EPT: An Environment Protection Tax

Over the weekend I meet Nick, an accountant and consultant. He has an interesting idea about dealing with the environmental externalities markets are currently unable to capture. I would call is an ‘Environment Protection Tax’ – EPT for short – that would operate like the Value-Added Tax (VAT) already familiar in many countries.

After a really interesting conversation, this how I would summarise EPT as I now see it working:

1. We have some idea of the scale of the environmental externalities caused by our economic activity. We can at least assign an approximate percentage of what is required to address the resulting environmental problems and to update our industries so that the problem goes away.
2. A great deal of this arises from primary extraction industries – mining, oil, gas, fishing, and so on.
3. So, why not add an appropriate percentage to the price of primary products, to be passed on (like VAT is now) to each successive buyer in the supply chain.
4. Also like VAT, each payment is accounted for, netted out in the EPT return, and the surplus reclaimed at each stage…
5. …until the final consumer, who cannot reclaim the tax, and thus becomes the real payer.
6. One additional detail: that there should also be a system of tax breaks that allows anyone in the supply chain to avoid EPT if they can demonstrate that they are dealing with the externality directly. They then can reclaim the relevant portion of their EPT and convert the surplus to additional profits, more competitive prices, or anything else they chose.

The benefits of such a system are clear:

1. It is a very simple system that requires no incessant calculation of precise externalities.
2. We could reuse the exist VAT system to collect and disperse it.
3. The inclusion of tax breaks would actively drive environmental improvement at every point in the supply chain.
4. If primary production were not the best starting point for such as system, it could be readily migrated to other areas of economic activity.

Such a system would not be without its problems:

1. Who owns the resulting fund? At the moment it could only be collected by national governments, but experience suggests that they could not be trusted to use it for its intended purposes. Most governments are understandably allergic to hypothecating taxes to specific purposes, but surely has to be an exception. After all, if it were used to supplement general taxation, it would soon stop being used for its intended purpose, not least because for the foreseeable future at least, environmental protection is a long-term game, and elected governments don’t generally do long term thinking. International institutions such as the IMF, the WTO and the United Nations are equally suspect.
2. It’s potentially a bit crude and insensitive to the details of how externalities are really incurred and slightly out of touch with current environmental research. But at the moment this would be a small price compared with the ease and simplicity with which such a system can be understood, implemented and adapted as the level of externalities changes.
3. The indirectness of the relationship between tax and specific externalities may leave it open to subversion. As Nick himself warned me, a whole school of accountants will spring up to take advantage of any loopholes, and they become a profession that insists on being fed and expanded even though they add nothing of social value. As to what the investment bankers could make of such a system, I shudder to think.

James Hansen and the inexorable slide toward nuclear power.

On his Storms of My Grandchildren site, James Hansen talks about how intolerable coal-powered power stations are in any realistic future, and claims that:

in most countries, phase-out of coal emissions requires also a carbon-free source of baseload electric power that is competitive in price with coal. Until we have another way to meet 21st century energy needs while eliminating coal and carbon emissions, nuclear power appears to be the only option.

From this he infers that even nuclear power would be the lesser of these two evils, concluding that

The (“3rd generation”) nuclear technology ready to replace the aging 2nd generation reactors in the United States and other counties is inherently safer than existing nuclear power, which already has an exemplary safety record – however, it still burns less than one percent of the nuclear fuel and leaves a long-lived nuclear waste pile. Hansen recommends initiating urgent development of a fourth-generation nuclear power plant. These “fast” nuclear reactors utilize more than 99 percent of the fuel and can “burn” nuclear waste, thus solving the nuclear waste problem that concerns so many.

This doesn't seem to me to follow. Why is he so confident that these fourth-generation nuclear power plants are any less pie-in-the-sky than carbon capture? It's the first time I have heard anyone suggest that the problems of safety and spent nuclear fuel could be a thing of the past. I would very much like to hear Hansen's reasoning. Not that I would like CCS any more than him, but it doesn't make much sense to be asked to choose between two mirages.

