World Economy since the Industrial Revolution

Table of Contents

  1. Science: Data on the Climate Crisis
  2. Political Economy: Why the Dither and Delay?
  3. Macroeconomics: Effects of the Climate Crisis
  4. Policy Recommendations: What Can We Do?

1. The Science: Data on the Climate Crisis

Global warming

CO2 emissions

Other greenhouse gases

Why focus on CO2?

Anthropogenic climate change

Source: www.carbonbrief.org/analysis-why-scientists-think-100-of-global-warming-is-due-to-humans

Runaway climate change

Remaining carbon budget

Source: www.carbonbrief.org/analysis-how-much-carbon-budget-is-left-to-limit-global-warming-to-1-5c

Urgency currently not recognised

2. Political Economy: Why have we Dithered and Delayed?

Who is responsible?

Who is responsible? (population-adjusted)

Who is responsible, historically speaking?

Who is most capable of action?

Source: Our World in Data

Other caveats invoked in debates

  • Measures of CO2 based on consumption or production?
    • Former favours China and later favours US
  • Assymetric consequences:
    • Oil-exporting countries thrive; Permafrost thaws in Russia and elswhere, while…
    • The Maldives sink and the world’s forests burn
    • Should the most affected financially compensate the least affected?

Regulatory capture: Lobbying

Regulatory capture: Disinformation

Internal documents at Exxon from scientific advisors (1978 and 1981)

1989-2010: Regular “advertorials” in NYT expressing doubt over climate change

ExxonMobil ad 1997:
“Let’s face it: the science of climate change is too uncertain to mandate a plan of action that could plunge economies into turmoil.”

ExxonMobil ad 2000:
“it is impossible for scientists to attribute the recent small surface temperature increase to human activity.”

3. Macroeconomics: Effects of the Climate Crisis

Threats without government intervention

  • Human cost
    Mortality and morbidity caused by crop failure, air pollution, etc. will cost lives and reduce ability to work and earn an income

  • Economic cost
    Destruction due to extreme weather events

  • Distribution
    The poor will (continue to be) hit hardest. Demand effects

  • Unemployment
    Forced migration; hysteresis effects of destruction of carbon-based industries

  • Inflation
    Potential for rising energy costs may push up prices

  • Instability
    Stranded assets after popping the carbon bubble

The carbon bubble

“a third of oil reserves, half of gas reserves and over 80 per cent of current coal reserves should remain unused from 2010 to 2050 in order to meet the target of 2 °C” (McGlade & Elkins 2015, p.187)

Assets backed by fossil fuels (e.g. shares in Shell, etc.) likely significantly overpriced

This presents two problematic scenarios: 1. Carbon companies pursue measures to ensure no climate policy takes place
2. Climate action takes place, but renders tens of trillions of carbon wealth worthless (Channell et al. 2015). \(\rightarrow\) financial and economic crisis

4. Policy Recommendations: What Can We Do?

Let’s start with the circular flow model…

… and throw it away.

Kate Raworth’s (2017) “Doughnut Model”

Applying the Doughnut Model

What’s behind the Doughnut Model?

Ensuring we do not break the ecological ceiling

\(Envirnomental\:Impact = f(population,\: affluence,\:technology)\)

Kaya indentity: \(F=P*\frac{G}{P}*\frac{E}{G}*\frac{F}{E}\)

   
Variable Remark
Slow down population growth Impossible w/o dictatorial means? Rate of growth already falling. Expected to peak around 2100
Reduce energy intensity & carbon footprint of energy - Reliant on technological progress in the right areas. Currently, not swift enough. - Requires large-scale governmental investment and intervention - **Rebound effect** concerns
Reduce GDP growth rate Green growth vs degrowth debates

The rebound effect

reduction in expected gains from new technologies that increase the efficiency of resource use, because of behavioral or other systemic responses

\(RE=\frac{lost\:benefit}{expected\:benefit,\:holding\: consumption\:constant}\)

e.g. Car fuel efficiency \(\uparrow\) 5%, fuel use \(\downarrow\) 2% \(\rightarrow\) 60% rebound effect

Often \(0<RE<1\), i.e. “partial rebound”. However, if \(RE>1\) we encounter the Jevons Paradox (1865)

Proposed solution (Wackernagel and Rees, 1997):
Cost savings from efficiency gains should be taxed. Revenue can be invested in, e.g., natural capital rehabilitation

Green growth or degrowth?

Demailly (2014):

Degrowth: “economic growth and environmental protection are incompatible, at least in industrialised countries.”

Green growth: “the two objectives are compatible… environmental protection measures can even work to stimulate economic growth both in the short and long term.”

No definitive conclusion, the debate rages on. Some subjective thoughts:
- If an objective of green growth is growth through the greenest means possible, that seems to miss the point.
- If an objective of degrowth is economic contraction even at the cost of less investment in carbon-free technologies, that also seems to miss the point. (e.g. imagine fusion was possible tomorrow)

In any case: The fetishisation of growth is damaging. A broader array of environmnetal and wellbeing indicators is desperately needed in public policy discourse

Concrete measures: Low-hanging fruit

Concrete measures: Healthcare

Concrete measures: Just transition

  • US (2016): 1.1m people work in coal, oil, gas
  • Poland (2017): 140k work in mining
  • Germany (2017): 55k work in mining

 

Destruction of these industries must be met with construction of others and retraining schemes for displaced workers

Fossil fuels: Remove subsidies, add taxes

IMF (2017):
- FF-subsidies around the world ~ $5.2 trillion (6.4% of GDP)
- Ending subsidies: cut global emissions by 1/4, early deaths by 1/2

IISD (2019):
10-30% of (pre-tax) FF subsidies “would pay for a global transition to clean energy”

Carbon tax revenue must be used to compensate for higher prices, and other general consumption taxes must be decreased! cf. gilets jaunes

Green policy mix

Dafermos et al. (2018); Dafermos & Nikolaidi (2019)

  • Increased share of green public investment

    • Low carbon infrastructure (e.g. electricity transmission grids and electric vehicle charging facilities)
    • energy efficiency retrofits for publicly-owned buildings
    • R&D in green tech (e.g. battery storage)

  • Green quantitative easing

  • Carbon taxes

  • Green differentiated capital requirements

Public debt: But what about the children?

Is the shoe not on the other foot?