Political Economy

The Political Economy of Climate Change: An Annotated Summary

Contradicting trends - fossil fuel economyAs warmer temperatures, rising seas, and extreme weather make climate change an increasingly inescapable aspect of daily life, scientists, economists and social theorists have begun to rethink widely shared beliefs about the free market system.  In earlier eras, it was easier to assume that the operation of the laws of supply and demand in competitive markets would maximize general productivity and promote long-term growth.  In the age of climate change, however, our reliance on fossil fuels has created a paradox: the more productive and prosperous we become, the more we increase our carbon output, which intensifies global warming and invites an unending series of floods, droughts, and other disasters.  Climate change has thus raised the question of whether our current system of private enterprise can survive the environmental chaos it has produced.

In "Navigating the Anthropocene: Improving Earth System Governance," published in Science in 2012, a large group of leading scientists called for a fundamental restructuring of the world economy to stave off disruptions of climate patterns that have prevailed on earth for the past 500,000 years. Similarly, having concluded that technological and market-based fixes cannot prevent the disasters that will follow if we do not move beyond fossil-fuels, Gary Stix, a senior editor at Scientific American, declared that a global government with far-reaching regulatory and enforcement authority offers the only effective escape from the cascading effects of climate change. And in This Changes Everything: Capitalism vs. the Climate, a comprehensive account of the environmental crises created by centuries of capitalist development, journalist and activist Naomi Klein maintains that the climate disasters we now confront open up unprecedented opportunities to build an equitable and sustainable post-capitalist society.

Not surprisingly, proponents of private enterprise reject these approaches.  A minority of free marketeers continues to argue for inaction by contesting the the reality of human-induced climate disruption.  However, more pragmatic supporters of the status quo contend that the social engineering required to establish a global economy fueled by renewable energy would require us to set aside vital aspects of democratic government. It is, according this perspective, best to fiddle at the margins of the fossil-fuel economy, not because climate change is a fiction, but because establishing a global regulatory agency would render national governments, and the citizens who live under them, powerless to chart their own destinies

Climate Action signAs an alternative to what has been labeled "green authoritarianism," some environmentalists support a tax on carbon pollution.  This approach, which is gaining steam among state legislatures and corporate leaders, posits that taxing carbon would encourage consumers to curtail their use of fossil fuels and, consequently, generate increased demand for renewable energy. The tax is devised to appeal to liberals because it would eventually cut carbon emissions, while also pleasing conservatives because it would not involve new regulations. Moreover, in order to further sweeten carbon taxes for those in favor of shrinking government, most proposals include mechanisms to keep them revenue neutral, either in the form of rebates to taxpayers or lower tax rates for individuals and corporations.  

Meanwhile, a surprising coalition of conservatives and environmentalists suggests that capitalism can resolve the problems that it has created if we rely on economic competition to spur the development of radical solutions such as trying to manage the climate through geoengineering. Among the projects proposed, the one that has received the most attention would attempt to dim the sun by injecting tons of reflective particles into the stratosphere, a process that would mimic the cooling effects of volcanic eruptions. What seems especially attractive about such fantastic proposals, at least in the eyes of proponents of free markets, is that it would allow us to keep on burning fossil fuels.  Along these lines, Newt Gingrich, former speaker of the US House of Representatives, proclaimed in 2008

"Geo-engineering holds forth the promise of addressing global warming concerns for just a few billion dollars a year. We would have an option to address global warming by rewarding scientific innovation. Bring on American ingenuity. Stop the green pig."  

One of striking aspects of the current debate is that it has, for the most part, moved beyond disputes about the reality of climate change to disagreements about solutions. Having reached this crossroads, the question now is whether the public can be persuaded to support any policy, program, or approach that would involve increasing taxes, imposing new regulations, and/or slowing economic growth.

US energy consumptionCritics of Klein's optimistic vision contend that she overestimates the willingness of the populations of developed countries to abandon their high-carbon lifestyles.  As Elizabeth Kolbert, a dedicated environmentalist, lamented in her review of Klein's book, "When you tell people what it would actually take to radically reduce carbon emissions, they turn away. They don’t want to give up air travel or air conditioning or HDTV or trips to the mall or the family car or the myriad other things that go along with consuming 5,000 or 8,000 or 12,000 watts."  In reply, Klein maintains that this pessimism is outdated since major advances in solar, wind, and other sustainable sources of power have shifted our prospects away from austerity to what she terms "regeneration," that is, a society in which fossil fuels are not required to meet high demands for energy.