But there's a more important assumption in Hansen's commentary. He argues that, if we are to avoid both fossil fuels and nuclear power, then we need 'a carbon-free source of baseload electric power that is competitive in price with coal'. It is certainly a most attractive option. However, my reading of the technical literature leads me to two conclusions. One, such an option will not exist for many years to come. And two, we can't afford to wait that long.

So how is it Professor Hansen can claim that the solution needs to be 'competitive in price with coal'? Given the magnitude of the potential problem - a series of disasters and creeping destruction that will dwarf any previous human experience short of, perhaps, a re-run of the global plague in the 14th century, surely this is like saying that we should have decided our strategy for the Second World War on the basis of whether it would have been as painless as peace.

Plainly this would be nonsense, and as in the case of WW2, there is little doubt what the consequences of continuing prevarication will be. Add to this the impact of ever-expanding resource depletion, ecosystems collapse and 40% more people by 2050, and waiting for another cheap energy source to come along sounds like madness. It would be nice if we were in a position to choose between cheap, friendly, familiar options, but we aren't. Meanwhile, our social, political and economic system is awash with people and interests for which an effective solution would be anathema, if not fatal.

Of course, we are not at war, and such metaphors are as likely to be misleading as helpful. But to pretend that we can reach Professor Hansen's own goals without paying a price and making preparations comparable to a war strikes me as unwarranted optimism, if not self-deception.

Al Gore, Kurt Vonnegut and the siren voices

At the very start of his 2009 book, Our Choice, Al Gore, Nobel Prize winner and darling of so much of the environmental movement, quotes the message Kurt Vonnegut suggested we should leave behind for any passing aliens who may happen upon the wreckage of planet Earth. ‘Carved in great big letters on a Grand Canyon wall’, it would read:

We probably could have saved ourselves, but were too damned lazy to try very hard… and too damned cheap.

When you have stared at our current environmental problems for long enough and marvelled at how little we seem to be willing to do to save ourselves or our children, it is tempting to go along with Vonnegut. But both he and Gore are wrong. We are not too lazy or too cheap and the solutions on offer from Mr Gore will not solve our problems. Neither the problems we face nor the solutions that will deliver us have much to do with technology or making business and governments account for the true cost of energy, manufacturing, agriculture, transport, etc., mass individual action, or any of the other things Gore advocates. Yet it is in many ways a very good book.

The real problem is not our inability to understand or act upon our present problems. It is rather that we are already committed to another way of doing things that prevents us from taking up any of the credible solutions to our environmental problems. Perhaps it’s worth quoting Aldous Huxley again here:

In the nurseries, … the voices were adapting future demand to future industrial supply. ‘I do love flying’, they whispered, ‘I do love flying, I do love having new clothes, I do love…’

The siren voices of growth, consumption, free markets, entrepreneurship and all the rest are busily pointing us in quite the wrong direction. The resources and system needed to fix our problems are under the control of processes, systems and institutions and in the hands iof nterests that would be completely undone by actually carrying the solution.

So the political powers-that-be, who have spent the last three decades abandoning the idea that the world could be a better place only if it were a different place, would have to perpetrate a genuine revolution to get us onto the right track.

Perhaps the single most important thing is to stop thinking of the problem as primarily reflecting personal selfishness (even of investment bankers). Personal actions are certainly part of both the problem and the solution, but it will only have a peripheral effect so long as we fail to also think of both problem and solution in systemic terms. Vonnegut was writing as a novelist and entitled not to be read too literally. But those who fail to understand the nature of our economic system, and the necessities and pressures it places on individuals, institutions and other systems (e.g., the entire social and political systems) are merely standing on the beach trying to bail out the ocean while the tide is coming in faster and faster.

Remember, Odysseus was forced to listen to the Sirens only because there were no other options open to him. Likewise we have few options that will in any way improve our environmental predicament - unless we change our ship and the ocean we sail. Likewise, even our most venal bankers were only following the system. Given a different system, they might not have had the option of running the ship onto the rocks (oops, different part of the Odyssey).

Fair value? Can free markets ever value the environment?

