Sacred Headwaters #6: New Climate Economy

Transitioning to a more sustainable economy is actually the fiscally conservative option. Why can't we do it?

Sacred Headwaters is a bi-weekly newsletter that aims to guide a co-learning process about the existential issues and planetary limitations facing humanity and about how we can reorient civilization in a way that will enable us to thrive for centuries to come. If you’re just joining us, consider checking out the first issue for some context and read through the other issues when you can. The newsletters are not strictly sequential, but this exploration is meant to build on knowledge and understanding over time. Subscribe below if you haven’t already, and please share with friends, family, and colleagues who may be interested:

Sacred Headwaters #6: New Climate Economy

Energy transition. Sustainability. These things are generally cast as costly — as some kind of sacrifice. But the reality is that transitioning to a “green” economy can be hugely beneficial to global economies — and the benefit becomes staggeringly large when you start considering the revenue saved by mitigating the projected costs of climate change (already costing the US economy hundreds of billions a year). Investment in renewable energy, sustainable agriculture, and efficiency has the potential to grow the global economy by $26 trillion USD — over the next decade alone. In this issue, we’ll look at some documentation of the economic potential of global transitions to renewable economies and estimates of the potential costs of not transitioning.

As a culture, we operate under the assumption that our markets are able to efficiently price actions based on their monetary effects on the future. As you read these articles, I want you to ask yourself something: if the projected costs of climate change are real and if the projected economic benefits of investing in a sustainable future are genuine, why hasn’t the global economy begun a more rapid shift? Why aren’t businesses and governments working harder to support this transition when it’s the fiscally conservative move?

Source: NOAA’s “Billion-Dollar Weather and Climate Disasters” visualization. More details in “2010-2019: A landmark decade of U.S. billion-dollar weather and climate disasters.”

New Climate Economy Report Executive Summary — 2018 (25 minutes)

This report, produced by the Global Commission on the Economy and Climate, is an in-depth assessment of the economic impacts of both climate change itself and the transformative global changes required to mitigate it. It’s also chock-full of policy recommendations for every level of decision making from cities to agriculture to international financing. It points out some examples of growth opportunities that sustainable development has already created across sectors, including innovative urban planning, deforestation and land restoration, and of course, renewable energy. It also points out — as we read about in issue #1 — that we are woefully behind schedule and rapidly approaching (or passing) a variety of points of no return. The report discusses the costs of climate inaction, but it also brings the opportunity costs of climate action into perspective: not only are we facing rapidly rising global costs due to changing physical processes, but we’re also missing out on what they estimate as US$26 trillion of global economic growth by not investing in a sustainable future.

The report summary is a bit dry. You could read David Roberts’ Vox article instead (or in addition): “We could shift to sustainability and save $26 trillion. Why aren’t we doing it?” (10 minutes) which summarizes the report and adds some good context to it.

“Large potential reduction in economic damages under UN mitigation targets” (20 minutes)

This Nature paper attempts to forecast global and national GDP changes at different temperatures over the coming century. The conclusions they reach on a global scale are unsurprising and in-line with the conclusions reached by the New Climate Economy Report — if anything, this paper’s estimates are substantially higher. The two interesting pieces are, first — they reached these conclusions through a completely different methodology. They modelled GDP based on temperature using a historical analysis. By the authors’ own admission, this misses the prospect of unprecedented changes in geophysical systems like sea level rise, runaway extreme climate events that exceed those associated with correlations to temperatures earlier in the 20th century, and other emergent impacts that we may not be able to predict. By my reading, it also misses potential runaway human system effects — the 2008 financial crisis made the lack of resilience in our fiscal systems clear, and the potential for geophysical disasters to cascade into financial ones is significant. The paper’s conclusion is that if we meet the Paris Agreement Nationally Determined Contributions (NDCs), we are likely to face a cost of around 25% of global GDP by mid-century — and given the uncertainties in their methodology, it could easily be far higher.

The second interesting piece is the nation-by-nation analysis of GDP impact. I think — due to factors discussed above — the reality is that all countries will be negatively impacted by climate change, but it’s telling to see these projections and realize that while the impacts of global warming are hugely negative on an earth-scale, for certain countries, they have the potential to be far less bad. The correlation between GDP-risk and national climate policy isn’t perfect (countries like the US and Brazil, who face major climate risk, are failing to take it seriously), but as a resident of Canada, I found this graphic telling. I think an even more telling (but different) analysis would look at how the impacts of climate change — both financial and other — are distributed by wealth rather than by nation. This has been studied to some degree for the USA and the results are unsurprising: “Estimating economic damage from climate change in the United States,” “Strengthened scientific support for the Endangerment Finding for atmospheric greenhouse gases.”

