FUSION DELIRIUM? Or…… A FUSION ECONOMY?
Ganga Prasad
Rao
gprasadrao.blogspot.com
It seemed grotesque, even bizarre….Nuclear technology, far
from being the ‘milch cow’ it promised to be, had turned in to white elephants
for the scale of upfront investment in technology and infrastructure, the
expenditures necessary to ensure safety in operation and obtain ‘public
approval’, and for the costs of disposal of nuclear waste that were in fact
testimony to the poor foresight of nuclear scientists, policy makers and
government financing institutions. Hundreds of billions of dollars, perhaps
even a magnitude higher of resources, spent on nuclear research over the
decades, whether at home or internationally, under unilateral or multi-lateral,
covert or overt programs, had come to roost on national and global
macro-finances, and was threatening to be the proverbial last straw on the
camel’s back, perhaps even the excuse villains on Wall Street were waiting for
to crash the global financial markets. But, the alternative was just as
depressing. A fossil fuel mania was warming the earth, choking large masses of
humanity with cancerous emissions, and inducing slow, but sure changes that
were forcing the burden of higher costs of insuring climate risks upon the
masses. Besides, whether for reasons of resource exhaustion – real or imagined -
the price of fossil fuel, and with it the basket of indexed fuel and energy
substitutes, had risen to cause the subsidy budgets in developing nations to
balloon and spill over to the international debt and currency markets. And then,
there were other deep and grave issues to worry about. Protagonists of a Closed
cycle material economy and environmentalists fearing the irreversible loss of
air, water, and land from resource extraction and consumption were thwarted by
resource barons who insisted on exhausting all reserves – fossil fuel and hard
rock - they had discovered with advanced technology. Pricey nuclear research had
been sponsored and funded by the Sheikhs, and they, despite an obvious conflict
of interest, now had a controlling stake in determining the pace and dissemination
of nuclear advances and its commercial exploitation. Nuclear technology could
be put to dual use and find its way to terrorists and mercenaries who
themselves were pawns for ‘entities’ blackmailing the international financial
markets. On another front, the nexus between vendors of obsolete and unproven
environmentally risky nuclear technology, the ‘democratically elected’
representatives of developing nations, and the Finance-Insurance megaliths put
at risk the health, safety and lives of millions of citizens. Elsewhere,
‘peaceful’ nuclear research could turn economically strategic, and militarily
dangerous, if it endowed one nation with energy superiority. The prognosis was
stark and dark. Humanity, at the edge of a leap to the stars, was falling
short, and perhaps headed for the chasm of unsustainability, even anarchy.
……………………..
With a grimacing
look at results spit out by the ‘Tera-Hz’ computer, the Fusion Lab Section Head
retorted “………..Yes, but why is the power generated in the reaction an exact
6.023 x 10^23 times that predicted in these equations? What explains the
surge?” Befuddled, and bubbling with unmitigated ‘enthusiasmo’, the young and
brilliant CERN intern, a post-doc impatiently awaiting his day in the Sun,
turned to his senior colleague and blurted “Surely, …..Could it be?...But
no,….But yes….indeed…Yes….No….YES.” The theory, experiments and observations
could only mean one and only one thing….”FUSION”, … that too, at Avogadro scale
! The wizened, and certainly the more pessimistic colleague, now looking
forward not as much to a sunny day as to a Golden sunset, was more subdued. He
had many supervised many interns, researchers and scientists in his long
careers, each one with a claim to fusion glory, only to fall by the wayside
upon investigation. Perhaps out of memory and habit, he turned sarcastic and
remarked “Say bye bye to King Coal, heh?.” But, regaining his composure in a
trice, he quickly summed up the situation. True, they had conducted a dozen
runs of the experiment with startling repetition of the ‘molar multiplier
effect’. Despite what was a rare, exotic, and admittedly, very costly to
produce isotope to trigger it, the reaction, once initiated, was ‘closed’,
self-sustaining and generated power at ‘zero cost’. All evidence pointed to
fusion as the source of the power surge. He couldn’t but agree it was indeed
just that. It was time to go ‘public’, which, in professional lingo, meant
going to the scientific press….
………….
These issues and concerns had not been lost on the ‘Judges’
drawn from the Academia, Think-tanks, the Jurisprudence, Governments, Industry
Associations, the Global Insurance Houses, and indeed, the International
Organizations: the UNEP-WB-IAEA-IEA-IMF, as they grasped the significance of
the once-in-a-millennium development, news of which had been circulated among
them by, wink wink, one in the ‘Scientific Press’. Brooding privately,
brainstorming together, then hinting privately and airing their views in public,
they resolved to make a clean break from the errors of past decades that had
pushed the world to the brink of disaster. Agreeing to eschew private or
national interests, they forged a partnership for the common good of all
humanity. They decreed that the historical technological opportunity be
exploited to achieve an all-encompassing concept of ‘global sustainability’, a
cause large enough to stand the test of trial of stakeholders from all quarters,
particularly its fossil fuel detractors.
Aware of the multiple conflicts that would arise along the
way, the Judges strategically chose not to entrust their sustainability agenda
with any one institution. Instead, they preferred an oversight body constituted
from organizations representing the Environment, Insurance, Financing and
Commerce to design, administer, and monitor the ‘Sustainability cause’. Prudently,
they chose the UNEP, the IIS, the World Bank, and the IISD with the
responsibility to administer and execute their sustainability agenda, and
christened it the UIWI. To ensure the UIWI would not be subverted from within
or blackmailed from without, they imposed a further condition that all
exploitation of nuclear technology would be subservient to, and motivated,
beyond the reclamation of past nuclear investments, by the sacrosanct and
all-encompassing goal of Global Social Sustainability - Sustainability measured
in the aggregate, and in the broadest sense, that encompassed public ESH standards and risks, efficiency and
productivity, stability of Government finances, social and military peace, living
standards that subsumed public subsidies, and indeed, equity goals, in
particular, wages, employment, and cross-sectional as well as
inter-generational social justice. The judges required this aggregate and
all-encompassing measure of Global Social Sustainability, S, be measured
quantitatively, even with a nested, multi-tiered index. Fearing the Governments
of the world and Fossil fuel interests would collude at the auctions to delay
and deny humanity a sustainable future, the Judges sought to further ensure
that the Sustainability target, S*, was reached at the earliest future time
point, T*. They also entrusted the commercialization of Fusion technology to
the IAEA (in the opposite of the IEA which operated the Carbon permit market)
and decreed that nuclear technology compete on both costs and externalities
with existing technologies, and further that the best way to ensure the
commercialization would be to auction Fusion Licenses, FL, exclusively to
Governments around the world.