A basic problem with markets that absolutely must be answered if we are to create an environmentally rational economy is that of deciding how to value things. Valuation failures were a key cause of the recent financial crisis, which stemmed at least in part from the policy of allowing companies to claim that their value was whatever the market would currently bear, including any number of imponderable items that had yet to demonstrate any real value, such as future prices, hypothetical values and debatable projections derived from complex financial models. As part of the general indifference to risk exhibited by regulators and accounting authorities during the last decade or so, this so-called ‘mark-to-market’ or ‘fair value’ approach accounting has been a part of US GAAP since the early 1990s and seems to have all but replaced any notion of intrinsic value. And as if all that were not enough, ‘fair value’ accounting was also central to the Enron scandal.

Mark-to-market is obviously important when it came to buying and selling stocks and shares, but it goes far beyond that. The value of company assets that can be offered as collateral is also the basis for loans, derivatives and other direct and indirect funding. So when a bull market lasts for years on end and prices kept going up regardless of any material value of the companies themselves, smart operators are provided with an environment that favours both massive speculation and spectacular frauds. From the point of view of mark-to-market accounting, a bull market amounts to a universal pyramid scheme: whatever the value of an asset or liability today, we can usually assume that it will be worth more tomorrow, so we can borrow today as though we are more wealthy than we really are.

However, when the dislocations and fantasies this situation naturally engenders go too far, the market will be seized by the bears, and the rapid falls in mark-to-market valuations that follow will mean that previous loans, bonds, asset and liability prices, interest rates and pretty much every other number the markets use will start to go the wrong way for everyone – again regardless of the underlying strengths and weaknesses of individual companies. In a bear market, mark-to-market put the pyramid onto its head, and you would be stupid to lend today, as the collateral that guarantees your loans will almost certainly be worth less – maybe a lot less – tomorrow than it is today. In extremis, markets for many items disappear altogether and the financial sector ground to a halt.

The key problem this presents if markets are to be part of the solution of our environmental problems is that the scope, scale and urgency of those problems mean we cannot allow the kind of fragility and flakiness market economies have exhibited to determine how we invest in the environment. Leaving aside the question of speculators actively manipulating environment-related markets (e.g., greenhouse gas cap-and-trade, offsets, and so on – see the final section of this), we cannot accept the risk of being plunged into years of environmental inactivity or retrenchment simply because markets were unable to value these investments appropriately.

But is there any alternative as far as markets are concerned? Is there any definition of value markets can work with that will always reflect the intrinsic social value of taking action to protect the environment? Are there any accounting principles, valuation methods or other general policies, methods or tools that will ensure that environmental investments are not caught up in speculative frenzies and then dumped as unceremoniously as the global financial system was in 2008-9?

Probably not, or at least not ones that are capable of controlling markets without considerable active intervention and constraint – which is to say, undermines their very nature as markets. After all, how are markets to price things other than in money? How am I to judge a given transaction other than in terms of the profit it offers me (which means strictly in terms of money)? And once all value is reduced to money and the only goal is more money, what other valuation method is there apart from what the market says? In other words, regardless of whether valuing assets and companies in terms of their market price is sensible, it represents what market-based investors wanted to know about a stock, because it predicted what they most wanted to know about their ultimate concern, namely profitability.

In short, the markets know the price of everything and the value of nothing. As this is Oscar Wilde’s definition of a cynic, that seems appropriate enough – the attitude of markets (and perhaps business in general) to the environment is cynical at heart, for the only question they are capable of posing is, How do we make money out of this? Not exactly a responsible attitude.

Actually there is a limit to how far this is true. In a market who basic function is to direct investment in the real economy, prices will still be determined by prices, but these prices will be linked to the material consequences of making real investments - in houses, in MP3 players, in clothes, in a million other goods and services. And that of course is what the economy is for – to ensure that society works. True, the answer is still expressed indirectly, in terms of money, prices and profits, but at least the link to real, non-financial value is there.

Or so it should be, in a socially rational economy. But when the central function of markets is perverted into speculation, and the key question is not how to distribute wealth in society but how to make a quick killing by exploiting changes in price.

