 20th century, at the macroeconomic level. The awareness that business activities entail external (both negative and positive) effects began to grow only gradually.

Certainly, it was Ronald Coase’s groundbreaking 1960 article The Problem of Social Cost (published in the Journal of Law and Economics) that laid the foundation for including external effects in the functioning of businesses. In his famous theorem, Coase describes the interactions between two neighboring economic actors—the operator of a spark-emitting railway and the owner of a wheat field—and shows that their benefit optimization leads to the same result, regardless of who is legally responsible for the damage. One essentially consumes the external effects of the other; the external costs are internalized. The prerequisite: the information and transaction costs of the two neighbors are low or negligible. However, these are generally not the case, and thus non-optimal conditions arise, calling for a regulator. This is also referred to as market failure.

The existence of information and transaction costs is particularly severe when not two neighboring economic actors are involved, but an indeterminate public. That is, an unknown large number of unspecified individuals who, although they are affected by an external effect of an economic activity, find it not worth their while to even lift a finger or actively resist the situation. The coalition costs for such actions are generally too high, and the possible benefit for the individual is too low.

The famous 1968 essay by Garrett Hardin, The Tragedy of the Commons (published in the journal Science), describes this situation and labels it as a tragedy. Commons are overused because no one defends them. This is true for fishing grounds at sea, as well as for grazing lands, free parking spaces, and public toilets. Humans, no matter how civilized they may appear, tend to misuse public goods. Hardin describes the conditions under which a commons problem is recognized and then addressed, namely when it becomes “perceptible,” harmful, or painful to a sufficient number of people. Hardin already mentioned “overpopulation of the Earth” as a foreseeable challenge in 1968. According to Hardin, there are few satisfactory solutions to this situation; they are usually associated with strict regulation and supervision and arise from a political process that can sometimes be very painful.

Every car exhaust, every high chimney is an instrument for the misuse of the commons air. Similarly, in the past, the water discharges from industrial operations into rivers, lakes, and the sea, or the disposal of houses with water-driven toilets into the nearest sewer, were nothing more than a widely accepted socialization of external costs at the expense of an indeterminate public downstream. After World War II, efforts were made in the Western Hemisphere to clean up water bodies. Similarly, air pollution in the immediate vicinity was eliminated through filtration in high chimneys or by banning open burning in households. Lead in gasoline was replaced by methyl tert-butyl ether; NO2 and soot emissions from diesel engines were reduced to the point where normal driving performance was unacceptable, leading to the establishment of a separate operating mode for emissions testing—a process that gained unfortunate notoriety as the “diesel scandal.” What all these “clean-ups” have in common is that they occurred where the effects of pollution were relatively visible, recognizable, and felt. The suffering pressure was great enough to build political pressure through coalition. The societal approach to externalities can also be seen as a history of “collective actions” with two common elements: on one hand, an (often incrementally developed) grievance is addressed or fought, and on the other hand, collective resistance occurs against the prevailing order, including and especially by democracy and the rule of law. The social costs of the self-cleaning mechanisms of “collective actions” are evident.

It is likely related to the restructuring of the global economy that it took relatively long for the realization to dawn that “pollution” is not the actual environmental problem and only represents a relatively small part of the overall issue. More and more, the production and consumption of goods became geographically separated due to globalization. Simply put, the dirty work was done elsewhere for the consuming parts of the world. To this day, the following illustration shows the magnitude of the distorting relationships: on one side of the world, emissions are generated, and on the other side, they are consumed. Without questioning the benefits of globalization, this arrangement certainly does not promote the polluter pays principle.

Out of sight, out of mind
Net transfer of megatonnes of CO2 from the place of emission to the place of consumption. The 10 largest transfers are highlighted, with Europe considered as one region.
Source: Global Carbon Project, Global Carbon Budget 2021; own representation

Thus, it took the indicator of global warming to alert humanity to a larger externalities problem, namely the largely unknown issue of the common atmosphere. Certainly, warnings about the “irresponsible” consumption of oil and gas were heard in the years before, but the trigger was not global warming, but the concern about the depletion of these resources. This was clearly propagated by the “Club of Rome” in the 1970s and later, around the turn of the millennium, by the prophets of “Peak Oil.” That coal, oil, and gas are the aggregated substance of bacteria, plankton, and plants over millions of years, making them among the most valuable resources the Earth’s crust has to offer, and that this is now being literally burned away within a few hundred years, was also criticized by scientists and forward-thinking ecological thinkers. However, the topic did not receive the necessary attention from the public and politics.