To this end, and by a special arrangement with the IMF (which
was ordained upon to serve as a repository of all ‘nuclear-debt’ from all
nations), and the fiduciary organizations of member nations, the Judges
provided for the institution of a ‘Sustainability Pot’ - verily a large reserve
of Gold deposited against the SDR credits extended to the nations of the world.
The Judges permitted this SDR Gold, meant to be held in reserve and therefore
illiquid, to be contingently leveraged and issued as liquid Gold ETFs to the
financial markets. In special cases, the IMF even permitted the ‘proxy accounting’
of other illiquid gold stocks such as jewellery gold, non-ETF gold, and (capitalized)
gold reserves held either among households and banks, or ‘in ground’ by the
State. Such interpretation was advantageous for it permitted the IMF to endogenously
compute an aggregate average ‘SDR Gold to Gold ETF Multiplier’ as that value
which when applied to the aggregate SDR Gold reserves, solved for and equalled
the nuclear debt burden. This ‘monetization’ of illiquid SDR Gold in to liquid
Gold ETFs enabled the IMF to kick-start the process and persuade stakeholders to
seek a faster path to sustainability.
Rather than directly favour the UIWI with as large a pot as
they had created, they entrusted the IMF to raise resources by issuing tranches
of Sustainability Bonds against the Gold ETFs created from the ‘monetization’
of SDR Gold - sponsored by various nation-stakeholders that was not unlike replacing
‘inherited family gold’ with gold demat units. Instead, the Judges granted the
UIWI something much more tangible, the property rights to entire world’s
natural assets in the Commons. They authorised the UIWI to offer NAETFs – ETFs
of Natural Assets - essentially the post-capitalization parcelling of these
publicly held Common assets, the Oceans and Inland Nature Heritage reserves as
tranches of ‘Nature shares’ on the international equity markets, and budget its
activities with the proceeds.
The UIWI initiated the process by partnering the nations of
the world as they sought to ‘monetize’ the illiquid SDR Gold holdings as liquid
Gold ETFs – a prerequisite for the issue of Sustainability bonds by the IMF,
and in itself an intricate, multi-step process that involved the highest
bidding nation (the one that offered the highest SDR Gold to Gold ETF long-run
return multiplier) to sponsor the ‘ripping’ of SDR Gold to Gold ETFs. The sponsoring
nation (or, conceivably, other entities such as, despite the conflicts of
interest, the World Bank, ‘Sheikhs’, or even the Industry) offered a ‘Blue
Diamond I’, equal ‘Green 2key Green I Green Bakey’ to UIWI to initiate the
‘ripping’. It first exchanged its SDR Gold for the indivisible ‘(Green) 2 Money
Bakey’ that the UIWI offered from Recycling markets. In turn, the UIWI ‘ripped’
the SDR Gold in to a new tranche of Gold ETF units at the SDR Gold multiplier
rate, plus a ‘(Blue Diamond) I Dollar’ and net of a ‘Judge Stepdown Green I
Green Bakey’ (approx equal ‘(Green) 2 Money Bakey’, and hence a ‘WB Ripping
100%’), in the process causing the price of Gold to fall. The sponsoring nation
partnered the IMF in the ‘High frequency Stepdown-Exchange Trading’ (HFT) of Gold
ETF for SDR Gold. (The UIWI also boasted the power to ‘un-rip’ the Gold ETFs
back in to SDR Gold on a need basis if the constituent keys were offered
simultaneously. A Volatility ZS 2key from the Commodity markets supported
volatility in Gold markets during the ripping-unripping process).
Post ripping, the sponsoring Nation could apply the newly
created Gold ETFs either toward its global sustainability obligations or its
national interests. In the former case, it sponsored the retirement of a tranche
of IMF’s nuclear debt by choosing to exchange its Gold ETFs in part for IMF-issued
Sustainability Bonds. The IMF, upon receipt of Gold ETFs plus the ‘Dollar I’
key from the sponsoring nation, retired an equal amount of Nuclear debt (for
‘Green Bakey U’) and, simultaneously, issued Sustainability bonds in the same
amount. The Sustainability bonds, issued with an ‘I Dollar’ key to the
sponsoring nation, were guaranteed by the UIWI. Unlike conventional bonds, these
Sustainability bonds were issued, at any point in time, with maturities linked
to the attainment of multiple, interim ‘Sustainability targets’, Sk.
Thus, these bonds were issued with ‘Short Oo’, ‘Oo Oo’, and ‘Long Oo’ keys as
appropriate to their sustainability target and the implied, but uncertain
maturity horizon. These targets were re-adjusted upwards with each tranche, and
implied variable and endogenous bond durations at various stages of the
temporal path to S*. Subsequently, the sponsor Government leveraged the
Sustainability Bonds with the ‘I Dollar key’ in its domestic Closed Cycle/IPO/equity
market to seek an ‘Equity Oo key Long 2 Share Capital Appreciation’. Investors
in Sustainability bonds were returned ‘Green I 2 Money’ upon the maturing of
the bonds. In this manner, the monetization of SDR Gold motivated and supported
many operations in the grand Sustainability stratagem. If, on the other hand,
the sponsoring nation chose to heed its domestic priorities over global
sustainability concerns, as for example in times of recessions, then it
directed the Gold ETFs (net of S. Bond purchases) either to bid for Fusion
licenses, support the Closed cycle industry, sponsor Reserve buybacks, or purchase
Carbon permits for its ESHSSEI sector. In making this investment choice, it employed
a three-fold criterion – a GDP multiplier, if a short-run decision, equity
prices, if intermediate, and a threshold/benchmark expected appreciation in gold
prices, if a long investment.
Toward complying with the Judge’s wishes, the UIWI first
required the World Bank and the Sheikh-OPEC to take positions in the matter.
While the World Bank sought a highly efficient economy with a high PGDP in
which Capital and Technology IPR were rewarded, in fact an economy
characterised by an early transition to fusion power and a faster,
energy-driven progress toward Sustainability, S*, the Sheikh-OPEC preferred a
laissez faire approach that perpetuated the era of fossil fuels, and which
permitted a slower progress to S* if with a large dose of bond-driven,
subsidy-supported social equity. To skirt the conflict of interest inherent in powerful
entities such as themselves, the two hedged their positions in the opposite.