But is this a real problem, or merely a theoretical stick with which to beat the markets? Unfortunately it is very, very real. For example, by 2008 the average barrel of oil was being traded 27 times before it was actually delivered for use in the real economy. This certainly contributed to the otherwise inexplicable massive price spike of that year, and is hard to account for in terms of buying oil for use in the real economy. Or again, the Tabb Group consultancy has estimated that mroe than 60% of trades in the US stock markets are controlled by automated systems that are designed to take advantage of tiny price difference within miliseconds of their arising - not really an issue for investors in the real economy. More generally, it has been estimated that perhaps 85% of stock exchange activity is speculative, with only a small minority representing genuine investment.

And so on. All in all, the speculators are clearly in charge, and as a number of scandals and exposés have demonstrated, the manipulation of prices is a fundamental of stock markets.

This is perhaps the fundamental problem of using markets to manage the environment: that markets recognise only prices, and no price generated by a pure market can reflect socially rational value (including environmentally rational values) unless forced to do so – which is the very antithesis of a market price. Markets are like severely autistic children: it’s not hard to get through to them - it’s impossible. You can constrain them with regulations and rules, but once the market has taken over control of prices, it is hard to see why just this sort of bubble should not develop.

So can markets play any part in managing the environment? Perhaps in limited ways. But the tendency to break the link with real environmental goals and consequences seems to be intrinsic to any system that measures success strictly in terms of prices and profits. If it doesn’t do that, is it a market? If it does, how can we ever trust it not to undermine every strategy for managing the environment?

How do we pay for micro-generation?

I just wrote a letter to The Guardian. It said:

With the government's new electricity feed-in schemes, surely mortgage lenders could now realistically finance the installation of a nation-wide micro-generation capacity? With a pay-back period of, say, a decade, could they not receive the income from generation until the installation is paid for (at a reasonable ROI), with ownership then reverting to the homeowner? Large financial institutions would be far better at pressing the government for better returns, the homeowner would pay nothing but gain a more valuable property, and the chances of our reaching our current renewables target would be much improved.

I hope they print it. Even more, I hope someone gives the idea some thought.

A momentary lapse into defeatism

I have always felt very ambivalent about the 10/10 campaign. It seems so very unambitious. Most people can reduce their carbon footprint and general environmental impact by 10% by little more than scrutinising their current lifestyle and cutting out the worst excesses. Turn the thermostat down a couple of degrees too high, stop wearing flimsy clothes on cold days, fix poor insulation for a small outlay, stop buying gadgets, fashion, trinkets, food from the other side of the planet, drive more thoughtfully (and if possible stop driving altogether), turn off unused lights (and stop squandering electricity for pointless lighting in the first place), remember to turn the PC off, and so on. 10%? A piece of cake.

What is more, I have probably managed 10% with disproportionately little sacrifice. It took me seconds to reset the thermostat and turn off the radiators in areas I barely use. It took about a week to get used to rooms a couple of degrees cooler. It took not time at all to remember to turn off lights and shut doors. It will take a lot longer to step back from impulse buying and toys, but it’s not impossible – I’m not so addicted to consumerism that I have to go along with the entire glitzy, grubby farrago. Nothing too it, if you really want to make a difference. 10%? Why so little?

But that isn’t the problem I have with 10/10, or any of the many other exhortations to us (as individuals) to use less. 10% is a nice idea, but the correct answer is something like 85%. So if we achieve 10% in 2010, will we achieve another 10% in 2011, and then another in 2012? It’s not inconceivable, given a truly impressive level of sign-up (which has not, as far as I can see, happened so far).

But even 30% is long way from 50%, let alone 85%. Read George Monbiot’s Heat or David McKay’s Sustainable Energy – Without the Hot Air for a sense of just how far we really have to go. At that level, the only sensible answer is to look seriously at our core social, political and economic systems to see how they need to be changed to deliver the goods. Or rather, stop delivering them.

But especially since Copenhagen I feel like we not only still have a very long way to go but that we have taken completely the wrong road. Down this road, no matter what a few individuals do, things do not get better – no, they get only worse.

