Apr 28th 2019

Can Capitalism Beat Climate Change? 

by Adair Turner

 

Adair Turner, Chairman of the Institute for New Economic Thinking and former Chairman of the UK Financial Services Authority, is Chair of the Energy Transitions Commission. 

 

LONDON – Easter visitors to London have found some streets and buildings occupied by “Extinction Rebellion” activists, warning of climate catastrophe and rejecting “a failed capitalist system.” Followers of central bank thinking have seen the governors of the Bank of England and Banque de France warning that climate-related risks threaten company profits and financial stability.

Both interventions highlight the severity of the climate challenge that the world faces. But warnings alone won’t fix the problem unless governments set ambitious but realistic targets to eliminate carbon dioxide and other greenhouse-gas emissions, backed by policies to ensure the targets are achieved. Zero net CO2 emissions by 2050 at the latest should be the legally defined objective in all developed economies.

The central bank governors’ statement, together with steps to require clearer company disclosure of climate-related risks, has fueled optimism in some quarters that a free-market solution is possible. With falling renewable-energy costs threatening to leave fossil-fuel companies with loss-making “stranded assets,” well-informed investors will, it is hoped, withdraw funding from companies still searching for new oil or gas reserves or from automotive companies still committed to gas-guzzling SUVs.

But there are limits to what better information and foresight alone can achieve. The same capitalist dynamism that reduces renewable-energy costs is also dramatically lowering the costs of shale-gas production, and fossil fuels may always be the cheaper option for some purposes unless governments impose emissions taxes or regulations to favor lower-carbon technologies. If those taxes or regulations are postponed too long, forward-looking but cynical investors will be able to profit from projects that bring climate catastrophe closer. The Extinction Rebellion activists are right that, left to itself, capitalism cannot solve this problem, no matter how perfect the financial-disclosure regime.

Instead, the activists argue for public commitments to achieve zero net emissions by 2025. But “zero by 2025” would mean a huge hit to living standards, threatening public support for less extreme but still effective action. Britain would have to remove gas central heating from over 20 million homes, and it would be almost impossible to build wind and solar capacity fast enough to deliver equivalent energy in the form of electricity. Zero emissions would also mean no gasoline or diesel cars. While city dwellers could manage without them, people living in rural areas and small towns could not do so as early as 2025, given the likely costs and range of electric vehicles. As the French gilets jaunes have shown, opponents of a rapid energy transition can also occupy streets. We need time to manage the path to a zero-carbon economy.

So how much time do we have? The best scientific evidence, set out in the Intergovernmental Panel on Climate Change’s latest report, says the objective should be to limit global warming to 1.5° above preindustrial levels. That would require global CO2 emissions reaching zero by 2050 or very soon after.

Achieving that will require big investments in new energy sources and improved energy efficiency. But it is undoubtedly technically possible, as the recent “Mission Possible” report from the Energy Transitions Commission sets out. Given 30 years, rather than five, and much sooner in developed economies, we could progress to a world with no gasoline or diesel vehicles. And we could decarbonize steel and cement production, shipping, and aviation, and deliver the massive increases in zero-carbon electricity production required to reconcile higher living standards in developing countries with a sustainable planet.

The aggregate economic costs of this transition will be low and, in some sectors, trivial. Making autos with zero-carbon steel in 2040 or 2050 will likely add less than 1% to production costs and prices. But we will need popular acceptance of some additional costs and behavioral changes. Zero-carbon aviation is likely to be appreciably more expensive – perhaps by 10-20% – and there is currently no certain route to zero-emissions agriculture without big reductions in the consumption of red meat.

To ensure rapid progress toward a net-zero global economy, countries should set legally binding targets. The UK’s 2008 Climate Change Act currently demands an 80% reduction below 1990 levels by 2050, and the five yearly intermediate targets set by the Climate Change Committee (CCC) have driven significant progress, with 2017 emissions down over 40% (versus Germany’s 28% reduction) and the carbon intensity of electricity generation cut 60% in the last 10 years.

But progress in road transport has been undermined by inadequate government policies and industry lobbying to water down European Union regulations. In addition, the latest scientific evidence indicates that an 80% reduction is inadequate.

The collapsing cost of renewable power and batteries has, however, cut the cost of more rapid progress. On May 2, the UK CCC will therefore recommend a significant tightening of the target, which should and probably will demand zero emissions by 2050. Crucially, zero must mean zero, with the UK running its economy on a truly zero-emission basis, rather than purchasing so-called offsets from other countries.

All other developed economies should now commit to that zero-by-2050 objective, and earlier still in countries blessed with abundant hydro, wind, or solar power. So, too, should China, which aims to be – and almost certainly will be – a fully developed high-income economy by 2049. Setting clear final and intermediate targets – embedded in legislation – will in itself drive strong action; once the pathway is defined, political debate can focus on the specific policies required to achieve it.