The Sheikh-OPEC, with the power to set fuel prices, positioned themselves for a
PGDP 2key in booms and a Resource Bakey on underexploited fossil fuels in recessions,
while the World Bank, with the power to set economic policy, staked the Carbon
Permit 2key in booms and a PGDP Bakey in bust.
Faced with irreconcilable differences between themselves, and having
hedged appropriately, they chose strategically, to permit the UIWI to choose a path
of compromise.
Breathing a sigh of relief, and yet fearing the consequences
of potentially collusive polar positions of the two heavyweights, the UIWI too
hedged itself. It first roped in the Recycling Industry which advocated a
middle-of-the-road Closed Cycle Economy. It also invited, on one hand, the global
Insurance Houses, and on the other, the energy and mineral resource
owners/barons in to its ‘Ring of Sustainability’. It offered to the Insurance
Houses a line to subsidize and, by implication, tighten the standards as they
applied to risks to public ESH and the Commons in a subsidy-ridden, fossil-fuel
dominated world. To the energy/mineral resource owners and barons, the UIWI offered
a buyback of ‘economic reserves’ that would potentially be left unexploited in
a nuclear/closed cycle future. With these alternatives in place, the UIWI dynamically
optimized the path to achieve S* given its initial state, St, and
the direct or shadow prices of the various determinants (the endogenous
variables of the optimization) of the Sustainability Index, S* subject to
various constraints, in particular monetary resources, the state of existing
production technology, stability of financial systems, and equity agenda. The optimization,
given an arbitrary discount rate, yielded an optimal, cost-minimizing, inter-temporal
path for the state variable, St:T* to reach S*. It obtained, beyond
the one-period, short-term ‘compromise target’, St+1 acceptable to
the two opposing parties, the optimal, cost-minimizing investments in creation
of NAETF units, Fusion licenses, ESH subsidies, Recycling, Carbon Permits, as
well Reserve buybacks.
……………………..
It was just as well
CERN had built the facility underground with elaborate safety precautions. For,
the production of Y++248, the isotope, with ‘reversible
fissionability’ characteristics so essential to initialize and sustain the
closed cycle fusion reaction, required the highest power that the lasers could
be operated at. The impact of the electron beams generated so many species that
it was difficult to isolate this particular heavier species while retaining its
ionic stability. But the brilliant intern found a way. He isolated it by
grouping it with other more unstable species, thus ensuring it’d be the last to
degenerate in a de-stabilizing environment – an environment that could be
perpetuated with the power generated in the fusion reaction! Little did he know
he was at the threshold of a Nobel....much less suspect the ‘Senor’ was aware he
had opened the door for commercial fusion power generators!
……………………….
Appreciating the UIWI’s hedged and unbiased stance, and privately
relieved that the optimization was of a form that permitted flexibility, even
substitution across alternative paths to Sustainability, the two combatants
affirmed their concurrence with the definition, construction and measurement of
the Sustainability Index as directed in the Judges’ decree. And though they
differed fundamentally with regard to the target date, T*, for achieving the
Sustainability target, S*, they chose strategically and for the immediate year
ahead, the ‘compromise target’, S
t+1, that minimized costs while
retaining the option to alter course in the future. As it turned out, that was
appropriate from the perspective of the larger welfare of humanity and
opportune to the powerful Fossil fuel interests too, who, otherwise, were in
position to deny the fusion breakthrough. It provided the basis for intelligent
decision-making based upon strategic positioning of the differently
resource-endowed nations (and entities) given the spectrum of their priorities,
resource endowments and production specializations.
The UIWI, aware of the Sustainability pot entrusted with the
IMF by the Judges, wielded its newly vested property rights to the Commons of
the world to raise monetary resources necessary to fund their programs toward securing
the Sustainability objective. It first delineated all Commons and International
Nature Heritage sites, whether on land, sea or ice, straddling different
continents and nations, and valued them for replacement cost, opportunity cost,
use values and non-use values, to obtain a base of capitalized Common Natural
Assets. It then apportioned very small portions of the asset base to create
tranches of Natural Asset ETFs, NAETFs. The choice of the ETF route was
appropriate not only for the liquidity it endowed the priceless assets with,
but also because it permitted the ‘devolution’ of an asset with an extra-ordinarily
large capitalized base in multiple, measured tranches of NAETFs linked to the
achievement of interim Sustainability targets, Sk. These NAETFs competed
against conventional Equities, Bonds, and Fuel/Commodity ETFs as an alternative
asset class that offered diversification benefits to investors. The UIWI sought
a ‘Blue Diamond I Green Bakey U 2 Bakey I Money’ key for the devolution of the NAETF
IPO/FPOs to the capital market (and the same was obtained, respectively, from
the sponsor Government, the IMF, the Investors at large, and from Insurers on
behalf the Industry). While the various Governments funded their purchase of
NAETFs with ‘Sustainability Bond 2 key I Bakey Long Oo’, the Industry directed
a ‘Hedge Oo Group insurance’ to buy in to them. The ‘Hedge Oo Group Insurance’
was a strategic investment and the means to derive information on risks as they
pertained to their exploitation of the Commons and ensure its ‘sustainable exploitation’.
Subsequent to the IPO and support by the Government and the Industry, the
NAETFs found favour among the investors at large. Such investors valued the
NAETFs, beyond their potential for capital appreciation and asset diversification
value, as an instrument to express their active and passive values for the
preservation of humanity’s common environmental heritage. From a macro-financial
perspective, the NAETFs represented an asset class so large and imperturbable
in the short-run, that it was stable against volatilities of multifarious
origins, and inured to recessions or macro-shocks that shorted boom economies.
The UIWI re-invested the proceeds of the NAETF FPOs to further
its Sustainability agenda. It ‘super-allocated’ the NAETF proceeds 4 ways - between
Fossil fuel- and Ore Reserve buybacks, the Closed-cycle agenda and Public ESH
risk reduction employing the equalization of marginal impact strategy. The
strategy implied that resources were directed to the buyback auctions until
their marginal impact on the Sustainability index fell and equalled the rising
marginal impact on the Sustainability Index of ploughing it in to Recycling and
Public ESH causes. Plainspeak, the UIWI so re-allocated NAETF proceeds that an
additional dollar obtained equal sustainability progress across all these four alternatives.