I’m not too worried by the flagging public confidence in the reality of global warming or the tiny holes knocked in the credibility of individual environmental researchers - not even the IPCC. Such upsets will be transient and have a marginal impact. Much more serious is the decision by so many national governments to do what can only be summarised as - nothing. For how else can we understand Copenhagen (which left the world’s environmental strategy even weaker than after Kyoto), or the news that the UK government plans to take its expenditure on environmental projects in the developing world from existing budgets, or Obama’s evident fear of doing anything whatsoever about his environmental promises for the foreseeable future, or the Chinese government’s unwillingness to make any significant contribution to climate change (other than to make it much worse, of course)?

But why is this so much more important than persuading individuals to make a start on their personal environmental impact? Because the number of individuals who were ever likely to take that road was never more than a small – perhaps tiny – minority whose collective actions would have no significant effect on our fate. To have a wider impact, they had to serve as a catalyst, as a demonstration to governments that the environment was a vote-winner. Only when they had learned that would governments start to take the action needed to transform not just the footprint of individual households or even a Transition Town but the collective footprint of (in the UK’s case) 60 million people or more.

And not just 60 million individuals. Unlike you and me, governments can directly transform the country’s physical infrastructure on a national scale, coordinate similar actions on an international scale, force big business to mend its ways, and all in all make the systematic changes that no assembly of individual persons can ever bring about. Even 60 millions individuals could not change the public transport system without government action, nor how we generate electricity, nor how developing countries go about achieving a civilised level of development, nor any of the rest.

But after Copenhagen? Nothing can expected from governments any more. Or at least, far too little even to deflect the crisis by more than a smidgen. Even worse, not only have they decided against going beyond Kyoto but they have plainly decided that the only solution to the world’s economic woes is to restore the economic system that got us into our current mess – economic and environmental alike. The only adjustments they plan to make are trivial, serving only to make the economic system a little less dangerous in narrowly economic terms, without any thought for the environmental consequences of a capitalist ‘business as usual’.

In such a situation, what is the point of an individual making a personal commitment to reducing their environmental impact? Does it make sense for individuals to take action off their own bat if the great majority are not only not doing practically nothing (a situation I can live with for a decade or two) but major organisations (political and economic) are never going to be moved in an environmental direction, and have in fact decided to head straight back down the road we all know leads only to global warming, ecosystems collapse and resource wars? What can we claim that individual environmental self-control can achieve after that – that we will succeed in putting off the evil day by 10 minutes?

So even if I do manage a 10% - or 25% or 100% - reduction, exactly what have I accomplished? On a personal level, perhaps it is still a lot. At the very least, if I can get my footprint down to a sustainable level (not a very meaningful proposition while I remain a member of such a destructive society), I can say that at least it wasn’t me, guv. But on a higher level? What have ‘we’ accomplished? In the absence of a broader, systematic impact on the whole way we (at worst) conceive of the environment and (at best) the way we manage our economy, a lot less than we might imagine.

What makes an economy healthy?

A persistent theme in economic reasoning is to fail to define what is meant by 'the economy', and in particular its conception of economic health. Here are four possible definitions of economic health, of which only the first (and until the recent boom, the second) seems to be taken at all seriously by politicians:

1. Monetary measures of economic activity such as GDP or profitability. This is essentially a financial view of the economy.
2. Then there is the definition of economic health based on the so-called real economy. This involves measuring how well we are achieving the creation of the right mix of goods and services to maintain the economic system itself - as measured by growth, profitability, government income from taxation, employment levels, international competitive position, and so on.
3. Then there are measures of how well the economy contributes to creating a healthy society. This would include measures of human well-being, social solidarity, and so on.
4. Finally (so far), there are measures of how well the economy contributes to creating a sustainable society. This takes into account society's position in the natural world.

Note that, in Definitions 3 and 4, I say that these measures 'would' be used. It's not that such measures don't exist - on the contrary, we seem to be awash with studies of human happiness these days (a great deal of it summarised in The Spirit Level, by Richard Wilkinson and Kate Pickett 2009). However, such measures have no impact on actual economic management, so they hardly count (yet).