The "do-little-or-nothing" approach has likewise been dismissed as untenable, mainly because it makes no sense to talk about preserving liberty in countries where so many people face unending floods, droughts, fires, and other threats.  However, advocates of inaction or, at least, hesitation in the formulation of national and transnational climate-change treaties and policies point out that we have yet to develop transparent and democratic mechanisms to enable popularly elected officials to play a meaningful role in systems of global governance.

carbon taxAlthough increasing numbers of politicians, business leaders, and environmental organizations support taxing carbon, the idea of abandoning political decision-making in favor of market incentives troubles many of those involved in the movement to address climate change.  Like the notion that geoengineering can provide a painless fix, the promise of carbon taxes is that market forces will free us from having to engage in any collective effort to alter the way we live.  It would, moreover, shift the burden of centuries of economic development off the shoulders of industry and government onto the backs of individuals who, in too many cases, live too close to the bottom of the social hierarchy to be 'incentivized' to install solar panels, or buy a hybrid car, or invest in green technologies.  As Mitch Jones, Director of the Common Resources Program at Food & Water Watch, observes:

"The problems with the carbon tax begin with its regressivity. A regressive tax is one that hits households with lower income harder than those with higher income. The Congressional Budget Office estimated that under a $28/ton carbon tax, the bottom 20 percent of income earners would pay 2.5 percent more in taxes, while the top 20 percent would pay less than 1 percent more."

Proposals for geoengineered approaches to offsetting carbon emissions have invited especially withering criticism.  As Pat Mooney, Executive Director at the Action Group on Erosion, Technology and Concentration (ETC), notes, if we undertake massive experiments such as dispersing tons of reflective particles into the stratosphere or attempting to alter the heat-trapping capacity of oceans, we risk setting off highly unpredictable global events: 

"We just do not know how to recall a planetary-scale technology once it has been released. Techniques that alter the composition of the stratosphere or the chemistry of the oceans are likely to have unintended consequences as well as unequal impacts around the world."

It is, moreover, hard to fathom how we could marshal the engineering genius required to manage the weather when we can't muster the wherewithal to reduce our reliance on fossil fuels.

supply & demandThe inescapable fact that emerges from all sides of this controversy is that private enterprise has not delivered the optimal results that advocates of free markets predicted for decades.  Unlike the classical political economists of the eighteenth and nineteenth centuries, who promoted laissez-faire policies mainly to maximize productivity, the free marketeers who have dominated economics for the last fifty years adopted a far more expansive perspective.  In contrast to their predecessors' focus on the disciplinary effects of market forces, these economists celebrated capitalism as a supremely rational system which would, so long as individuals were left to pursue their own self-interests, allocate resources efficiently, increase general prosperity, and enlarge the scope of personal freedom.

Shattering this sunny worldview, climate change has been memorably defined as "the greatest market failure the world has seen."  The trillions that governments are already obliged to spend on recovery from more frequent fires, floods, and other disasters, shoring up shorelines, aid to drought-stricken farmers, increased threats to public health, as well as other daunting problems have, as David Levy, Director of the Center for Sustainable Enterprise and Regional Competitiveness at UMass Boston, notes, raised fundamental doubts about the future of capitalism:

"Can the market and private capital develop new governance mechanisms, such as carbon trading, and deliver new low-carbon technologies that will decarbonize the economy while ensuring growth and full employment?"

Our inability to answer Levy's question invites us to ask another, which is whether climate change will finally force us to abandon the myth that markets can do for us what we can't do for ourselves.  After all, every transformative advance in technology, from railroads to the internet, came to fruition through government intervention, just as every major social problem in the capitalist systems of the modern age, from poverty to pollution, has been lessened only by deliberate social and political action to stem the ill effects of unchecked competition. Climate disruption might thus make it impossible to deny the message that was widely forgotten almost immediately after 2008-2009, when governments had to step in to reel the global economy back from the brink of collapse, which is that capitalism has always required political regulation to prevent it from destroying itself.