………………………..
If the atmosphere at
the Fusion Lab was exciting, and the query session at the Annual Conference of
Nuclear Physicists tense and torrid, it was simply electric at the ‘Nobel
Hall’. The Nobel committee had broken all traditions to invite a select
community of scientists to witness the award. As they received the Nobel
jointly, they realized they were living the moment every Scientist dreamt of.
The unlikely pair chose to read their Nobel address together, at times agreeing
and graciously giving way to the other, sometimes snatching the podium from the
other, and through it all recreating how they jabbed and prodded each other in
their lab 200 m below surface to come up with ‘the Nobel Spark’, in fact an
all-important ‘what if’ question that the less imaginative would have brushed
aside….. The ovations seemed to drown away in the effulgence of the
spotlights….
………..……………
The IAEA bigwigs considered various mechanisms to allocate
Fusion Licences. For obvious reasons of nuclear security, the IAEA would only
permit National entities to participate in the allocation of fusion licenses and
operate the facility. Those participating Government entities had multiple
constituencies, roles and stakes – as past sponsors of nuclear research, as part-commercial-,
part-public providers of subsidized power to the masses, and even as proxies
for the Industry who sought a lower-cost alternative to conventional,
fossil-fuelled power generation. Anticipating the Industry would seek Fusion
power through the Government, and not forgetting the IMF had ordained them to
recover past investments in nuclear research, the IAEA settled on auctioning
licences for Fusion power units so they could extract upfront the rents of commercializing
fusion power. As it turned out, that was even appropriate, for the existing
fossil fuel industry would not give in to fusion technology until their
multi-decade investments were recovered. In fact, it was just as well that the UIWI
optimised dynamically across alternatives paths to sustainability for that
ensured the IAEA did not put ‘too much’ fusion capacity on the auction table,
lest the bids at the Fusion auctions drop dramatically and induce a Sheikh reprisal
in the form of an oil glut. That the IEA, nominally it’s ‘sister organization’ simultaneously
auctioned non-bankable, transferable, year-specific, annual Carbon Permits several
years in to the future, albeit with a ‘buyback option’ was revealing. In the
context of a Zero Emission alternative that Fusion technology represented, the
auctions helped in better price discovery and enhanced the inter-temporal
efficiency of energy markets. The two auctions forced the Government (and the
Industry) to make conscious decisions between, on one hand, fossil-fuelled
power, fossil energy inputs and carbon permits, and fusion power on the other.
At the auctions, the IAEA offered licences in capacity
ranging from 10 MW and 100MW to 1GW of fusion power. The licences permitted the
winning bidder to apply the IAEA Fusion technology to generate power
continuously and perpetually. At the auctions, representatives of various
Governments put in their bids (with a Green 2key) for Fusion capacity consistent
with their domestic energy demand, fossil fuel reserves, and such factors as
the price of power, the capital cost of conventional power capacity, prevailing
discount rates and indeed, the price (vector) of carbon permits, PCP.
The IAEA limited the sale of fusion capacity to that indicated by the UIWI from
its inter-temporal optimization. The FL Permits won at the auctions were
non-transferable, but bankable across time, offering Governments the means to
smoothen the process of capacity addition in the power sector consistent with economic
opportunities and sectoral constraints. Further, the banking of fusion
licences, in arbitrage with fossil-fuelled power capacity, facilitated
harmonious integration of energy policy in to short and long politico-economic
cycles that nations underwent at various times and for various periods.
The proceeds of the IAEA-supervised FL auctions were placed in
a ‘Nuclear Research Recovery Account’, NRRA, operated by the World Bank. The
World Bank routed the proceeds two ways depending on a simple criterion: When UIWI
in its next-round ‘sustainability compromise’ favoured the efficiency of Fusion
technology, and the licences so auctioned improved the outlook for global
sustainability, the World Bank invested the Gold ETFs (with Green 2key) that
constituted its proceeds from fusion auctions toward financing additional
tranches of Sustainability bonds and NAETFs. In such times, it was also opportune
for the beneficiaries of the Reserve buyback auctions to apply their funds to
sponsor the conversion of SDR Gold to Gold ETFs at a high multiple. At other
times when the UIWI favoured equity over efficiency, and the subsidy economy
expanded unsustainably to stimulate the Carbon permit market and boost the
prices of Sustainability Bonds, the World Bank chose instead to re-convert its
Gold ETFs back to SDR Gold at a low multiple. With this strategy, the World
Bank insured itself from the travails of the ‘equity regime’ and positioned
itself for the rise in the SDR Gold multiplier that preceded the switch back to
an ‘efficiency regime’. In such increasingly unsustainable times, it also
directed a bakey (or a Share) from the Green 2key from FL auctions to the NAETF
markets where it exploited its volatility against the FF-ETFs and Non-FF
Commodity ETFs (the volatility originating from the inefficient exploitation of
the commons).
The Carbon Permit Auctions, administered by the IEA, operated
in the opposite of the FL auction market. Having generated an inter-temporal
Sustainability path and noting its implications for the path of carbon permits
given current prices and CO2 concentration, the IEA, on behalf UIWI, offered transferable,
non-bankable but year-specific, annual Carbon Permits for up to several years in
future at the auctions. It did however provide for a ‘buyback’ of the permits
enabling auction participants to bid confidently in the context of concurrent fusion
power auctions. Bristling at being required to follow the directions of the UIWI
as regards the number of permits to put up for the auction, the Sheikh-OPEC sought
bids from various Industry verticals /aggregate Commercial entities for the
Carbon permits on offer. Unlike at the IAEA FL auctions, where only the
Government agencies could participate, the IEA permitted cross-national
economic and environmental aggregates to participate in the permit auctions. For
political and economic reasons, carbon consuming entities aggregated as
follows:
1. ESH,
Subsidy and Social Equity Interests, ESHSSEI, typically represented by the
Government and comprising of:
a.
Agriculture
b.
The Traditional Poor
c.
Public ESH services
d.
Sectors generating positive externalities,
including Public Infrastructure
2. Renewable
Energy Interests, REI, and International Environmental Organizations, IEO.
3. Fossil
Fuel Interests, FFI:
a.
Coal
b.
Oil
c.
Gas
d.