Definitions 1 and 2 - the 'financial' and 'real' economy definitions - look very similar, in that the definition of health itself remains much the same, with only the diagnostic differing much. Yet the differences are fundamental, for when economic health is measured and managed exclusively in terms of money (GDP, profit, and so on), booms will always turn pathological. And that is exactly what we got, of course, as soon as the momentum was dominated by those with no other grasp of the economy than as a device for making money - the investment bankers, the corporations whose profits come primarily from treasury operations, and so on. And of course, our economically naive politicians followed suit - endlessly grovelling to these alleged Masters of the Universe -and so, of course, ensuring that they would indeed be the true masters of our economy.

All the same, measuring economic health in terms of the second, 'real' economy definition of economic health means limiting ourselves to another strictly economic definition. This one is taken from a previous age when the link between the economy and society was not taken for granted and even economists did no believe quite so slavishly in markets, or even profitability, as a measure of economic health. This post-War era was was killed by globalisation, though the final coup de grâce was administered by Thatcher, Reagan, the Chicago School of economics and the Washington Consensus adopted by the IMF, World Trade Organization, World Bank and many national governments.

The strength of the 'real economy' definition of economic health is that it does at least tether the economy to society. Of course, business itself was constantly bucking against it, but fortunately the post-War social consensus was that society needed to be actively managed and the economy was not the same as business. When that ceased to be true - when national economies suddenly found themselves confronted with global competition and national businesses were allowed to shift capital and operations offshore - and big business discovered that it held all the important cards, the post-War social consensus promptly collapsed. The financialisation of the economy followed all but automatically, and the rest is history.

Hence also the weakness of the second, 'real economy' definition of economic health - that it ties the economy to society but does not define it in terms of what it does for society. So although politicians and economists regularly insist on the social connection, this is seldom more than verbal reassurance. Conversely, little attention was paid to what would happen if national economies were internationalised while there was no global consensus, let alone global political apparatus, for managing an increasingly global economy. As usual, the economists (a body of intellectuals blessed with 20:20 hindsight) completely failed to predict what happened next.

So as soon as the circulation of capital and resources starts to enter new circuits, the entire political class was thrown into disarray, excepting only those for whom it was axiomatic that markets should be allowed to determine everything (Thatcher and Reagan) and those for whom capitalism had always been suspect (socialists, etc.). The immediate effects were that everything was sacrificed in the name of an extremely narrow definition of economic health (implicitly Definition 1, of course) - the privatisation and marketisation of the public sector, tax breaks and subsidies for fabulously wealthy corporations and individuals and, far from the economy serving society, coming to see society as being reduced to an appendage to the economy. Happy days indeed.

It was twenty years before the new market/Washington consensus was able to dominate the entire political spectrum (at least as far as parliamentary politics was concerned), but there was never much doubt that it would.

So the second definition of political health was always unstable. As for the third - the creation and maintenance of a healthy society - it never really got a grip on economics. At a rhetorical level, of course, it was always argued, even by the most extreme market enthusiasts, that the full marketisation of the economy would benefit us all. But that merely meant that connection was assumed - the same as definition number two. On the other hand, the actual method chosen to hand it over - handing over society's key assets to big business, deregulating markets, and so on - not only assumed that Definition 3 could be achieved by equating it with Definition 2 but all but made it inevitable that the economy itself would quickly lapse into Definition 1 - the source of our current woes.

But even if Definition 3 could have been enforced by political control over the economy - a doubtful proposition, given the lack of clear understanding by mainstream politicians and economists of how capitalism really works - it is now clear that this would not have been enough. For centuries we have paid little attention to society's impact on nature, even though it has sometimes reached the point where a civilisation has effectively committed environmental suicide.

Nor was this simply a matter of ignorance. We have had the materials for a true environmental science for as long as there has been a science of any kind. Liebig and others were already explaining how we were constantly undermining the natural basis for society in the middle of the nineteenth century. It was not hard to see or understand: you measure some basic facts, such as how much (literal) crap is being poured into the sea instead of being pumped back into the land, that told you how quickly you were depleting the soil, and that told you how long we could go on like this.In economic terms, the problem was that no strictly economic measure of well-being was going to capture society's ultimate sustainability if if did not measure the long-term, inter-generational impact of economic activity.

