Capital markets are already working to mitigate climate change
It is disorientating, to say the very least, to find that Vladimir Putin has become a voice of reason on the great contemporary question of climate change. However, it is worth examining what the Russian President said in his response to questions on whether he shared popular enthusiasm for the likely nomination of Swedish climate activist, Greta Thunberg, for a nobel peace prize.
At an energy conference in Moscow last week, Putin was asked to comment on a speech delivered by Thunberg to the United Nations in New York in September 2019. He said that it was “right and very good” that young people focused upon ecological problems, but regretted that “nobody explained to Greta that the modern world is complicated”. He added that “people in Africa and in many Asian countries want to be as wealthy as people in Sweden”, raising the practical problems involved with introducing expensive technologies in regions of the world crippled by poverty and questioning the morality of telling developing countries that they must remain poor in order to save the planet.
At the heart of this exchange was an important question: does managing climate change and preventing environmental catastrophe necessarily have to curtail economic development for the world’s poor? Must there necessarily be a tension between economic growth and ecological protection? These questions matter because it is often argued by those advancing an environmentalist agenda that climate change is the result of a crisis of capitalism, and that this can only be overcome through drastic carbon reduction and the elaborate control of all economic activity by the state.
The central philosophical problem confronted by many environmental movements, such as Extinction Rebellion, is that they demand radical, altruistic changes to people’s lifestyles and economic ambitions; and yet they are also profoundly pessimistic about human nature and the ability of people to act in ways that do not cohere with their immediate self-interest. The central practical problem they face, is that it is both unreasonable and impossible to expect people to de-industrialise and return to a pre-modern economy, one in which life is, in the memorable phrase of Thomas Hobbes, “poor, nasty, brutish, and short”.
Climate alarmists seem to be caught in a double-bind: fearing the consequences of a coming global apocalypse, they also fear that humanity is too evil to prevent its own demise. Sensationalised forecasts of the doomsday appear also to have had a negative impact upon the mental health of many young people who readily consume them. And no wonder, when prophesies of the apocalypse proliferate upon a daily basis. Respectable people with public authority such as Sir David Attenborough use their public platforms to paint pictures of the coming age of destruction. Films such as Netflix’s IO present dystopian worlds in which humanity’s insatiable burning of fossil fuels has destroyed Earth’s atmosphere. The word “millennials” has come to possess a double-significance when referring to a generation of activists who have been led to believe that they are approaching the end of days. Not only were they born near the start of a new millennium, they are now our modern day millenarians.
Popular catastrophising is, however, yet to produce practical, workable solutions to establish the dramatic changes which the catastrophists wish to implement. Indeed, among Extinction Rebellion’s “demands” are the requirement that the UK government must reduce greenhouse gas emissions to net zero by 2025. Working out the practicalities, according to Extinction Rebellion, is to be deferred to a Jacobinical “Citizens Assembly on climate and ecological justice”. No less vague is the “New Green Deal” proposed by the Democrat Representative, Alexandria Ocasio-Cortez, which aims to make the US economy carbon neutral within ten years.
Along with all of this anxiety over the spectre of environmental disaster, however, there is also cause for climate optimism. There is every indication that we are succeeding at lifting unprecedented numbers of the global population out of poverty without destroying our environment.
According to the World Bank’s data, in 1981 44 per cent of the world’s population lived in absolute poverty. In 2013, that figure was reduced to just 10.7 per cent, a change in no small part due to the success of developing nations in being integrated into capital markets and global trade. Homi Kharas of the Brookings Institute estimated in 2017 that someone escapes extreme poverty every 1.2 seconds.
At the same time, as Matt Ridley, author of The Rational Optimist: How Prosperity Evolves, has explained, the dire predictions of generations of climate alarmists have failed to materialise. There has been less than half a degree of global warming in the last four decades, an increase which has recently slowed down and not speeded up. The sea level, meanwhile, has also risen at the steady rate of about one foot per century. Levels of biodiversity and reforestation, meanwhile, are increasing in countries which have become wealthy enough to reduce their reliance upon firewood and raise agricultural productivity through the intensive farming of rural land.
The future is also less bleak than alarmists would have us believe. As Björn Lomberg has recently pointed out, even the most pessimistic present-day predictions are not anticipating the end of the world and the human race. The UN’s Intergovernmental Panel on Climate Change estimates that by the 2070s, the total effects of climate change, including on ecosystems, will be equivalent to a reduction in average incomes of 0.2 to 2 per cent. By then, however, each person on the planet is expected to be 300 to 500 per cent richer.
To point this out is not to deny the reality of the man-made nature of climate change or that it has had negative effects upon the natural environment which need to be redressed – it is simply to place it within a more rational, and less sensationalist context. The practical and ethically viable route out of the current threat of climate disaster is not through rapid de-industrialisation but by making environmentally-friendlier energy resources a competitive and desirable alternative. This has already been occurring for the last few decades. Capital markets and clean energy entrepreneurs have been playing a crucial role in encouraging cleaner energy and the reduction of humanity’s dependency upon fossil fuels.