FF Utilities
4. Hard
Rock Mining, HRM
5. Manufacturing,
MFTR
6. Transport,
TRN, and
7. IT
& Service Industries, ITSI
These aggregates of various production and service sectors
as well as equity interests, each required to inventory and pay upfront for
their carbon emissions, aggregated demand for carbon permits from their
constituent firms/members down their vertical, then faced off against each
other in the IEA auctions and secured carbon permits for the current, and conceivably,
future years as well. In essence, the Industry and the Commercial entities paid
for their energy (and open-cycle) inefficiency (an Inefficiency 2key) with the
purchase of Carbon permits. Bids reflected the participants’ assessment of
economic activity, prices of energy alternatives, and indeed, sectoral prospects
for the immediate year and the years ahead. The FFIs and the REI-IEOs competed
for Carbon permits albeit for diametrically opposite reasons: the former bundled
them with fuel/power sales as they deemed appropriate; the latter either
participated in the auctions with a net carbon deficit and therefore offered
carbon credits to the IEA consistent with prevailing permit prices, and/or
bought away and invalidated low-priced emission permits to shrink the annual
carbon inventory. The ESHSSEI, funded largely by the Government (and Foreign
Aid?), purchased carbon permits for goods and services subsidized to the
socially vulnerable, to support activities considered vital to the economy, and
for the remediation of past ESH follies. The competition for permits across the
various aggregate entities revealed the societal trade-offs between, on one
hand, equity and efficiency, in particular the values for subsidy programs for
essential goods and services against public infrastructure, and on the other,
between various industry sectors and verticals. In export sectors like
Manufacturing, and sectors with trans-national aggregation, such as Transport, the
second-tier auction involved bidding at the national level which in turn determined
production allocations across nations. The 2-tier carbon permit auctions
constituted an expedient, second-best means to efficiently allocate global
production and trade. Bids for carbon prices internalized the presence and
operation of an FL market as well as UIWI’s programs involving the Materials recycling
market.
At both the FL and the CP auctions, the UIWI retained the
option to intervene in subsequent rounds and overtly match auction bids to
varying extents that were funded with a ‘(Carbon/SDR) Bear bakey (Commodity) Yo
Yo ZS (Nuclear) Growth Oo key’. This policy created ‘Subsidy FLs’ and ‘Subsidy
CPs’ and ensured the Sustainability Index achieved St+1, its one
period, short-term goal. Revenues from the auction of Carbon Permits accrued
with the ‘Subsidy Fund-Foreign Aid’ account under the aegis of the Sheikh-OPEC.
Preferring a ‘checks and balances’ strategy, they leveraged the funds from the
account either to arbitrage and stabilize FF ETFs against Commodity
market-induced volatility, or tilt the economies of consuming nations toward
oil by subsidizing the more energy/carbon-intensive among them (who were,
possibly, also recipients of the UIWI-subsidized carbon permits), thus ensuring
permit revenues were reinvested to obtain either an immediate return or a
long-term return.
Next, the auction participants either apportioned or
re-auctioned these permits back to the constituent members of the aggregate. The
IEA permitted the within-aggregate re-assignment of Carbon permits across
nations, but not its cross-sectoral re-sale or inter-temporal banking. (As it
turned out, this was consistent not only with international trade that had
turned political boundaries meaningless, but also put a spoke in the designs of
politicians and ‘macro-economists’ who conspired to trigger and time macro
-cycles that turned speculation in carbon permits a means to cover industry
losses; On the contrary, enabling the cross-border, within-aggregate ‘re-auction’
of Carbon permits put paid to currency exchange conspiracies and even served to
secure the fortunes of the sectoral aggregate and stabilize international
currency trade). This hierarchical re-auctioning technique, presuming unbiased
(competitive) estimation of demand, served as a natural filter to favour the
environmentally and economically more efficient firms over other firms within
the aggregate. As they competed against one another in the second-tier auctions,
firms within a vertical revealed the opportunities and the sectoral shadow
values of carbon across nations.
In pursuing its Closed-cycle agenda, the UIWI, through the
network of Governments, channelled Closed Cycle funds, specifically a
‘Sustainability Bakey Share CC 2key’ from the NAETF pot to the Recycling market
even as the Industry and Commercial Sector contributed a ‘Recycling Oo Share’. It
was apparent that resource-poor nations with a large consumption base had the
largest stake in a Closed cycle economy. These funds were directed either as tonnage/value/tolling
subsidies, or as capital investment in firms that engaged in recycling. While product
tonnage subsidies favoured recycled materials that generated scale-economies, and
value-based tolling subsidies targeted the higher-priced recycled materials, tolling
discounts permitted recyclers to offer either lower prices or incrementally higher
quality to consumers of recycled metals and materials.
To determine the optimal amount of funds to direct to this
cause within the ambit of the super-optimization by the UIWI, national
governments chose a simple, if a tentative and subjective criterion. They
channelled funds to the recycling industry until its marginal cost of capital
fell to, and equalled the prospective appreciation in the price of gold in the
long term. As the price of Gold and its expected appreciation fell with
enhancements in sustainability, these policies facilitated the expansion of the
Recycling sector, in the limit replacing the entire primary metal mining industry
when Gold prices flattened out in to the far future. The Recycling market
offered a Recycle Bakey to the Commodity market to complement the Commodity
2key offered by the assemblage of Industrial/Commercial users. A Commodity
Bakey was directed to the Fossil Fuel ETF market (which arbitraged against the
Gold ETFs as they expanded incrementally with conversion from SDR Gold).
Cognizant of the role public environment, health and safety
played in enhancing sustainability, and the impact of dispersed anthropogenic
activities on the same, the UIWI, which had already included ESH arguments in
its Sustainability Index, now chose to actively support it under the aegis of
the IIS despite the obvious conflict of interest. The support took the form of loaned
‘working capital’ funds to the ESH Insurance Houses derived from the ripping of
SDR Gold to Gold ETFs (the ‘WB Ripping 100%’). The UIWI lent these funds to the
Insurance Houses at a rate equal the differential between, on one hand, the returns
on NAETFs and non-FF Commodity ETFs, and on the other, between the returns on
FF ETFs and Gold ETFs. This construct ensured that the ‘interest rate subsidy’
on working capital loans expanded as the world lurched toward unsustainability,
providing the Insurance sector with timely funds and ensuring that society paid
a price for its ill-advised profligacy. These low cost funds served to expand business
opportunities of Insurance Houses beyond their current risk threshold until
their Marginal IRR, MIRR, fell to the cost of working capital. In layman’s
terms, the availability of low cost funds enabled the Insurance Houses to offer
attractive insurance premia on, and incrementally secure what would otherwise have
been, in unsustainable times, costly ESH/Commons risks to insure, thus expanding
insurance and enhancing Sustainability.
