National Emergency Briefing: low carbon economics
Angela argues that innovation drives economic transition, which can be disruptive but standing still is far more dangerous. Historically agricultural and industrial transitions have created winners and losers; clinging to the status quo delays change and increases risk. The losers she argues such as fossil fuel companies have the resources to protect their interests such as by lobbying politicians, and use the media to argue against going over to a green economy. They and other polluting industries have the financial resources to dispute the science, sowing doubt and distrust.
Angela states that today’s current market models assume a stable climate, clean air, fresh water and functioning ecosystems. Sadly this is not the situation. Our current system rewards businesses that damage them, and penalising those investing in resilience. The models going forward must factor in global warming and its consequences, the cost to the environment, biodiversity etc.
While there are investment costs to the transition to a green economy it will initially require substantial investment, such as costs of certification and promoting the benefits to gain market share. She argues that it will lead to reductions in the cost of living and benefit climate and nature. However, there is the potential for an initial dip in profits which is not attractive to investors. The return on investment may initially be lower even though in the long term, they will be higher, making them long-term sustainable investments.
Angela continues by arguing that this is a textbook market failure, where the existing economic models support the status quo in the pursuit of economic growth and wealth creation for the few at the expense of the majority, who suffer the rising costs of living on a daily basis, and therefore it is government’s job to fix this.
Governments must reset the rules of the markets, using tools such as windfall taxes for the profitable fossil fuel and extractive sectors businesses which have vested interests and are slowing the transition. At the same time, governments must consistently encourage both public and private investment in businesses that deliver lower carbon, restored soils, standing forests, circular resource use and reduced waste. She quotes Lord Stern who argues that the cost of inaction is greater in the long term than inaction.
Angela also argues that the current economic models and policies are not reflecting the climate, nature, and environmental crises. To address these crises the outcomes that are required from governments are patient ones, not short-term ones driven by what is going to get them re-elected. What is required from governments is working across borders, alignment of taxes across those borders, and carbon adjustments so the polluters pay more.
She acknowledges that transitions are uncomfortable, and the status quo seems on the surface attractive, particularly where the cost of living and jobs are concerned. By way of solutions to address these concerns she advocates for governments to have a shared mission, to be solutions focused on supporting people and places, retraining people for new jobs, and investment in places potentially affected by the transition to a green economy.
She continues that the bad arguments used against a green transition are its unaffordability because of financial crises, the covid pandemic, and conflict in different parts of the world. She acknowledges the upfront costs in the short-term, however she argues there will be payback in the long-term and, based on current academic modelling, predicts that by 2041 investment payback will be potentially between 40% to 90%. To delay the transition until it can be afforded assumes the cost of doing so will not increase, or it will be cheaper later. However, net zero is affordable, and it pays back in the long term. The UK investment needed is around 0.2% of GDP per year, and would be largely funded by the private sector, and to a lesser extent public sector, with clear long-term returns. Faster transition is cheaper.
Research shows a rapid energy transition saves $12 trillion globally compared to sticking with fossil fuels: more than twice the savings of a slow transition, and that a transition to a ereen economy will reduce the cost of living and inflation. Living costs will be significantly lower with decarbonised power, heat, and food systems because of historic and current market volatility of the fossil fuel prices due to world-wide conflicts and vested interests of market investors. She argues the best way forward for a green economy is for the UK to lead by example, act internationally. Globally wind energy is being built out three times faster than predicted in 2015. Solar installations have been15 times faster. EV’s were predicted to hit 20% of market share by 2030, that target was met in 2024.
Angela stated that if the UK had decarbonised before Russia invaded Ukraine, inflation would be 7% lower, because the invasion caused worldwide fossil fuel market volatility. Food prices would be 9% lower because our food systems are dependent on fossil fuel derived fertilisers which rose by up to 400%
In closing her presentation, she argues that as the UK is part of the global economy, it is important to get other countries to act in collaboration on industrial and agricultural goods, carbon border adjustments, minimum standards, and secure supply chains.
Acting early accelerates innovation, lowers costs worldwide, and increases the UK’s chance of being a high-value producer in future green industries. The test of success of policies supporting the transition to a green economy is simple in that the transition has to work for the lower- and middle-income households, making them better off financially, by building resilient businesses from which jobs then follow.
Author's comment:
Sadly, the current world-wide political climate is seeing an increase in conflict, often where the root cause is driven by climate change. In some parts of the world people are moving to areas where they have a better chance of surviving. This often results in armed conflicts which in themselves create even more fossil fuel use, which in term causes harm to the worldwide environment. Also, we see the re-emergence in some areas of the world of a colonial mentality, where rich countries, and individuals, seek to gain access to the potentially valuable resources of low-income countries, who may also be those countries most susceptible to the negative impacts of climate change. Surely a transition to a green economy must involve addressing the causes of existing conflicts.
Angela Francis is WWF’s Chief Advisor on Economics and Economic Development, she leads the teams working on Climate Finance, Economics, Production and Consumption Policies.