And once investors know that the non-negotiable end point is zero carbon in 2050, they will indeed desert any company whose plans are incompatible with that objective. Only clear targets can transform rational self-interest from a potentially catastrophic force into a powerful driver of beneficial change.


Adair Turner, Chairman of the Institute for New Economic Thinking and former Chairman of the UK Financial Services Authority, is Chair of the Energy Transitions Commission. 

Copyright: Project Syndicate, 2019.
www.project-syndicate.org
2 Attachments

 

 

 


This article is brought to you by Project Syndicate that is a not for profit organization.

Project Syndicate brings original, engaging, and thought-provoking commentaries by esteemed leaders and thinkers from around the world to readers everywhere. By offering incisive perspectives on our changing world from those who are shaping its economics, politics, science, and culture, Project Syndicate has created an unrivalled venue for informed public debate. Please see: www.project-syndicate.org.

Should you want to support Project Syndicate you can do it by using the PayPal icon below. Your donation is paid to Project Syndicate in full after PayPal has deducted its transaction fee. Facts & Arts neither receives information about your donation nor a commission.

 

 

Browse articles by author

More Current Affairs

Feb 18th 2020
EXTRACT: "Beyond the usual economic and policy risks that most financial analysts worry about, a number of potentially seismic white swans are visible on the horizon this year. Any of them could trigger severe economic, financial, political, and geopolitical disturbances unlike anything since the 2008 crisis."
Feb 18th 2020
Extract: "In late 2019, Zogby Research Services (ZRS) once again had the opportunity to poll public opinion across the Middle East and North Africa about many of these issues that are of such critical concern to the region and its peoples..............One of the more intriguing results in our 2019 survey were the changes in Arab views toward the Israeli-Palestinian conflict. Most Arabs still blame the US and Israel for the absence of peace and have little confidence that the conflict can be resolved in the near future. Maybe as a result of this despair, this issue now ranks low as an Arab priority. Also noteworthy is the fact that majorities in most Arab countries now say that normalization with Israel, which they acknowledge is already happening, may be a good thing. This development shouldn’t be overstated, however, since there is still no love for Israel. It appears, from our survey, to be born of frustration, weariness with Palestinians being victims of war, and the possibility that normalization might bring some economic benefits and could give Arabs leverage to press Israel to make concessions to the Palestinians."
Feb 15th 2020
EXTRACT: "Global dissatisfaction with democracy has increased over the past 25 years, according to our recent report. Drawing upon the HUMAN Surveys project, the report covered 154 countries, with 77 countries covered continuously for the period from 1995 to 2020. These samples were possible thanks to the combination of data from over 25 sources, 3,500 national surveys, and 4 million respondents. Not surprisingly, the gloomy headline finding – rising democratic dissatisfaction – attracted the most attention. Less widely discussed, however, is the “good news” – that a small sample of countries has bucked the trend, and have record high levels of satisfaction with their democracies."
Feb 14th 2020
EXTRACT: "This is how dictatorships begin. As the US prepares for its next presidential election in November, it is every citizen’s responsibility rationally to examine Trump’s dictatorial impulses, which reelection would only reinforce. It is not safe to assume that he won’t go too far, or that he is too much of a “mediocrity” – as Leon Trotsky called Stalin (an assessment with which many Bolsheviks agreed) – to transform his country......Vladimir Lenin, himself a ruthless Bolshevik, wrote in 1922 that, “Stalin concentrated in his hands enormous power, which he won’t be able to use responsibly,” owing to traits like rudeness, intolerance, and capriciousness. Trump has all of them in spades. The more power he concentrates in his own hands, the dimmer the long-term outlook for American democracy becomes. His reelection could mean lights out."
Feb 9th 2020
EXTRACT: "Does this mean that the dream of European unity is over? Does the exodus of a member state obliterate the vision of Victor Hugo and Václav Havel? Does Europe now fit the description of what the great American president Abraham Lincoln called a house divided against itself? Not necessarily. History is more imaginative than we are. The EU still has the option of keeping Britain close in heart and mind. We can still benefit from our absent partner, by resurrecting the partnership through our actions."
Feb 7th 2020
EXTRACT: "There, no formal change from a republican system to an autocratic system ever occurred. Rather, there was an erosion of the republican institutions, a steady creep over decades of authoritarian decision-making, and the consolidation of power within one individual – all with the name “Republic” preserved.........Will the GOP-led Senate’s endorsement of this defense clear a path for more of the manifestations – and consequences – of authoritarianism? The case of the Roman Republic’s rapid slippage into an autocratic regime masquerading as a republic shows how easily that transformation can occur."
Feb 7th 2020
EXTRACT: "So all that is why Cramer is talking about the death knell of petroleum stocks. We probably agree on almost nothing else, but when people are right, you have to give them credit. He is right."
Feb 3rd 2020
EXTRACT: "........as the citizens of the remaining 27 states have observed the destabilising impact that the referendum decision has had on British politics, they have been inoculated against the desire to secede from the EU. Outside the UK, national-populist parties have moderated their anti-EU rhetoric and nowadays profess to want to change the EU from within instead of destroying it."