Prescient as the UIWI was, it anticipated fossil fuel
reserves would be laid waste in a world of fusion power, as would mineral
reserves in a Closed Cycle economy – both of which were explicit goals under
its charge. Given the economic resources invested in exploring for, and
developing discovered energy and mineral resources, and the capitalization of
resource firms in the equity markets, it was necessary to provide for a
defensible means for anticipating those impacts. Anticipating that the shadow
value of energy and mineral reserves would fall in a world with fusion power and
closed cycle economy, and induce resource owners to seek a means to sell or
liquidate them pre-emptively, the UIWI instituted a Reserve buyback scheme.
Under the scheme, the UIWI would, in periodic Reverse Auctions, seek offers for
liquidation of fossil energy and mineral reserves (with the exception of Gold
reserves), and accept the more attractive offers subject to availability of
resources. The monetary resources for these buybacks were sourced from NAETF
tranches. The UIWI sought the assistance of the UNDP to conduct the reserve
buyback auctions on its behalf and bankrolled it with proceeds from tranches of
NAETF FPOs as implied by its ‘super-allocation’ algorithm across alternative
causes. The super-allocation of resources implied the fulfillment of a marginal
criterion in the reserve buyback auctions as well. In general terms, reserve
buybacks were pursued with NAETF FPO proceeds until the rising marginal shadow
price of energy/mineral reserve due the reserves buyback just equalled the
marginal finding cost of incremental reserves. Incremental reserve buybacks
were indicated until prospective returns across Gold, NAETFs and expected
appreciation in the marginal shadow price of energy and mineral reserves
equilibrated and equalled the long-run cost of capital. At this point, there
was no further incentive to either invest or divest incrementally, thus
defining the achievement of the optimum reserve buyback.
To tide over the issue of excessive competition for reserve
buybacks and to identify potential uses post-liquidation, the UNDP required
that the reserves be ‘sponsored’ by one of several entities, each representing
a different constituency/use. Thus, an offshore oil field reserve required the
sponsorship of the WWF, the IMO, or other organisations with similar interest.
Inland fossil energy and mineral reserves, whether under exploitation or
otherwise, required the sponsorship of an agricultural body like the FAO, a
tourism body akin the UNWTO, or an Apex Industry association which intended to
develop the property for industrial/commercial use post the auctions. This
policy brought about the sale of marginal fossil fuel and mineral ‘assets’, that
were at risk of turning infra-marginal, to sponsors who themselves faced a
‘threshold return’ with their post-buyout plans in the prospective return on
Gold ETFs or Sustainability Bonds. That many such reserves were owned by the
Government and either leased to private entities or publicly-owned firms was an
issue, even a concern. For various financial, accounting, resource-economics
reasons, it was necessary to limit the buyback auctions to firms capitalised
and listed on global stock exchanges. Since these resources were tied to
long-term leases, it was often also necessary for joint assent, even a negotiated
deal between the Government, the leaseholder, and the sponsor prior to the
auctions.
Aware there could be a paucity of sponsors and that the same
sponsor might be interested in multiple reserve parcels, the UNDP conducted auctions
by seeking 3-part ‘separately sealed’ liquidation offers for both virgin and ‘in-use’
fossil energy and mineral reserves. Offers for reserve liquidation consisted of
a) submissions on ‘ore price-ore reserve tonnage’ schedule, along with a
portfolio of data on various field/ore body characteristics, b) the confidential
offer to liquidate reserves and turn over property to the sponsor, and c) the
sponsor’s confidential Bid (drawn on its pre-registered ‘line’ with the UNDP)-cum-Rezoning
plans for the property. These offers were as cognizant of UIWI’s ‘equalization
of marginal impact on Sustainability index’ criterion for the allocation of
auction funds as they were of those alternative causes competing for the
proceeds of the NAETF FPO pot. While the Offer to liquidate reserves captured
the PV of the expected future stream of profits (net of reclamation costs), the
confidential Bid reflected the sponsor’s rents that would accrue from the
proposed re-zoning plans for the property. Denoting the reserve liquidation offers
as ‘payouts’ and the sponsor bids as ‘receipts’, the UNDP computed ‘Net
payouts’ associated with each liquidation offer and sorted them in order of
increasing payouts. The agency then serially bought back reserves ‘en-block’ until
funds for reserves buyback, as allotted by the UIWI, were exhausted. This
turned out to be a better strategy than to merely buy back reserves in order of
increasing offers because it guaranteed an early return of the reserve parcels
to an alternative, beneficial use. However, it did not provide for the
possibility that a large re-zoning bid, uncorrelated with ‘Ore reserve tonnage
– Liquidation offer’ schedule, would upset the expected order of reserve
buybacks, and induce cascading impacts on Commodity and FF ETF markets. The ‘auction
winners’ were compensated for the loss of their production reserves with ‘Green
Bakey Sponsor Oo’ money. Whereas offshore reserves bought away added to the
base of natural assets upon which the NAETFs were created, inland reserve
parcels, whether mined or otherwise, were put to use as stated by the
sponsoring agency in its re-zoning bid. Over time, and as the price of fossil
fuels and minerals fell due the expansion of fusion power and closed cycle
economy, these auctions incrementally reduced the un-economic portion of reserves
until only those (fuels, ores,) mines and refiners survived who could stand up
to the efficiencies of fusion power economics and Closed cycle recycling.
Exploration for new resources, however, continued until such time as when the
marginal finding cost of reserves increased, and simultaneously approached,
both, the (falling) shadow marginal prices of the fossil fuel/energy reserve
acquisition in the equity markets, and the rising marginal offer on reserve
liquidation in the reserve auctions. Further, only the lowest cost, and highly-informative
geophysical techniques survived in the market for energy/mineral exploration.