Despite reservations about the shrill appearances of the climate movement, it must be acknowledged that it has promoted awareness-raising in a classic “collective action” manner. The sometimes apocalyptic behavior and the completely one-sided focus on one single issue also meets with misunderstanding in pluralistic societies. However, the spirit of the times tends to disregard existing norms and is capable of sweeping away conventions and institutions. Nevertheless, the concern about global warming has now become a general theme across all societal segments and political forces, temporarily overshadowed only by more urgent pandemic issues and the Russo-Ukrainian conflict. There is now a certain consensus regarding global warming, which goes something like this: Yes, global warming is a fact and is (at least partially) anthropogenically driven: It is related to the growth, lifestyle, and behavior of the human species. And yes, it is necessary to slow down, stop, or even reverse this development. Opinions diverge on how quickly, in what manner, and at what cost this should be done. The younger generation’s push for faster action can be economically explained by the intertemporal problem (“pleasure today, damage tomorrow”).³

³For the sake of completeness and balance, it should be noted here that a minority view sees the increase in CO2 levels in the Earth’s atmosphere not as a negative but rather as a positive, suggesting that CO2 emissions correspond to a positive externality. The argument follows the idea that CO2 promotes plant growth and could convert previously unused or poorly usable land (e.g., in South American highlands) to agricultural use. It should also be pointed out that the anthropogenic contribution is controversial due to the complexity of the models, contributing to turning the issue from a factual to a matter of belief.

The atmosphere as a common resource: This works as long as its absorption capacity remains intact and its chemical composition remains more or less stable. However, research over the past 20 to 30 years has shown that emissions caused by human activities are altering the composition in such a way that warming can lead to threatening consequences within a relatively short period. The current data suggest that about 50 percent more CO2 is being emitted into the atmosphere than the planet can absorb through its oceans and landmass. The following graphic shows the current estimates:⁴

⁴Such changes in the composition of the Earth’s atmosphere have not been unusual in the history of our planet, caused by non-anthropogenic influences such as volcanic eruptions or comet impacts, or also by endogenous reasons such as the excessive spread of specific organisms (cf. Konstantin Sakkas’ guest commentary in the NZZ of December 31, 2021)

What is Emitted Ends Up Somewhere
Global depiction of CO2 emissions and their final destinations in percentage. The 3% difference between sources and sinks results from difficulties in estimates and calculations.
Source: Global Carbon Project, Global Carbon Budget 2021; own representation

There are good arguments to question this and other models, and it is certainly welcome and necessary for scientific discourse to take place without critical voices falling prey to the oversimplified condemnation of “climate denial.” Nonetheless, if we align with the view that there is both a genuine climate problem and a visible externalities problem, it is for the following reasons:

1. The rapid depletion of aggregated carbon and its historically swift combustion is a fact. It would be surprising if such behavior had no impact on the atmosphere and oceans.
2. Overall, the global economy is extensively “carbonized,” meaning it depends on carbon consumption. If it continues to grow as a carbonized economy, the associated problems will become larger, not smaller.
3. The number of people on the planet is expected to increase for the foreseeable future. Even the additional members of a presumably longer-living humanity will emit CO2.

CO2: An Undeniably Noticeable Increase
CO2 concentration in the atmosphere in parts per million (ppm) for the years 1 to 2018.
Source: Our World in Data; own representation

However, we do not intend to decide how urgent the problem is here. We do not need this line of argument for further considerations because we assume that the development to address the externalities issue will occur anyway. There is already some empirical evidence for this. For example, the Swiss company Climeworks⁵ appears to successfully convince businesses to invest in technology that captures CO2 from the air and converts it into solid carbon, at a current cost of approximately $550 per ton of CO2. This technology uses geothermal energy in Iceland. The “natural” approach, that is, using sunlight and photosynthesis, is chosen by the Restor Foundation⁶: Companies and individuals are offered opportunities to offset their ecological footprint through appropriate reforestation projects.

One thing seems clear to us: The greater a specific emergency, the quicker the change occurs, although the side effects of this process will also be more consequential.

⁵ www.climeworks.com
⁶ www.restor.eco

C | Technological Structural Break Foreseen

Let us now turn to the significance of the interaction between various stakeholders in a society, in this case within the global economy or community. External costs arise when an interaction cannot occur due to, for example, excessive distance or high costs for the individual stakeholder. Conversely, whether external costs occur and to what extent largely depends on the technical conditions of information exchange and communication. The greatest change in human life over the past 50 years has certainly been in the field of information and communication technology. It is redundant to detail the technological side of this astonishing development here. Instead, we need to accurately present the economic realities and their implications.⁷

Let us begin, for clarity’s sake, not after World War II when electronic data processing was just beginning and communication technology made a significant leap forward, but with the Babylonians and their extensively used clay tablets.

