Term Paper (Advanced seminar), 2017
10 Pages, Grade: 2,3
A man-made exacerbation of climate change has been widely accepted by the scientific community and calls for a paradigm shift in economic thinking. The new imperative demands for the global economy to achieve a factor-10 reduction of carbon dioxide within the next four decades. This undoubtedly calls for radical changes in the political, the economic as well as in the societal dimension. This essay reviews the different strategies that have been brought forwards by academics and activists aimed at combating global warming and assessing the effectiveness and legitimacy of such proposals.
It is commonly accepted that among all man-made natural disasters, climate change poses the largest and most imminent threat to human existence. According to the majority of the scientific community man’s economic activities accelerates global warming. The root cause of man-made global warming is the combustion of fossil fuels, which releases carbon dioxide as well as methane release from agricultural industries.
While pollution and wastage of resources can at least partly be solved by technological progress, it appears highly unlikely that there will be a technological solution to global warming. The far-reaching consensus among climate scientists demands for a factor-5 to factor-10 reduction in greenhouse gas emissions within the next 50 years, in order to prevent a climate catastrophe from happening (Loske, 2015)
If this drastic reduction in greenhouse gas emissions fails to be achieved, severe consequences to humankind and nature alike can be expected. The destruction of whole ecosystems, glacier and polar cap meltdowns as well as the subsequent submergence of land areas would be the likely result. Consequently the old narration within the sustainability debate around peak-oil, peak-gas and peak-coal is out of the question. On the opposite end, there has to be a compelling change in paradigm to drastically reduce (or ideally cease) the combustion of fossil fuels.
In the 1960s and 1970s the discipline of ecological economics has evolved, which laid the conceptual foundations in order to create a discipline that contrary to neoclassical economics would consider ecological responsibility as central economic activities. Daly (2015) and other ecological economists question the neoclassical paradigm of continuous growth, especially considering the planetary boundaries. Undoubtedly the existence of man-made climate change poses an existential treat to mankind which makes a radical change of paradigm in economic and political thinking absolutely necessary. This essay will examine different strategies on the global, national as well as the private level designed to bring about the needed change of paradigm. The advantages as well as the disadvantages of these various approaches will be critically assessed. After the analysis a recommendation will be given considering effectiveness as well as democratic implications with the various approaches.
Strategies for a needed paradigm shift - the global level:
Unfortunately there are a number of politico-economic and structural problems that impede a permanent solution to man-made climate change:
Beginning with the obstacles and potential solutions to man-made climate change, it is worthwhile to start with a global perspective. Climate change in economic terms is an externality, mainly determined by fossil fuel usage in particular its combustion. Since the global economy is still largely dependent on fossil fuels, global warming is an externality that follows the logic of the commons, as initially theorized by Elinor Ostrom (1990). A global solution based on voluntary cooperation, despite the lack of mechanisms for control and sanctioning, would lead to collective action problems, as avidly described by Mancur Olson (1965). Free-riding would be a major issue as the national utility maximizing outcome would avoiding the cost of economic restructuring, while benefiting from the overall reduction in greenhouse gas emissions. Since the incentives would be consistent for all cooperatives, the result is that no-one would engage in climate protection, as described by the typical prisoner’s dilemma, in non-cooperative game theory (Bayer et al, 2010).
The underlying logic that reduces the effectiveness of a “soft” global governance solution to climate change. Moreover, we are living in a globalized world in which the creation of transnational corporations (TNCs) and their rationale of a globally integrated supply and value chain, is emancipated from the control of the national state (Chandler & Mazlish, 2005). As a result companies and their countries of origin are able to cover-up their true greenhouse gas emissions, as energy-intensive production processes are outsourced to developing economies. Hence the statistics on greenhouse gas-emissions all-too-often misrepresent Western industrial nations and TNCs as the prigs of sustainable development and ‘green growth’, whereas developing nations such as China are depicted as regressive evildoers. In contrast to the softer, infective global governance solutions, there is also the idea of a global government, i.e. a world government that has the necessary control as well as sanctioning-mechanisms to gradually enforce the reduction of greenhouse gas-emissions, until eventually the aim of factor-10 reduction is met. The idea of a global government, despite its attractiveness in terms of effectiveness, effectively undermines the modern perception of democracy. Although a world government could solve the collective action problem, not only Hayekians would argue that this would lead to the ‘road of serfdom’, where personal liberty would be sacrificed (Hayek, 1944). Theoretically, the function of a global government could also be satisfied by a true hegemon or a coalition of super-powers. However, the problem of undemocratic reservation remains. Despite these concerns it is also unrealistic to assume that a world government would form in the nearby future.
The intensification of climate change and other environmental problems has been blamed on the increasing world population. Proponents of this position often use the term ‘overpopulation’ in reference to this issue. Organizations such as the Bill & Melinda Gates Foundation define their central goal in fighting the so-called ‘overpopulation’. Contrary to this belief, the worldwide population-growth has declined in the past decade (Angus & Butler, 2011). Referring to the IPAT-formula, it appears that ‘affluence’ (‘A’) i.e. the accelerated consumption of goods and services, is the decisive factor intensifying the problem of global warming. Paraphrasing the words of Prof. Eric Pineault (2016), the world would not cope with 15 billion Canadians or Belgians but 15 billion Indians or Ethiopians would be perfectly fine.