The proceeds of mineral and fossil fuel reserve buybacks could
be re-invested either in SDR Gold, Sustainability bonds, or in Commodity-ETF
markets depending on the identity of the owner/lease-holder, and the UIWI
‘regime’. Thus, the proceeds from FFRA buyback (with a ‘Green Bakey’ key) and
Ore Reserve Auction Fund, ORAF, (with ‘I Money Bakey’) could, in sustainable regimes,
be combined with the ‘Green 2key I Bakey’ from Fusion Licence auctions (‘I Bakey
I Money Bakey’ serving as an approximation of ‘Green I’) and leveraged to invest
in and un-rip SDR Gold to Gold ETF along with a ‘Dollar I key’ or an ‘I Dollar
key, or, in less sustainable times, either invested in Sustainability Bonds, or
combined with the ‘Growth Bakey’ from carbon permit auction funds, CPAF, to
obtain a ‘100% return key’ upon investment in the Commodity-FF ETF markets. The
IMF, sponsoring governments, Fossil fuel exploration and Commodity trading firms
sought the ‘Dollar I’/’I Dollar’ for their investments in bond and equity
markets.
………………………
There they stood,
rather non-descript but for the ‘Danger-Keep away’ sign on them, in sizes from
an Oil barrel to a Petroleum storage tank. There were no appendages, not much
piping, and certainly no chimneys. If there was anything prominent or
noticeable about them, it was the cables – cables thicker than your arms. These
‘Power up or Pee’ units, christened ‘PuoP units’, had been designed to be
modular and scalable. The units required initialization, a procedure that
involved plugging in the ‘super-secret’ isotope canister, always maintained at
5K to ensure radioactive-(in)stability, inside the reactor. So designed, that
once initialized, they’d either operate normally and generate power
continuously without as much a hum, or literally and merely, ‘pee’ water and
stop, their biggest secret was also their biggest selling point - Power output.
The PuoP units scaled at an exponent, so that while an entire town could be served
its power demand with a single-canister, barrel-sized unit, a city with all its
residents and commercial establishments, not to mention plug-in EV outlets,
would only need a multi-canister unit the size of a small OHT. As for those
Petroleum storage tank-sized units, one would have to site them either at the
international border with twin-cities on either side sharing a common power
grid, by EAF mega-clusters, or massive desalination plants serving an entire
water-starved desert nation.
……………….
Gold, the ‘eternal’ store of value, and verily the benchmark
for the standard that bore its name in many a matter, was a ‘refuge’ from
everything that was unsustainable, and which needed to be postponed to the
future (as opposed to being corrected thru issue of bonds). Gold ETFs served
many purposes in the grand stratagem. They served as Collateral for the IMF’s
issue of Sustainability Bonds. The price of Gold ETF served, both in absolute
terms and in terms of expected return, as a benchmark for various prices and
marginal shadow values in the grand sustainability stratagem. Gold ETFs faced
new competition in NAETFs and equilibrated to a new, lower price level
consistent with the emergence of an alternative asset class. Gold prices fell
and those of NAETFs rose until the two equilibrated, implicitly defining a Gold
benchmark/price for Natural assets. Given the broad, comprehensive nature of
the Sustainability Index, its strong negative correlation with Gold was
trivially anticipated. However, the same had large repercussions on the various
stakeholders and operations in the grand UIWI Sustainability stratagem. As expected
appreciation in Gold prices declined with sustainability enhancements over
time, so did the benchmarks for investments in recycling and apportionment of
reserve buyback funds. Thereafter, Gold ETF prices fell, ceteris paribus, with
incremental conversion of SDR Gold to Gold ETFs, and appreciated post the
dilution of the capitalized Natural Asset in subsequent NAETF FPOs until
prospective return on Gold equalled an endogenously sustainable rate - in the
limit, the cost of capital in a Closed cycle economy. The inordinately large
impact NAETFs had on Gold prices implied that the number and size of subsequent
tranches of NAETFs influenced the SDR Gold ripping multiplier as well, in turn
determining resource allocation decisions within the Sustainability strategy.
At the end of the first round, the UIWI verified and
accounted the various transactions and the extent to which they dovetailed with
the optimality rules as required by its dynamic optimization. Come the next
round, the combatants took the same position. Again, and due the re-surfacing
of disagreement between the World Bank and the Sheikhs, the UIWI generated a
dynamic, ‘compromise’ path between their extreme positions. It took account of
deviations from the previous round, including banked FLs, Carbon Permit auction
prices, reserve buybacks (including subsidized rounds), the various costs of
capital, sectoral MIRRs and imputed shadow values, as well as the current value
of the Sustainability Index in re-computing the optimal path, St+1:T*
to achieve the S* utopia. The re-computed dynamic path for S* implied a new
interim target, St+2, for the immediate period ahead. Such periodic
iterations recurred across years and decades until the St+k
converged toward S*.
At its annual meeting, the UIWI reviewed the interim
outcomes – both intended, and the surprises. The creation of NAETFs caused an
overnight increment to the set of alternative asset classes. It provided
household investors, beyond a liquid alternative to Equities, Bonds, Gold/FF
& Commodity ETFs, a credible means to express their support for the
preservation of the environment. Those belonging to Industry and Commerce, who
did not participate in the Group Insurance that covered them for the risk of natural
and anthropogenic disasters in the Commons, bought in to NAETFs with a ‘Green
bakey’. The goal-linked issue of subsequent tranches of NAETFs brought about
tangible improvements in arguments constituting the Sustainability Index, in
particular public ESH indicators. The buybacks of energy and mineral resources
with the proceeds of NAETFs permitted an orderly transition to a world
characterised by fusion power and closed cycle. Over time, growth in income due
broad-based productivity gains brought about by Fusion power enhanced
sustainable lifestyle and stimulated incremental demand for energy. As Fusion
power took hold, carbon prices dipped and induced a rebound in the demand for
fossil fuels that were already being propped up with overt subsidies.
Elsewhere, the support offered to Insurance Houses with low
cost, loaned working capital funds brought about a world in which a much larger
set of private and public risks, as well as risks to the Commons were insured.
A more comprehensive coverage of risks meant that the society was better
prepared to handle natural and anthropogenic risks and disasters, compensate damages,
and if the latter, correct the cause, and thus bring about a significantly more
sustainable environs, society and economy.