Clay tablets as data carriers were primarily one thing: heavy. Additionally, they were limited in their capacity. Information inscribed on clay tablets was easily alterable, falsifiable, or destroyable. The processing of this information, for example, for administering vast empires, had to be decentralized and likely involved immense personnel effort. Although the introduction of paper, the printing press, card systems, copiers, faxes, and computers of earlier and subsequent generations changed many things over the course of history, nothing fundamental changed. Until relatively recently, one dealt with “data” whose collection, processing, and storage incurred high costs or faced limits.

⁷ Das vorliegende Thesenpapier lehnt sich hier an die Publikation «Bergsicht» der M1AG «Total Data» (Ausgabe 4, Dezember 2013) an, abrufbar unter www.bergsicht.ch.

Modern information technology no longer faces such high costs and limitations in many respects. This begins where information is generated, i.e., where a state of knowledge is transformed into a new one. For instance, when we pass through a security checkpoint at an airport, our name, photo, potentially a body scan, the level of toothpaste in our tube, the brand of our deodorant, the data on our mobile phone including all contacts and messages, the contents of our laptop—all of this can or could theoretically be recorded. When we write an email, keywords or entire contents can be captured. When we engage in social media, parts of our personality are soon captured and thus visible. With illegal access via data CDs or, now legal, through automatic information exchange on bank accounts, similar things happen with our financial profile. All our physical or virtual activities leave detectable traces, virtually at no cost. Traces, tiny bits, and micro-traces, usually individually insignificant.

But it doesn’t stop there. In addition to this near-zero-cost data collection, there is now virtually limitless processing at similarly low costs. Whoever has access to any data can do whatever they want with it. They can create personalized profiles, segment, and aggregate. For example, if you mention the keywords “vacation,” “sand beach,” and “palm trees” multiple times in a few emails, soon you will see an increase in ads for destinations like Mauritius, the Maldives, and Miami. Whether this is good or bad from a higher perspective is debatable. What is clear is that this and much more is possible and is happening. Whether we use a search engine, an email provider, or an online newspaper, the data we generate is constantly collected, processed, and refined for other purposes.

But that’s not all. The storage of such captured and processed information is also possible at very low costs. Modern storage media, whether physically at home for data backup on a personal computer or virtually in the “cloud,” the hard-to-locate megabyte cloud, can easily handle entire libraries and retrieve them again. Information retrieval programs are becoming increasingly sophisticated and user-friendly. We now deal with genuine time machines capable of fully representing the data state at any point in the past. In other words, modern information technology, after overcoming the barriers of distance or data quantity, has also removed many temporal hurdles. Nothing is fundamentally forgotten but can be continuously restored. Memory, on both individual and collective levels, has become infinite.

Somewhere on the web, with unknown access possibilities of legitimate and less or entirely unauthorized entities, lies a multitude of more or less complete mosaics. These mosaics depict us, describe us, provide clues about our behavior, presumed mindset, and preferences. Unlike the static mosaics from Ravenna or Hagia Sophia, these are not lifeless snapshots but films, dynamic developmental narratives. The mosaics not only have a third, temporal dimension but also map our network of relationships. They can be linked to form overarching large mosaics of relationship clusters. Today’s computers easily have the capacity to create models from these for smaller or larger parts of society.

Highest capacities at lowest prices
Indicators of technological progress over the last 60 years.
Source: John C. McCullum; Our World in Data; Statista; own illustration

As far as what is usually referred to as “Big Data” and sufficiently described by it, economically speaking, Big Data has dramatically reduced information and transaction costs. From dealing with clay tablets to ordering goods on Amazon: that alone would be dramatic enough. However, modern information technology truly gains secular power through the algorithmic recombination of effortless, cost-effective data capture, similarly inexpensive processing, and restoration capabilities at virtually zero cost. This is where “Artificial Intelligence (AI)” comes into play. With AI, not only can the needle in the haystack be found, but also the reason why it is there, the patterns by which needles disappear in the haystack, and what should be done to prevent needles from disappearing in the haystack. The step from comprehensive traceability to the normative design of processes is logical and obvious. What can be traced can also be influenced. Whether on a large scale (e.g., in hay production and storage) or on a small scale (e.g., in preventing needles), is only a question of cost. And the costs tend to zero. Consequently, the grid becomes increasingly fine-meshed.

Finally, increasingly sophisticated encryption methods can set facts that overshadow traditional institutional means of collateralization and property protection. Modern encryption techniques, including blockchains, allow processes to be captured in their entirety and turned into an economic object as “virtual property rights.” This is probably the final and decisive step in the long journey of interaction between stakeholders in the economy and society. To put it metaphorically: the burning of kerosene by a jet engine can be virtually and unequivocally linked to the regrowth of bio-substrate in a tropical forest, and at negligible cost.