Feb 2nd 2020
EXTRACT: "Senators will soon decide whether to dismiss the articles of impeachment against President Donald Trump without hearing any witnesses. In making this decision, I believe they should consider words spoken at the Constitutional Convention, when the Founders decided that an impeachment process was needed to provide a “regular examination,” to quote Benjamin Franklin. A critical debate took place on July 20, 1787, which resulted in adding the impeachment clause to the U.S. Constitution. Franklin, the oldest and probably wisest delegate at the Constitutional Convention, said that when the president falls under suspicion, a “regular and peaceable inquiry” is needed."
Feb 1st 2020
EXTRACT: "Britain will be celebrating its glorious independence from the complications of international cooperation at a time when the intellectual, political, and economic hostility between China’s communist leadership and liberal democracies is becoming ever clearer. If liberal democracy is to survive, it must stand up for itself. And we should be under no illusion: open societies under the rule of law, from the Americas to Europe, Africa, and Asia, are in China’s hostile sights. The West should not aim to encircle or pen in China. But liberal democracies cannot allow it to distort international norms in its own favor."
Jan 29th 2020
EXTRACT: "Switzerland and Denmark have gone furthest into negative territory, both offering unprecedentedly low rates of -0.75%. The Swiss National Bank, which has kept its rate at this level since 2015, signalled recently that it intends to stick with this experiment and is not ruling out going even more negative. It has said that negative rates were boosting the economy and that the country’s fundamentals were not being significantly affected."
Jan 28th 2020
EXTRACT: "Electricity will dominate the future global energy system. Currently, it accounts for only 20% of final energy demand,......Without assuming any fundamental technological breakthroughs, we could certainly build by 2050 a global economy in which electricity met 65-70% of final energy demand,....."
Jan 27th 2020
EXTRACT: "With the world economy operating dangerously close to stall speed, the confluence of ever-present shocks and a sharply diminished trade cushion raises serious questions about financial markets’ increasingly optimistic view of global economic prospects."
Jan 26th 2020
EXTRACT: "Gibson’s diagnosis is supported by international attitude surveys. One found that most Americans rarely think about the future and only a few think about the distant future. When they are forced to think about it, they don’t like what they see. Another poll by the Pew Research Centre found that 44% of Americans were pessimistic about what lies ahead. But pessimism about the future isn’t just limited to the US. One international poll of over 400,000 people from 26 countries found that people in developed countries tended to think that the lives of today’s children will be worse than their own. And a 2015 international survey by YouGov found that people in developed countries were particularly pessimistic. For instance, only 4% of people in Britain thought things were improving. This contrasted with 41% of Chinese people who thought things were getting better."
Jan 24th 2020
EXTRACT: "........while over 80% of the ECB scheme buys government and other public sector bonds, a huge chunk still goes into corporate bonds and other assets. At the time of writing, the ECB holds €263 billion worth of corporate bonds – a very significant amount in relation to individual firms and the sectors in question. According to the ECB, 29% of these bonds were issued by French firms, 25% by German firms and 11% each by Spanish and Italian firms. As at September 2017, the sectors they came from included utilities (16%), infrastructure (12%), automotive (10%) and energy (7%)."
Jan 17th 2020
EXTRACT: "Thanks to cutting-edge digital technology, cars are increasingly like “smartphones on wheels”, so manufacturers need to have access to the latest patented 4G and 5G technologies essential to navigation and communications. But often the companies that hold the patents are reluctant to license them because manufacturers will not accept the high fees involved, which leads to patent disputes and licensing rows."
Jan 13th 2020
EXTRACT: "Recent polling from Pew Research demonstrates how the public’s attitudes toward the US and President Trump have witnessed sharp declines in many nations across the world. In Europe, the Americas, and the Middle East favorable attitudes toward the US went from lows during the years of George W. Bush’s presidency to highs in the early Obama years to lows, once again, in the Trump era. And in our Zogby Research Services (ZRS) polling we found, with a few exceptions, much the same trajectory across the Middle East."
Jan 13th 2020
EXTRACT: "In the absence of a declaration of war against Iran, the killing of a foreign official – by a drone strike on Iraqi territory – was possibly illegal. But such niceties do not perturb Trump. The evidence is that Trump’s decision was taken without consideration of the possible consequences. The national security system established under Dwight D. Eisenhower, designed to prevent such reckless measures, is broken to non-existent, with ever-greater power placed in the hands of the president. If that president is unstable, the entire world has a very serious problem."
Jan 9th 2020
EXTRACT: "It is possible that Trump’s reverential base won’t be sufficient to keep him in the White House past 2020. But such ardent faith is hard to oppose with rational plans to fix this or that problem. That is why it is so unsettling to hear people at the top of the US government speak about politics in terms that rightly belong in church. They are challenging the founding principles of the American Republic, and they might actually win as a result."