It was just as appropriate, even expedient that various
entities, from the Government, the Industry, and International organizations sought
to sponsor the conversion of existing energy and mineral reserve holdings from
their primary use to an alternative, different use. The subsidization of
reserve auctions with NAETF proceeds helped bring about a faster ‘retirement’
of existing and planned mines. The mechanism of sponsorship at the Reserve
buyback auctions, beyond ensuring an alternative use and hastening it,
facilitated the re-circulation of auction proceeds to reconvert Gold ETFs to SDR
Gold and thus re-start the Sustainability Bond –Nuclear Debt Retirement – NAETF
FPO ‘circle of virtue’. The reserve buyback proceeds potentially also supported
the recycling industry and the subsidization of fusion power auction rounds. The
buyback auctions, which provided a cushion against irreversibilities involving
disequilibrium in reserve holdings, tempered volatility in Commodity markets that
tracked the risk and uncertainty of business in Mining. The fall in prospective
gold returns and the subsidization of capital to the recycling industry
consistent with a lower cost of capital benchmark, implied an enlargement of the
Closed cycle economy both absolutely and relative to the primary metals
industry. The primary metals industry, faced with a larger risk premium to the
otherwise declining cost of capital, shrank to a niche limited either to high
product quality and/or metals and materials whose quality deteriorated with
recycling. In the long-run, when energy and the mineral reserve buyback markets
achieved equilibrium and new reserve discoveries merely kept pace with reserve
liquidation, when exploration turned in to merely a search for lower cost
reserves, and when the entire capitalized base of natural assets had been
‘devolved’ as NAETFs, the world approached the Sustainability optimum, S*.
Finally, the Judges examined the drivers of the system to
satisfice themselves the system would self-perpetuate until utopia. They were notably,
economic and financial. The financial incentives to participate in the system involved
the potential for gains in SDR monetization, the recovery of nuclear debt and
consequent impact upon the financial markets, the potential for asset
diversification and capital appreciation accompanying the rolling out of the
NAETFs, the availability of near-zero cost working capital, as well as funds
for the buyback of energy and ore reserves. The Volatility ZS 2key exploited by
the Sheikhs-OPEC (in the Commodity-FF ETF markets), World Bank (in the
NAETF-Gold ETF markets) and the Fiduciary authorities (in the SDR Gold-Gold ETF
operations) ensured that the strategy took off the ground immediately upon
launch. The economic incentives centred around the rents accruing from the
rounds of fusion licence auctions and NAETFs, the pricing of nuclear power to
the industry, and the competitive impacts of the availability of cheaper, cleaner
energy alternative for production and consumption, and consequently, the growth
opportunities in the economy. The enhancement in productivity, due lower energy
prices and the consequent inter-factor substitution, induced 2nd
round effects that improved the allocation and efficiency of capital, material
and labor in the economy.
……………
The born-again Nobel-Scientist
trudged back to his ‘lab’ early Sunday morn. (Wasn’t it strange scientists
carried their lab routine to their Sabbatical too?). No, not the lab 200m below
the surface, but a villa with a view of the oceans on the sparsely-populated
island. The ‘Nobel-Senor’ had since changed tracks to let those worthy behind
him seek their ‘moment of glory’. For his Sabbatical, he preferred to dwell on
the societal impacts of nuclear energy. Filling his lungs with the cool ocean
wind interlaced with the aroma from his coffee cup, the Nobel-senor took his
eyes of the wind-swept waves to read the Sustainability Strategy document that
a ‘Thinktank Fellow’ had emailed him.
“Thinktank Fellows? Is
that where Environmental Judges find refuge these days?” Reigning in his
wandering thoughts, the Senor perused the document..…Hmm,… it was interesting, enlightening,
and even up his newly chosen path. But did they appreciate how easy it was to
exploit the strategy should the UIWI be subverted from within and lose control
to the mega geo-political counter-strategies of those super-wealthy and
politically powerful? Why, even a physicist could pick more than a few holes in
it. Whose hair-brained idea was the index? How many arguments would it
accommodate and how would they be chosen? At what level of disaggregation? Who
would attach the weights to the arguments and how? Would those weights be
constant parameters over time until ‘utopia’? What if we learnt decades later
that the arguments and/or the weights were inappropriate….or that the Index was
achieved but with a polarised and skewed set of argument values? Did the
dynamic optimization provide for variable discount rates with time? And were
the strategies and predicted outcomes robust to them? (or, was that too assumed
equal the ‘expected long-run appreciation in gold prices!’)? Moving on to other
concerns, wouldn’t auctioning fusion licences in a world with large wealth
differences across nations concentrate them in developed nations with the
resources to outbid lesser nations (Or, did the SDR Gold financing correct the
imbalance)? How much would the bids at the Fusion auctions fall if the ‘PuoP’
units went ‘peeee’? Did the Judges realize that a half-hearted start to the
strategy that excluded the Recycling and Insurance modules could turn the
Sustainability Fund in to a milking pot for the Energy and Resource Barons? And
what if the IAEA and the IEA colluded to keep carbon permit prices and FL
auction bids high (and found friends in ‘subsidy-Inflation leaches’ who
multiplied their ill-gained wealth in the arbitrage between bonds, equities and
currencies.)? Who would pay the price? Not the millions of NAETF investors? Wasn’t
the diversion of subsidies to developing economies a thinly-disguised policy to
induce nations to irreversibly choose a carbon-intensive economy? …and pressure
the UIWI in to adopting the ‘equity path’ to Sustainability? Didn’t the Reserve
buyback scheme amount to enriching those who had already pillaged the
environment for private gain…and offer them the opportunity to re-start yet
another race to riches? And though he was a stranger to Environmental
economics, wouldn’t a rise in passive values for the environment as society
turned wealthier, affect the capitalized base of NAETFs? Perhaps these issues
had been anticipated? Then again, perhaps not. A Sunday morning ‘missive’ from
a Nuclear physicist to a ‘Tinkduck Judge’ would not be amiss, would it?
Dear Dr Judge,
……….
The Judges hoped that the closed-finance,
endogenously-solving system they had established would provide the necessary
impetus to fast forward global sustainability in a just and transparent manner,
and provide a smooth transition to a low carbon, recycling-intensive,
fusion-powered future even while paying away the cumulated nuclear debt. They
commended the SDR-monetization – Sustainability bond strategy as a generic
approach to solve other causes confronting humanity beyond the retirement of
nuclear debt.
As the ‘heptagonal heart’ beat its HFT rhythm between the
ripping-unripping of SDR Gold and Gold ETFs, it pushed the life blood of
sustainability through the various economic and environmental systems of the
human society, turning them cleaner and more efficient, and in harmony with
nature. And as the Judges retreated late afternoon from the review of their
Sustainability strategy, their elderly ‘patriarch’ with failing vision wondered
at the play of colors before his eyes.
Hadn’t the Earth taken on a decidedly greenish-golden hue
today?