The historically unprecedented rapid reduction in measurement, information, and transaction costs and the ability to influence the course of events simply, i.e., cost-effectively and efficiently, must now be related to the theoretical insights of economics as presented in Chapter B. According to Coase, an economically efficient allocation of costs and benefits between two interacting activities arises regardless of the specific definition of property rights, provided that the information and transaction costs between the two parties are nonexistent. In practice, this was never the case, which is why institutions were needed to define and secure property rights and obligations and thus address the externality problem, at least where it became apparent and measurable.

The tragedy of the commons, as described by Hardin, is a direct consequence of excessive information and transaction costs: the measurement and coalition costs necessary for the protection of property rights (which are synonymous with information and transaction costs) are so high that no one feels compelled to look after the interests of the commons, the public good.

Now, we only need to draw the logical reverse conclusion from the observed technological development of information and transaction costs tending toward zero: The lower or even nonexistent the information and transaction costs are, the more likely a Coase situation arises—where a property rights arrangement effectively establishes itself—or the more the commons according to Hardin disappears, as it becomes simple, i.e., cost-effective and efficient, to form coalitions and assert property rights in every situation and at any time. In other words: thanks to the dramatically reduced, in many areas nearly nonexistent information and transaction costs, property rights around the world are being largely redefined, or they are actually emerging in many places for the first time, and the significance of the commons is being downgraded and tends to be eliminated.

When you combine this theoretically derived insight with the possibilities of Artificial Intelligence and encryption techniques, along with the already exponentially grown and easily accessible knowledge, and amplify this with the now tangible damage the various commons around the world have suffered due to population and economic growth, it is no exaggeration to predict massive structural changes in the coming years and decades. This marks the transition from the previous, incomplete double-entry bookkeeping to a new, comprehensive accounting that increasingly excludes damage to the commons and includes repair costs. The favoring of private, capitalist equity at the expense of the overarching, general residual capital will come to an end, as the latter will disappear. The explosive impact of this realization cannot be overestimated.

D | A World of Balance

How could a newly structured world without an atmosphere in a commons status look and function—ideally, and thus visionary, utopian, and certainly partially illusory?

Let’s begin with the CO2-generating side. Upon the emergence of any CO2 emission potential—literally at the source—this would be meticulously recorded. This would extend across the entire value chain, down to the intricate branches of a complex, labor-intensive product. Wherever carbon is processed in a way that it has the potential to burden the atmosphere as CO2 or in an equivalent chemical form, it would be registered. This is, of course, assuming that these processes are precisely measurable—which, with today’s millimeter-accurate land surveying and satellite monitoring, is probably no longer a technical problem. Based on this, the requirement for financial compensation would be immediately established. A fee must be paid. So many dollars per ton of CO2 potential. For simplicity’s sake, let’s assume one hundred dollars per ton of CO2 potential.

8 Carbon dioxide (CO2) here represents other gases that significantly alter the atmosphere, such as methane (in addition to natural sources like thawing permafrost and rice fields, methane is primarily produced in cattle intestines, which is one of the arguments against increasing meat consumption in a growing global population). Since the different substances behave differently over time in the atmosphere, the assumption of this equivalence is not unproblematic, but sufficient for our purposes.

This price can then be passed along with the product, somewhat like accumulated value-added tax. A few examples: Coal is mined in Germany. The coal mine pays $240 per ton of coal (i.e., 2.4 * $100 = $240, with a CO2 potential of 2.4 tons of CO2 per ton of coal). The coal is processed into electricity nearby. As a result, the cost of electricity per kilowatt-hour increases by $0.03 due to the energy potential of coal. Or: Oil is extracted in Saudi Arabia. For each ton of oil, this results in 3.1 tons of CO2 potential. At the source, $310 is paid. Refining the oil requires (assumed) 10 percent of the originally extracted oil. Consequently, the refined products become $341 more expensive per ton. Third example: A farmer plants sunflowers. Per hectare, he can produce 0.8 tons of sunflower oil (for comparison, palm oil yields 5.6 tons per hectare). Some of this oil is used as fuel for diesel vehicles, and the rest is processed into margarine. Both end consumers bear their respective share of what the farmer paid for generating CO2 potential. Diesel oil and margarine also carry additional costs for the purchased CO2 potential related to their production (margarine, after all, is also a kind of fuel, namely for hungry people). The same applies to the forest owner who cuts down a fir tree and supplies it to the timber industry. His wood contains CO2 potential, for which a fee must be paid.

