Can one crisis lead the way to recovery from another?
Could the time be ripe to rethink the model of capitalism that has brought us to the brink, and coherently address the systemic flaws that exist?Posted Sep 14, 2009
The world is caught between two ongoing crises. The financial crisis has undermined confidence in the global economy and has dragged the world into its worst recession for generations. The other – the sustainability crisis exemplified most acutely by climate change – is more fundamental and has been gathering momentum since the beginning of the industrial revolution.
Economists, as a result, remind us that real wealth creation cannot be conjured up from the repackaging of asset-backed securities, or the asset price bubbles which made this financial voodoo possible. Rather, it is innovation – advancements, often technological, which result in faster, smarter and safer ways of doing things – that creates real and long-term growth. Economies that do not continually transform themselves with invention will eventually fall from the path of economic growth.
Economies that do not continually transform themselves with invention will eventually fall from the path of economic growth.
Environmentalists meanwhile point to the Earth’s finite capacity to absorb the continued impact of economic growth. Already the impacts that unrestrained, thoughtless and fossil fuelled growth have placed on the natural ecosystem are being felt. Yet these impacts should only be taken as pre-warning of the enormous climate crisis that will unfold in the absence of urgent action.
It is often said that with crisis comes opportunity. If this is true, with the enormous challenges now faced, a great opportunity must also exist. Could the time be ripe to rethink the model of capitalism that has brought us to the brink, and coherently address the systemic flaws that exist?
The solution is perhaps to galvanize the transition to a global green economy, something which can be achieved at Copenhagen (United Nations Climate Change Conference, Dec. 7 – 18, 2009). This new economy must first of all be underpinned by the widespread creation and application of green knowledge, technologies and practices. Target areas include renewables and energy efficient technologies, clean coal, sustainable farming and food production, second-generation biofuels, sustainable transport, and the continued development and application of communication technologies into our energy and economic systems.
The transformation that these technologies would bring can lead to a new and environmentally benign global growth spurt. But to be truly successful in addressing the threat of climate change an additional challenge must be overcome: new green knowledge, practices and technologies must be shared, to the greatest extent possible, between all nations.
But to be truly successful in addressing the threat of climate change an additional challenge must be overcome: new green knowledge, practices and technologies must be shared, to the greatest extent possible, between all nations.
If we have learnt anything from the financial crisis it is that the market is blind, it has no long-term vision for the planet. Money runs mindlessly, like water, to the point of least resistance where the greatest short-term gains are available. The architects of the global financial system now realize that these forces must be regulated in order to ensure a better outcome for society. Similarly, it is the responsibility of policy-makers at Copenhagen to give the strongest possible signal to the markets that the political will to address the challenge of climate change exists. The market must be convinced.
Several intractable difficulties must be resolved at Copenhagen for this green vision to become reality. I will focus on two. First, all countries must agree to a long-term vision on emissions reductions that is credible, achievable and enforceable. This vision must correspond to what the scientists tell us will be required by 2050 to avoid dangerous climate change; in other words, the world will need to sign up to an absolute minimum 50% emissions reduction on 1990 levels by 2050. This must be legally binding and enforceable. The establishment of an international environmental court with the ability to fine for non-compliance, or some other credible enforcement mechanism must be considered if countries and the markets are to take this challenge seriously.
Annex 1 countries must of course lead the way by agreeing to medium-term reduction targets. A minimum 25% emissions reduction and an agreement on instruments to achieve these reductions must be sought. Annex 2 countries must at least be enticed to sign up to reduction targets from 2020 and deviations from baseline between now and 2020 must be agreed. A global emissions trading scheme, though perhaps not as efficient as a carbon tax, seems to have the political momentum behind it, and would greatly assist the markets in making optimal choices.
Second, Annex 1 parties will be required to make resources available for the global development, deployment and diffusion of green technologies. There will be a role for both public and private sectors funding, and financial innovation will be required to make developing country projects more attractive to investors.
A certain proportion of initiatives should also be funded from auctioned emissions trading permits. There will, however, be great competition for these resources (Annex 1 countries need to fund their own mitigation strategies, Annex 2 countries require adaptation funds) and a quid pro quo from Annex 2 parties will be required. They must agree to create the correct incentives for the deployment of low carbon technologies, through, for example, the removal of subsidies for fossil fuels and the establishment of pro-green regulatory systems. They too must demonstrate to the onlooking world that they are serious.
The establishment of prize funds for technological breakthroughs in certain areas should also be considered. Knowledge is essentially non-rival – once something has been discovered, it is discovered for all. Intellectual property rights are necessary to protect the innovators and ensure a commensurate reward, but property rights prevent the diffusion of technologies. Prize funds overcome these difficulties by creating an incentive for innovation while ensuring that the benefit of the technology would accrue to all. A kind of global competition with a stature equal to the Nobel Prize would be an enormous PR coup for Copenhagen and could harness the philanthropic instincts of many scientists behind global goals. This could be a good news story for humanity.
The establishment of regional technology centers, cooperative networks, technology sharing platforms, exchanges and groupings could also be considered in certain areas, but only if a clear value added to existing informal networks can be demonstrated.
While the economic crisis is often seen as presenting an additional stumbling block to an agreement, it is better read by global leaders as both a warning and an opportunity. The warning is that sometimes it is too late by the time we realize that change is necessary, and the opportunity is to galvanize the world to green transform at Copenhagen.
Joseph Curtin is Senior Researcher at the Institute of International and European Affairs, Dublin, with responsibility for energy and climate change policy.