Basically, economic metrics look equally benignly on social 'bads' and goods, just so long as someone was paid to create them, and ignore both when no one is paid either to create them or clear them up. Nor do they generally take into account how we squander resources, not only using up what should be our children's heritage but even turning what one would have thought were inherently renewable resources such as fresh water and fertile soil and seed into non-renewable resources.

The reason we didn't pay attention to this kind of insight was simple but not obvious. Even while we were creating the science needed to understand just how unsustainable our economic system was, the economic system itself was throwing up both theoretical and practical barriers to understanding this fact. On the one hand, economic theory was claiming that a combination of market-driven efficiency and resource substitution meant that the economy would take care of all these problems automatically, so they did not need to be managed by anyone else, and society could blithely look the other way. On the other, by the time the size of this mistake was clear, we were too committed to an economy that was driven by constant growth to be able to see or admit that we were indeed in deep trouble.

So major studies of the (un)sustainability of the economy start to be published in the nineteen sixties and seventies - Only One Earth, The Limits to Growth, and so on - and here we are, four decades later, still unable to take them in. Rather, the dissonance between any realistic solution to the problems of environmental sustainability and capitalist economic viability have rendered the problem too complex, the forces aligned with the wrong answer too powerful and those charged with solving the problem have been rendered too scared, too confused and too weakly equipped to deal with it.

Stop Climate Change March, London, 5 December 2009

I went on the Stop Climate Change March last Saturday. Depending on who you believe, so did somewhere between 20,000 and 60,000 other people.

Some interesting events straightaway. As we stand about in from Grosvenor Square, waiting for the off, I reminisce wistfully about the good old days of anti-Vietnam protests. Hoping he will share my nostalgia, I ask a middle-aged policeman whether we might not be allowed to sack the American Embassy. To my pleasant surprise, I am not arrested or (as far as I am aware) photographed. He replies simply, ‘Is it worth it?’ I am tempted to explain in some detail exactly what part the government and people of the United States currently play in our climate problems, but life is too short and the demonstration has started to roll down towards Piccadilly.

Almost immediately, we pass the Canadian High Commission and huge choruses of boos erupt – a mark of our enthusiasm for the Alberta tar sand projects. Yes, as George Monbiot noted the other day in The Guardian, the Canadians are finally the bad guys. Unimaginable in real life, of course, but then the Canadians no longer inhabit real life. Instead, their government has been hijacked by oil interests, while the great majority of real Canadians reject tar sands development as indignantly as they would slaughtering kittens. (I would say 'baby seals', but that would be a bit ironic with the Canadians.)

We pass by some of the most salubrious of London’s many salubrious properties, not to mention showrooms full of the fanciest of cars. I wonder what the average carbon footprint is around here. A bit more than the average American or Canadian, I suspect, and wonder exactly why popular protests do not focus on individuals and classes with environmentally obscene lifestyles as well as our cousins across the sea.

On down Piccadilly, skirting Trafalgar Square, and into Whitehall. As we pass Downing Street, I ask a policeman to ask Gordon Brown, our beloved Prime Minster, to come out, as his employers are here and want a word with him. The policeman is polite and at least a little amused, but feels unable to take my request forward. Apparently a delegation of representatives of the 100 or so organisations participating in the march got into No.10 to see Gordon, and no doubt reassuring platitudes were exchanged by all sides.

Which is a pity. Normally I have little confidence in our political class – not least because they still seem to be under the impression that climate change can be dealt with by the usual political wrangling. Nature, alas, does not negotiate, is unbeguiled by even the slickest of slogans and remains unimpressed by style and voter preferences. Yet I have the impression that climate change is just the sort of issue our beleaguered premier might be able to do something with, what with his apparently quite sincere (if recently wholly misplaced) moral enthusiasms.

Or maybe I should not be so easily fooled: for all his recent rhetoric, pretending to be a leader when you know full well no one is following you looks forthright and upstanding but risks little. It’s convenient for an unpopular politician facing the polls to be able to occupy the moral high ground (scarcely a position I expect the Tories to be able to occupy any time soon). I just hope he takes the problem seriously enough that millions will not have to move to a more literal high ground while he and his friends play games with the future of billions.