Revolution of the economic cycles
Illustration of the additional cash flows that occur in the petrol value chain. Goods become more expensive as the additional costs are passed on to consumers. For the sake of completeness: As soon as the forest owner decides to cut down his trees, he also incurs costs, as he creates CO2 potential.
Own illustration

Let’s now move to the opposite side, to the recuperators. They have largely been overlooked in the discussion around climate issues. But it is by no means the case that the commons of the atmosphere lack regenerative power—quite the opposite. Through photosynthesis, sunlight continuously facilitates the binding of free CO2 gas into solid, non-oxidized carbon in plants. Recuperators should be compensated for their binding activity, and at the same price that CO2 potential extractors have to pay for their activity. After all, they are providing a service to the atmosphere. What has so far been externalized by some (for free) is now being internalized by others.

For this to happen, a single convention is needed, applicable to part of the world or, ideally, to the entire globe, regarding the acceptable level of CO2 emissions. At “net zero,” potential creation must not exceed overall recuperation capacity. This applies not only to CO2 but also to other greenhouse gases.⁹ In the part of the world where the convention is in force, there is free tradability of potential generation and recuperation certificates. The price is determined by the free market, as has long been described in microeconomics, through supply and demand. The price will stabilize where a recuperation provider just barely decides to allocate an additional square meter to CO2 recuperation, and where a CO2 emitter is willing to pay their contribution for an additional flight kilometer. If previously unused land is reforested thanks to recuperation compensation, the CO2 price will tend to fall, as will the price if facilities powered by sunlight or nuclear energy produce carbon bound from CO2. Similarly, the price drops if less air travel occurs due to terrorist attacks or another pandemic, and cruise ships are forced to remain docked. Conversely, the price rises if economic activity based on fossil fuels picks up or if a region’s recuperation capacity decreases due to drought.

⁹ The convention could also have an overshooting target, i.e. net zero minus X or Y, in order to reduce CO2 and other pollution over time. This could be useful, for example, to reduce the CO2 ‘debt’ that has already been incurred or in the event of an exogenous event such as a major volcanic eruption.

Trading and clearing for CO2 certificates is conducted via blockchain or comparable systems. Essentially, a CO2 certificate is akin to a coin backed by real value, which, due to this characteristic, could very well become a form of current currency. It would have the advantage of not being subject to inflation, unlike other forms of money. Does trading and clearing require a unified market under state or supra-state control? Who ensures sufficient market liquidity? Who enforces the newly established property rights? We don’t want to preempt the regulatory discussion here and refer to the final chapter of this thesis paper. But let this be said in advance: There are indeed good arguments for a spontaneously arising order, as postulated by F. A. von Hayek. The atmosphere, which is currently owned by everyone and therefore by no one, would be, in a sense, self-organized and privatized through certificate stakes.

The systems available today, which already accompany significant parts of social and economic life, can be used to monitor potential generation and recuperation. For example, Google Earth can measure almost every piece of land with millimeter precision; linking it to a recuperating owner would be “just” a matter of the respective land and property laws, albeit with considerable effort. The activities on the respective land would need to be as reliably identifiable as breakdown vehicles on highways are today using navigation systems.

Does the “combustion” process—the actual generation of CO2 by the end user, the consumer—need to be monitored? If potential creation is consistently recorded at the source, then no. Because then the price automatically trickles down to the “last one to be bitten by the dogs.” The consumer is completely free to decide for what purpose they generate “their” CO2, whether for a charity event or a joyride in their vintage car. In other words, the citizen’s freedom is not significantly restricted—unless one considers the compensation of previously externalized costs to be a restriction of freedom. Of course, one cannot wash the pelt without getting it wet in this area either. The more CO2-intensive a product or process is, the more expensive it becomes. The previous carefree attitude toward “polluting” the air, such as through cheap flights, will partly come to an end.

If the entire world does not participate in such a CO2 compensation system, which is likely given the current global political landscape, one system will have to protect itself from the other through tariffs. Imports must be made more expensive by the CO2 equivalent; the revenue from these tariffs could be used to lower the prices of export goods that have become more expensive due to potential compensation. From the perspective of the globally desirable CO2 balance, this is a suboptimal solution, but at least somewhat reasonable in trade policy terms.

The oceans remain a significant intellectual challenge. The world’s oceans contribute to the balance between CO2 emissions and recuperation, but with considerable geographic differences, as the following graphic shows. The reason lies in the varying water temperatures: the warmer the water, the more CO2 is emitted; the colder it is, the more CO2 is recuperated.