Another political solution to global warming is the issuance of emission-papers, which would allow industrialized nations with a high requirement to produce carbon-dioxide, to buy off emission-papers from low-income economies with heavier reliance upon agriculture. A supranational organization could issue these emission-papers, whereby the total issuance would have to conform to the defined global climate goals. Hence with every commencing year the total issuance of emission-papers would be reduced until climate goals are met. This option is commonly discussed in panels on climate change and generally accepted as a useful and just method. There is however a development issue with this approach - low-income economies could be pushed into further dependence from industrialized high-income economies. The trade with emission papers could be a disincentive for poor nations to develop their industries, thereby cementing their status, i.e. underdeveloped agriculture based economies. Although beneficial for the climate, this approach would foster the poverty-trap and cement the global divide between rich and poor nations.
Furthermore there are structural problems with the global financial system. The cycle between artificial money creation based on bank-loans and the low interest policy of central banks in order to stimulate credit-based investments, would lead to an increasing amount of price bubbles and subsequent financial crises. The so-called credit-boom-bust-cycle by Wicksell, von Mises and von Hayek, which defines the financial economy, increases expectations on the real economy. This leads to phenomena such as overproduction, the wastage of resources and eventually accelerates global warming - quite similar to the description of the economy of waste by post-keynsians such as Kalecki (1970). The principle of debt capital accords for the exponential expectations the financial economy has towards the growth of the real economy (Galbraith, 2014). A possible solution to this could be the abrogation of Basel accords and subsequent move towards a monetary system that understands money as an asset. There are numerous concepts with illustrious names such as Islamic Banking, Ethical Banking, Green Banking etc. Cryptocurrencies such as bitcoin could also be the starting point of a monetary revolution (Mayer, 2015).
Strategies for a needed paradigm shift - the national level:
On a national level, taxes are a proven measure to lower the demand for energy-intensive products and services. Increasing taxation on energy-intensive goods in order for prices to reflect the ecological reality, is certainly an efficient method. Ideally there would be accords on international level, enabling states to draw level with each other. If such cooperation were not possible, individual states would have to impede arbitrage through the use of law and control. For example a German consumer must not be able to purchase an energy-intensive product at a lower price in a foreign nation - respectively customs should cancel out the savings through tariffs.
With taxation, discriminatory pricing should be avoided, to prevent real or perceived social injustices. In addition, it is economically and ecologically inefficient to introduce higher taxes on luxury goods since: 1.) consumption of luxury goods (e.g. private-jets) is insignificantly small and 2.) demand for luxury goods is highly inelastic. With Giffen-goods, demand for products rise with increasing prices.
Petrol and diesel are among the economic category of normal goods. Due to the lack of alternative fuels in automotive-mobility, petrol (and diesel) are also necessary goods that have devastating effect on the climate.
Increasing the petroleum tax would make cars unaffordable to a large margin of society, i.e. the low-income earners. In the current political climate in the (majority) of Western nations as of 2017, this would likely lead to large protests among the civil society dividing the classes even further. Despite the imperative for change based on global warming, it is at least questionable to sacrifice the debate for social justice on the altar of climate change.
There are certainly a few political strategies that could and should be used in order to combat global warming - one is surely the fight against lobbyism and corruption on the national and international level. The accumulation of capital through capitalist endeavors has led to the formation of a global oligopoly of large enterprises. These actors that frequently ally to create powerful interest groups use their power to push their agendas - oftentimes against the general welfare of the public. The large enterprises, their interests groups and their lobbyists engage politicians and bureaucrats on all political levels in order to influence political decision-making in their favor, often to the disadvantage of the climate, social welfare and the environment in general. Public choice theory as developed my James Buchanan (1962) and others, provided powerful insight into the incentive structures of the public sector. Essentially there are principal-agent problems between the interest of public organizations (principal) and the civil servants/politicians (agents). The existence of rent-seeking politicians and civil servants is the actual fundament that enables lobbyism. One example for this type of lobbyism is the European agriculture-lobby which has allowed the EU to introduce floor-prices above world market prices and purchase unlimited amounts of milk, sugar and other agricultural goods. Unsurprisingly that leads to inefficient outcomes, such as overproduction, dumping- prices (leading to market inefficiencies in low-income economies through subsidized exports), increasing greenhouse gas-emissions (especially methane because of increasing cattle populations).
The incentive-structures of the interest groups and their lobbyist can be very attractive. It is therefore not surprising that former politicians and EU-functionaries join armory or energy companies as c-level managers after they end their political careers.
Consequently it is of utmost importance to create greater transparency on the political level, especially within the areas that are of particular interest to lobbyists and where vulnerability for special interest is the highest. Moreover, it would be recommendable to temporarily ban politicians and public servants from the private labor market before being able to join the private sector.
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