Budgeting for Climate Change

The aim of the UN climate change conference in Paris is to achieve a legally binding and universal agreement to reduce greenhouse gas emissions, so as to limit the global temperature increase to a maximum of 2°C above pre-industrial levels. Only then could this generation lay any claim to having fulfilled its responsibility to bequeath a sustainable planet earth.

Climate summits are notorious for agreeing targets and then not keeping to them. It is not clear how Paris will be any different. There are huge problems in the way of a committed agreement that could produce an effective and lasting solution. Not the least of which is the fact there will be 196 nations attending, all with different histories, cultures, economies and futures.

An example of these ‘local’ difficulties is the Philippines plan to build 23 new coal-fired power stations in response to growing electricity demand, all too frequent power blackouts and the fall in coal prices. They might, with some justification, argue that if developed nations want the Philippines to invest in renewable alternatives, they should contribute the additional cost.

These practical difficulties caused by the differences between different nations are only part of the story. A bigger problem was identified by MacKay in a Comment in the science weekly, Nature. Agreement would require an ‘upward spiral of ambition’ and the ‘science of co-operation’ in order to ‘harness self-interest by aligning it with the common good’. That head-on collision between the maximisation of self-interest and the protection and development of the common good, is the most fundamental of all the myriad of problems in ensuring the sustainability of life on earth. Solve that and the other difficulties could almost certainly be resolved. But achieving MacKay’s alignment will be difficult. It is not immediately clear how maximising self-interest can be aligned with the common good.

The vast majority of the world’s leaders now broadly accept the neoclassical economic belief system which teaches that a dynamic economy depends on all units, whether individual or corporate, maximising their own self-interest. Whether they lead industry, finance, the media, academia or politics, the vast majority of those leaders endorse that neoclassical model. Not only that, but it is the version propounded by Milton Friedman which dominates, with the emphasis, in the corporate sector, on maximising shareholder wealth. Under this scenario, greed is not just good, but a social responsibility.

The implausibility of neoclassical economics and the dishonesty of the Friedman version which lacks legal and theoretical support, has been discussed repeatedly on this blog-site. Nevertheless that Friedmanite neoclassical economic belief system continues to be the orthodox wisdom among leaders of the establishments throughout the developed and developing world.

It is possible that such a stance has been adopted naively, in the belief that the wealth thus concentrated with the few, would ‘trickle down’ for the benefit of the many. But that seems highly improbable. It is far more likely that the members of the establishment grasp this set of beliefs as justification for their own personal corruption and as an explanation of why they have innocently screwed the rest of the world and continue to do so.

It is a widely held, but simplistic and false assumption that the price of fossil fuels will continue to rise as supply declines, having now gone past its peak supply point. However, as the Energy Futures Network points out, there is still enough fossil fuel supply left in the ground to ‘fry the planet many times over’. So the idea of peak oil is a mirage. Oil extraction will not be delayed in order to benefit from higher prices. On the contrary, producers will aim to get as much as possible out of the ground before it becomes totally unacceptable to the public interest. In the end, the public interest will necessarily prevail over private profit. The question is will it be too late for planet earth?

Going along with the neoclassical analysis for the moment, it would be necessary to assume the present value of earth’s finite resources in n years’ time is at least as valuable as today’s resources. To establish their present value they would have to be discounted at a rate of no more than zero%. That defies normal accounting logic which calculates a £ in a year’s time as worth less than a £ today because today’s £ can be invested and earn some small interest over the intervening 12 months. But if that accounting logic is not defied, the whole sustainable project collapses in the face of neoclassical economics. The value of planet earth in, say, 50 years’ time, is calculated, on almost any positive discount rate, as more or less zero. In which case why worry that we are destroying the planet – it’s going to be worthless anyway.

The application of maths in this instance, as in most examples of neoclassical economics which require endless implausible assumptions, produces a daft result. John Ruskin wrote about it a century and a half ago: ‘as in the instances of alchemy, astrology, witchcraft and other such popular creeds, political economy has a plausible idea at the root of it. … The reasoning might be admirable, the conclusion true, and the science deficient only in applicability.’

If the global establishments, rather than being in thrall to the obviously flawed calculations required of neoclassical economics, would rely on observation of the real world, intelligence, common sense, and something of what Adam Smith called sympathy, there might be a possibility of some positive outcomes from the Paris conference. But don’t hold your breath.

One thought on “Budgeting for Climate Change”

  1. Gordon
    This is timely and I am sure Susan George would agree. Fascinated what she is going to do at the Paris event. I have finally arrived at the conclusion that the Catholics actually had the answers, but never used them as they were preoccupied with modernism and dogmatics.
    The encyclical Rerum Novarum and the inchoate work of the Distributists are coming back into fashion now with this pope. What we need is the wisdom that comes from as Wesley said, “a heart strangely warmed”!


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