Not all oceans are the same
Absorption and emission of CO2 by the world’s oceans.
Source: Global Carbon Project, Global Carbon Budget 2021

Overall, the water masses move within a highly complex system that is closely connected to the chemical composition of the atmosphere. The higher the CO2 concentration in the air, the more the ocean absorbs. However, the recuperation of CO2 by the ocean comes at a cost: the water becomes increasingly acidic due to carbonic acid. Research is certainly not finished in this area. Where would the absorption capacity end, or at what water temperatures would the emission start to accelerate?

Moreover, assigning the world’s oceans to specific owners, as is done with land, is hardly conceivable. They will likely remain common property for a longer time. Their estimated recuperation capacity could be factored into a net-zero convention, based on per capita, per land area, per economic output, or using a mixed factor that considers multiple components. However, a simpler solution would exclude the world’s oceans and rely solely on CO2 recuperation from land masses and anthropogenic technology.

Of course, even in a world with a C/CO2 balance, difficult issues of measurement and demarcation will arise. For instance, there is the question of how much CO2 potential is actually generated in practice. One example: It is known that cattle produce large amounts of the greenhouse gas methane (CH4) during digestion. Methane is more than twenty times more harmful than CO2. It is also known that methane emissions from cattle could be significantly reduced through a special diet, namely by feeding them garlic. Ideally, such processes should be captured to set the right incentives at the base. Environmental work is ultimately grassroots work; significant positive changes only come from the sum of the smallest changes, possibly in the Argentine Pampas and elsewhere. But even here, and especially here, modern information and communication technology should be able to address these issues.

Is this, all things considered, a desirable world? We don’t know, and we do not wish to judge. We will discuss the risks of the path to this “world of balance” in Chapter F. What we want to emphasize here once more is this: If the theoretical framework of Coase/Hardin holds true, then this new world will emerge, whether desired or not, just as other equilibriums inevitably arise when the conditions are right. And that they are right has been sufficiently demonstrated by the development of information and transaction costs. Interestingly, there is already empirical evidence supporting this final thesis. For example, the platform of the company Climax¹⁰ supports the determination of a company’s ecological footprint, specifically including the CO2 burden on the atmosphere caused by the company’s activities, after which a match for CO2 recuperation can be sought. Existing recuperation possibilities were pointed out in Chapter B.

¹⁰ www.climax.eco

E | The Journey Is Better Not the Goal

Technical development brings about structural change; this is the axiomatic perspective in this thesis paper. Karl Marx thought similarly, although he assigned a goal and endpoint to the course of history through Hegelian dialectics: Technology, that is, real possibilities, inspires the zeitgeist, the thinking of philosophers and opinion leaders, and ultimately the people on the street. This is how upheavals happen, how revolutions occur, how the times change. For us, there is no doubt that we are in such a phase of upheaval driven by the technological development of highly efficient data collection, data storage, data analysis, data processing, and unrestricted, low-cost global communication. There would be no outcry over discrimination, and thus no gender and disadvantaged movements if the technical development had not made the discrimination of every individual down to the smallest detail of their being possible. No climate movement would exist without the continuous observation of the Earth and what happens on it by a multitude of satellites, and without ever-improving models that enhance the understanding of ecological processes. No climate movement would exist if consumers’ ecological footprints could not be determined in detail, thus awakening and managing a sense of guilt.

In other words, what we are currently observing in the social, economic, and political spheres—a drive to redesign the world, characterized by much unrest—is a logical consequence of the real possibilities created by the rapid development of technology in recent years. This drive manifests itself in many areas quite specifically and often without a holistic view, that is, without weighing the pros and cons and considering other legitimate interests. “Drive” seeks to maximize, not optimize. For example, proponents of wind energy want to place as many turbine towers as possible on every conceivable hill and ridge—often with little regard for the landscape and nature. Similarly, advocates of solar energy, who have supported the preliminary triumph of their business model with hefty subsidies and guaranteed purchases. The finiteness of state coffers? Not a problem, at least for them.

However, drive and folly do not seem far apart. For instance, when the city of Winterthur recently announced¹¹ that it intends to purchase a battery-powered fire truck at a cost of millions, one might ask where the ecological advantage lies when a heavy vehicle, burdened with batteries, is used to extinguish a fire—the very epitome of a CO2 event—and saves a minuscule fraction of CO2 emissions compared to an ordinary fire truck. Indeed, if one were completely honest—which is difficult in times of drive and upheaval, as Jacobins threaten everywhere—one would have to question the foreseeable battery-supported electrification not only of a single fire truck but of automobiles in general, especially from an ecological perspective. It is now known how long an electric car must be driven to “amortize” its ecological footprint compared to a conventional car. Depending on the intensity of use, it takes years. And only then, if not part of the required electricity comes from coal and gas power plants. Otherwise, the point of ecological break-even will never be reached. In other words, it is possible that due to unfortunate political circumstances, a huge industry with countless suppliers, indeed an entire mobile society, is marching in a questionable direction.