This can be seen on the macro-scale, where global levels of investment in renewables and reliance upon cleaner energy resources have been rising at the expense of coal. According to the research of BloombergNEF (BNEF), total investment in clean energy and renewables across the world grew from $61.7 billion in 2004 to $361 billion in 2017, with modest decreases from its peak in the previous two years. China is notorious for being one of the worst global offenders, along with India, when it comes to carbon pollution; and yet no other state spent more on clean energy investment last year.
Across the world, states and private investors are combining to stimulate energy transition, driving down the costs of solar energy, improving offshore wind markets, and making renewables a real option for venture capital. This April was, the BNEF reports, the first time that renewable energy supplied more power to America’s grid than coal. If this continues, they predict that solar and wind will power half of the globe by 2050, by which time coal and nuclear energy will have been forced out of the US energy market by cheaper renewables and natural gas.
In Britain, according to research conducted by the Financial Times and the Grantham Research Institute, similar factors have had even more dramatic consequences. The lifting of EU restrictions on the use of natural gas in 1991 and the privatisation of the energy markets have combined with domestic legislation in 2013 introducing light tariffs on energy production from fossil fuels to marginalise coal and oil plants. In 1971, conventional coal and oil plants accounted for 88 per cent of electricity supplied to the UK. In April 2019, this fell to just 0.6 per cent, with natural gas, solar, wind and biomass filling the void left behind. The country which led the world’s first industrial revolution is now spearheading the sustainability revolution.
None of this is happening because of extensive anti-carbon regulations by states and governments or because of the benevolent altruism of populations – instead, this energy transition is occurring because research and development is making it increasingly attractive to use alternatives to coal.
At the same time as these grand-scale developments have been taking place, many countries and commercial companies are embracing the potential economic dividends to be gained from research and development into new, cleaner technologies. At the G20 summit at Osaka in June of this year, Japan, the US, and the EU all pledged themselves to a new partnership exploring the use of hydrogen fuels, which have the potential to provide environmentally friendly heating and power generation.
Such public commitments follow hard upon the heels of the achievements of private sector companies. Primetal Technologies, a joint venture by Mitsubishi and Siemens formed in 2015, has invested significant capital in the discovery of a means of replacing coal with hydrogen in the production of iron. If this is successfully carried out in a trial process to be conducted in Austria in 2020, then this would potentially eliminate the carbon footprint which results from steel manufacturing, which currently accounts for seven per cent of global emissions.
New economic opportunities afforded by cheaper clean energy have been transforming people’s lives in the poorest regions of the globe. Research conducted by Forbes shows that Azuri technologies, an entrepreneurial solar power company, is bringing pay-as-you-go solar energy to 150,000 households and 750,000 people living in remote regions of Kenya, Nigeria, Zambia, Uganda, and Tanzania. The US clean technology enterprise, Palmetto, is building partnerships with local entrepreneurs to provide subsidy-free, credit-free clean energy off the grid across Nigeria and Tanzania. Such technologies are rapidly replacing kerosene and firewood, the expense of which can leave isolated rural communities struggling to have money left over for adequate food. Joint enterprises are empowering many, especially women, in these regions by providing them with cheaper fuel while eliminating polluting, toxic fumes.
Recent research presented by Channing Arndt, the Director of Environment and Production Technology division at the International Food Policy Research Institute based in MIT, argues that there are also ways of balancing climate mitigation with targeted fossil fuel use in developing countries such as Malawi, Mozambique, and Zambia. Writing in the journal, Climate Change, he and others present their predictions, urging that if developed countries meet their carbon emissions targets, then developing countries could be temporarily excluded from such reductions altogether. This would have the added benefit of providing a potentially lifechanging economic windfall for the world’s poor by giving them a privileged access to cheap fossil fuels, whose price would be driven down by the absence of demand from carbon-reducing developed countries.
Energy transition has not quite been attained by virtue of a metaphysical “invisible hand” alone, and several challenges remain to be resolved. There are still countries, such as Indonesia, where the relative cheapness of coal compared to renewables is unlikely to encourage transition in the short-term and while there are many winners from this move towards cheaper, more sustainable energy consumption, there are also short-term losers. The task for policy-makers will be to ensure that labourers and communities whose economic status is diminished by transition away from coal and oil extraction are, in the long-term, made to be beneficiaries after this disruption to their lifestyles.
Nonetheless, it is clear that neither big state carbon protectionism nor coerced deindustrialisation provides the answer. We are living through a great transition, one in which the shape and nature of our energy consumption and economic behaviour is rapidly changing. As with any such transition, there will be temptations to lurch to extremes and enact self-defeating policies in the promise of a quick fix. Instead, we must steer the course – markets and technology are working to reshape our energy consumption and our economic behaviours, but they require time, patience, and investment to continue doing so. It would be an enormous act of self-harm to derail capital markets at a time when they are making cleaner, greener energy consumption more profitable than ever.
If we can work to make climate mitigation not only abstractly desirable but also practically profitable, then it might just be possible to change lifestyles in a more sustainable direction. In other words, to steal a line from the great Scots philosopher Adam Smith, it will not be by appealing to benevolence, but to “necessity”, “advantage”, and “self-love” that we will succeed in confronting the challenges of climate change.
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