If you have been living on borrowed money for too long, at some point you’ll have to undergo a debt restructuring. A painful process, whatever form it takes. A weekly budget with pocket money, for instance. Anyone who has gone through this, never wants to end up in that position again.

Our ecological debt requires a similar resolution. The world economy is highly indebted to nature, using too much from it and polluting it too fast. The restructuring of that debt, however, is being put off for as long as possible. Because trying to convince society to reduce consumption is tantamount to political suicide. We keep hoping for unproven technological solutions that will allow economic growth without causing harm to the environment. We keep hoping for solutions that will offset the negative impact of economic activity, or at least bring this to a halt. Those hopes are all very well, but there is no evidence that they will ever turn into practice. And the consequence is that the debt restructuring process is not getting anywhere. We are sinking further into debt. The alarm bells for our climate have been going off for some time now.

So, what options for quick results do we have? The first option is the ‘Paris’ method. You could call this the amicable settlement. There is a global problem and a global budget (how much greenhouse gases can we still emit) and we will take several years to see how we can reduce emissions. After six years of using this method the conclusion is: we are not really getting anywhere, because it is too easy to dodge our own responsibility.

The second option is global (progressive) taxation, or its European sister: emission rights trading. This involves paying for CO₂ emissions during production. Economists love pricing: it ensures that the market comes to an efficient solution. Renewable energy becomes more attractive, even if it is still slightly more expensive untaxed.

But drawback number one is that companies keep lobbying to delay the process. The second drawback is that the population at large incorrectly believes that CO2 emissions are a problem that exclusively concerns (large) companies. It is in fact also most definitely a consumption problem. And the third drawback: those with the fattest wallets can continue to emit greenhouses gases. This approach should therefore always be combined with a redistribution policy.

And there is a third option: a carbon budget for everyone, that is slowly reduced. Everyone gets allocated the same amount. It does not get any fairer than that. Those who are better off - we in the Netherlands for instance - would feel the impact of this measure the most. Is this optimal? No, certainly not. Just as debt restructuring is not optimal. An economist would also rather see that consumption and (estimated) budgets remain aligned and that a restructuring of debt is not necessary. But restructuring our ecological debt is necessary, as quickly as possible. And we may well need more than one optimal instrument to make it happen.

We simply do not live in an ideal world. And we are definitely running out of time.

This is a translation of Hans Stegeman's column in Het Financieel Dagblad, published August 17th, 2021.