¹¹ ‘Exhaust-free on the way to a major fire: the fire brigade should no longer just fight flames, but also global warming’ in the NZZ of 6 January 2022.

More generally speaking: In times of drive and upheaval, there is a high likelihood of massive misinvestments. That things will happen, which are obviously “foolish” from the start. That, under the perceived or actual pressure from zeitgeist, expert committees, and the public, superficial rather than genuine solutions will be accepted. That skeptics and agnostics will be silenced, stigmatized. That there will hardly be room for other legitimate concerns besides the main issue. That decisions will be moralized in one way or another, even in committees that should be immune to this due to established governance rules, such as the boards of directors of companies. “Morality” often expresses itself as implicit peer pressure; this can cling to a committee like sticky slime and eliminate its functionality.

Massive misinvestments: As normal as they are in times of upheaval—because real options are more numerous than under normal circumstances, because instead of optimizing, there is maximizing, and because foolishness has a higher chance of success due to moralization—they should be avoided as much as possible when it comes to economic decisions, for example, in investment matters or the strategic direction of a company. Aligning decisions based on buzzwords, as often happens in times of drive and upheaval, can have devastating consequences. An example: There is much talk these days about “decarbonization” or “carbon bubble.” This refers to the one-sided dependency of past economic development, and thus also the development of stock prices, on the extraction of unbound carbon and its oxidation in the course of economic value creation and consumption. These buzzwords might suggest that the future will be carbon-free. This is, of course, nonsense. As long as life exists on this planet, it will be about carbon—its extraction, use, and recycling. In this context, the very extensive “decarbonization” of the modern automobile might be completely wrong, with the price being far too high. It could alternatively be conceivable that significantly fewer, but carbon-based, vehicles are operated, and that, as a result of significantly higher fuel prices and the “Uberization”¹² of public and private transportation, a less burdensome situation arises overall than if in the future, every garage has a multi-ton Tesla.

¹² The ‘Uberisation’ of the economy amounts to a significantly better use of existing capital, specifically the existing vehicle fleet. Higher utilisation of existing capital goods generally also makes ecological sense.

In other words, especially in times of drive and upheaval, strategic composure is crucial. This equates to sufficient skepticism towards “simple” solutions, which in the end may cause more negative side effects than positive main effects. The same skepticism is deserved by temporary majority opinions that are not seriously supported theoretically and empirically, so-called “hypes,” and the political decisions based on them in favor of a certain approach. The one-sided favoring of wind turbines and solar panels, which generate “fluctuating power” in Northern Europe, and the EU Commission’s return to the nuclear option, speaks volumes. Without the looming threat of a power shortage during calm periods, the EU’s governing body would certainly not have made such an unpopular decision. This is not to speak against energy production from wind and sun, and it should also be acknowledged that capital investments in these areas can indeed make sense and ultimately yield returns. The warning is more directed towards the fact that artificial, politically distorted, ultimately uneconomic conditions usually have a short half-life. Or in other words: Where there is favor, there is also danger. Favor is a precarious good.

Strategic composure is also advisable where formalization of substantive issues is sought as a remedy. In the quite honorable effort of investment managers to develop comprehensible criteria for their decisions to achieve “good” in the sense of sustainability with capital investments, systems have been developed over the years to classify and evaluate investment objects. Engaging with such ratings—ESG standards are one example, and many providers in the investment market have their in-house rating systems—reveals that the criteria are often quite broad. This is likely with the implicit and very legitimate goal of achieving sufficient diversification. However, the more diversified, the less relevant—a classic trade-off situation. The most relevant recommendation would be a single investment. But it could be wrong.

By following ESG or similar criteria, the investment manager is likely doing nothing wrong. This is entirely in line with the stipulated “strategic composure.” And companies that behave in such a way as to meet ESG criteria are also doing nothing wrong and can access capital even in times of increasingly moralized capital markets. So far, so (relatively) good. Those who want to set higher standards for themselves and their decisions need to be more specific and look more closely, and they will likely have to accept one or the other basic assumption for future design. Without the risk of being wrong for a while in various ways, it probably won’t work.

F | In the End it’s About Much More

For drive and upheaval do not mean a clearly defined highway but rather detours, obstacles, and chasms. From time to time, capital will certainly be destroyed. Perhaps the battery-powered automobile will prove to be a flop in the long run, not least for the environment—who knows—and perhaps people will then ask why hydrogen propulsion was not adopted from the outset. It is possible that a green investment wave, like the one initiated by the European Union, will be concretely counteracted by completely different development paths in China, the USA, and elsewhere. It is possible that the CO2 compensation via the market, as described in Chapter D, will not occur as quickly or only partially. And then the path to more sustainability would become a temporary solution that lasts too long and continuously leads to deficiencies that are then symptomatically treated rather than fundamentally cured.