“The Economic Case For The Green New Deal” (5 minutes)

The Green New Deal is not a new concept, but it’s newly popular in the USA thanks to groups like the Sunrise Movement, Representative Alexandria Ocasio-Cortez, and others. The idea is to use government spending to both stimulate economic growth and development — a la FDR’s war-time mobilization in the lead-up to World War II — and to support the rapid global transition the IPCC says we need limit global warming to 1.5C (or even to 2C). It’s easy to talk about the “costs” of such a transition, but many economists (including the authors of this article) are supportive of the idea. Government spending has been seen as a way to boost economic growth since John Maynard Keynes, and while the US economy boasts a bullish stock market and low unemployment numbers, the reality is that wages are stagnant, income inequality has skyrocketed, fewer people are in the workforce, and productivity is lower than expected. The goals of a Green New Deal are to force a rapid transition to a sustainable economy and to boost real, distributed economic growth through government spending — both of which are important pieces of a “sustainable” civilization. There’s a lot more to talk about in the Green New Deal department, but I wanted to introduce the idea that while transitioning to a green economy may “cost a lot of money,” the reality is that it (by design) can ultimately generate more economic prosperity than it “costs.”

“JP Morgan economists warn climate crisis is threat to human race” (5 minutes)

I don’t typically include “news” in these emails because the daily news cycle tends to obscure rather than elucidate, but this piece from the Guardian talks about an internal report just leaked from JP Morgan that includes the sentence, “We cannot rule out catastrophic outcomes where human life as we know it is threatened.” This is stark language from a company that has provided billions of dollars of support to the fossil fuel industry, and I’m including this article because what it describes is part of the answer to the questions I raised at the beginning of this issue. Over the last two months, we’ve seen Jim Cramer declare fossil fuel companies to be in their “death knell,” we’ve seen Goldman downgrade Exxon to ‘sell’ and commit US$750 billion to sustainable financing, and we’ve seen BlackRock announce that climate change will be a defining factor in their decision making going forward. All good news. But did a new study just come out convincing them that “the economic risks of climate change are bad?” No. The report included in this issue was published in 2018. The same organization published a similar report in 2014. And it wasn’t news either of those times — we’ve known about climate change for five decades, and the financial industry has known about the systemic risk it poses to their businesses (really, all businesses) for nearly that long. So why are they finally starting to take it seriously? And, are they actually? JP Morgan is practicing a special kind of cognitive dissonance where they acknowledge the extinction level threat we are facing yet continue to finance the industries that are guaranteeing it.

Book Recommendation: A Global Green New Deal: Rethinking the Economic Recovery, Edward B. Barbier

In 2008, the UN Environment Programme (UNEP) asked Professor Edward Barbier (the author of this book) to lead a study about how to stimulate economic recovery while simultaneously transforming the global economy to a sustainable one. In this book (2010), Barbier lays out the case for a Global Green New Deal (GGND) based both on the need for economic stimulus in the aftermath of the global financial crisis and on the need for transition to sustainable energy production, food production, and more. As is the case with many of the “older” readings we’re getting through, it’s a bit depressing — the UNEP and Barbier were pushing for these policies more than ten years ago, and many of his estimates of impacts and costs have come and gone, leaving us in a worse position today than he expected, even given a “business as usual” scenario. But — we are where we are, and the book’s recommendations are, if anything, more important now than they were ten years ago.

BONUS: Capra Course Pitch

In issue #4 (on systems thinking), I recommended the book Systems View of Life by Fritjof Capra and Pier Luigi Luisi. It’s a great book and I still highly recommend reading it (if you haven’t already — ha ha ha). The “Capra Course” is an online course that Capra has been running periodically since the publication of the book, designed to accompany the book. It’s meant to introduce people to systems thinking, to non-linear dynamics, and to complexity, and to build on that understanding into an understanding of the social and biophysical systems that govern life on earth — and more importantly, how we can effect change and build a civilization (or human system) that understands the world we live in and how humans interact with the broader earth system. I’ve signed up for the course and I would love to interact with some of my readers in this course. I also think it will be hugely valuable for building a systemic understanding of global issues — and how to solve those issues and build a sustainable society. It is not free, unfortunately. Please consider signing up and joining me on this learning journey. (Note: I have no vested interest in the course and get nothing from any of you signing up for it). Read more about it at http://www.capracourse.net/about/ and sign up here. It begins this week (on February 26th) although I’m not sure if they’ll close registration at that point.

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