¹³ This constellation is most simply expressed in the discounted cash flow method for obtaining the present value

The factor p denotes the overall probability of occurrence in the future and includes all environmental influences that may occur on the way to the future.

For our idealized world, we chose to capture the CO2 potential at the source—in the coal mine, at the oil well, in the forest when trees are felled, or in the field when sunflowers are harvested. Alternatively, capturing the actual “combustion,” the oxidation of carbon (C) with oxygen (O), would also be conceivable. This could occur at the combustion engine, which consumes so many liters of gasoline per 100 kilometers, or on the cruise ship that switches to heavy fuel oil after leaving port and carries its merry cargo across the oceans. Or with the homeowner whose house burns down due to a dry Christmas tree. However, after thorough debate, we rejected this option for several reasons:

• The branches of carbon use are infinitely fine. For example, recycled plastic might end up in a controllable waste incineration plant, or perhaps littered somewhere in the landscape or even in the sea. Misuse at the endpoint is wide open.
• Consequently, control would have to occur at all conceivable endpoints. The risk that this will lead to a surveillance state is real and already evident here and there.
• Where there is control, there is also governance. In Chapter C, we pointed out the possibilities of AI for micro-managing societal processes.
• The number of sources generating potential (such as oil wells, coal mines, forests, agricultural enterprises) is manageable and controllable. Individual rights are only minimally affected by their capture.

When CO2 compensation is applied at the source, the burden is passed on exclusively through a neutral price. In other words, the established system doesn’t care for what purpose CO2 is generated. The main thing is that it is compensated. The risk that humanity will lose its freedom through the internalization of previously external costs imposed on the public is enormous. The goal should be to establish an order that requires as little control as possible because controls are synonymous with social costs.

However, it is—or will likely be—the case that internalizing previously external costs will create new societal challenges, particularly of a social nature. The price for CO2 could become too high for many activities. Any social instruments that might be necessary to balance this out should be kept outside the CO2 system; otherwise, cost accuracy will be undermined, as is already the case in many places and activities today.¹⁴

¹⁴ In Switzerland, for example, public transport is massively subsidised by the state. Users of trains and buses are not aware of these distorting conditions in any way – they even perceive their ticket as expensive.

In our view, systems that attempt to control the production of CO2 through a steering levy are neither sufficient nor effective. Why?

• With a steering levy on goods of the broadest use (which certainly includes CO2 production), most of the collected money flows back to the group being steered. This has a somewhat tautological effect.
• CO2 recovery is not compensated in this way. The commons do not disappear but are instead (colonially?) managed by a collective that could change its mind at any time.
• Furthermore, no market price for CO2 is created.
• The risk that the steering authority will misuse the revenue for its own purposes is obvious and has already occurred.

Certainly: As long as the ideal compensation situation does not even seem within reach, second-best solutions are acceptable. But second-best solutions can also become the second-worst when time and technical developments progress.

In conclusion: Is it actually sensible to subject carbon (C) to “combustion,” that is, some form of oxidation, only to reverse this process with great effort to produce and store solid carbon? We think: yes. At least whenever the marginal benefit of combustion is greater than the marginal cost of recovery. This is often the case since nature takes over a large part of this work through the photosynthesis of sunlight. The technical extraction of C and its subsequent storage are of an accessory nature and merely reflect the natural process. Moreover, we expect more from the financially supported incentivization of planting additional forests around the world or the financially supported prevention of further deforestation of tropical forests, whose CO2 recovery potential would be a great loss. It could be that compensation payments for CO2 recovery open up new, better development opportunities for structurally weaker regions of the world.

All in all: There is certainly room for shaping a world without commons. It will come because it has been made possible by technology, and it will come because it is necessary to ensure human life on this planet. Let us use this room for maneuver wisely.

The Authors

Dr. Konrad Hummler
1953, PhD in Law, University of Zurich,
Entrepreneur and publicist, owner of M1AG, President of the Civil Society Association, Trustee of the Progress Foundation.

Dennis Moser
1995, B.A. HSG, M.A. HSG candidate and CEMS MIM,
Scientific Assistant at M1AG (2020–2022), Business Development and Board Member at bonCas AG.

Joel Weibel
1996, M.A. HSG,
Scientific Assistant at M1AG (2020–2022), Consultant in Corporate Finance / M&A at ZETRA AG.