Prompted by a policeman remarking that if he weren’t on duty he’d join the march himself, I ask a couple of police officers whether they would join in if they weren’t on duty. Both reply that they’d be at home, looking after their children. I haven’t the presence of mind to suggest that that’s exactly what the march is all about, and I would like to know how they would have replied.

Do marches work? No. Or at least, no one could believe that they have much impact on their own, given how little was accomplished by at least twenty times as many people protesting about the war in Iraq. Will Blair ever be put on trial? No, of course not. But if he is, how many of the current crop would be up there with him? And what does that tell us about the likelihood that they will do anything substantial about climate change?

At 3 pm exactly we have the Great Blue Wave. Soon we are in Parliament Square. And straight past Parliament itself! Hang on, what’s the point of marching from one end of London to the other and then doing nothing? No great visible, audible protest? Why on earth not? Is it perhaps that the organisers couldn't get permission? Yes, that’s right, we need permission to express our opinion to our lords and masters about the way they are neglecting the planet. Which is, I suppose, as conclusive proof as you could want that they are indeed our lords and masters. And we go along with it, of course. Because, no doubt, we are British and middle class and jolly polite.

What do we want?
Modest and reasonable improvement!
When do we want it?
In due course!

Oh well. At least it’s quite interesting, having a ring side seat at the end of the world. I wonder what the average Roman senator felt like in about 450 AD?

The Limits to Growth

Just about the most convincing – and scary - book I ever read about the environment was The Limits to Growth. I would guess that everyone has heard of this book but my impression is that relatively few people have ever read it, or the two follow-up volumes. I read it when it first came out – almost four decades ago – and then again a few months back.

The book was written by a group of MIT researchers - Donella and Dennis Meadows, Jorgen Randers and William Behrens – and published in 1972 by the Club of Rome. The timing is interesting, as the first edition of The Limits to Growth is roughly contemporary with a number of other foundation texts in the overall environmental movement. 1971 saw the publication of Paul Ehrlich’s Population Bomb, which gave the growing concern with population growth a kick start. Then in 1972 Barbara Ward and the well-known anthropologists René Dubos published Only One Earth – a sort of semi-official UN report that attracted a lot of attention. And then in 1974, M. King Hubbard gave what was perhaps his most important summary of the position on oil and energy production, namely his testimony to Congress on the peaking of US oil production.

The reason I found The Limits to Growth so compelling – even more than Only One Earth or Silent Spring - was the simplicity and centrality of the question it posed and the directness of the method its authors used to answer it. Instead of endless facts and figures and yet another multi-faceted discussion of our environmental predicament, they simply asked what would happen if humanity at large continued with a small number of key trends:

• World population.
• Industrialization.
• Pollution.
• Food production.
• Resource depletion.

Their method was equally straightforward – so much so that, had I felt very doubtful about its validity when I first heard about it. They started with a very generalised model of these factors - the ‘World3’ model developed by Professor Jay Forrester (also from MIT). This is described in Forrester’s World Dynamics (published the previous year), which used a ‘system dynamics’ approach. This was really a very simple model - basically a suite of functional interactions (circular, interlocking, sometimes time-delayed relationships, etc.) between what the modellers regarded as the key social and natural phenomena. World3 was based on large, long-term factors, which it defined in self-consciously simple and gross terms, without much detail. It made little attempt to explain why these interactions were as they were.

When tracking what happened when the trends they were interested in unfolded, the Limits to Growth team were not looking for trouble. They made strongly optimistic assumptions when in doubt, and took into account most of the qualifications critics usually offer about predictions of environmental doom and gloom – resource substitution, the power of innovation, and so on. On the other hand, they did assume that all these factors tend towards compound growth - which is to say, that they grow by a constant percentage, and constantly accelerate, not by a constant amount, which would lead only to regular increments of the same size. They also interact with one another, which has the effect of overshoots and disruptions in one undermining the others.

A typical outcome of the model went like this:

1. Population cannot grow without food.
2. Food production can only be increased by growth of capital.
3. Creating more capital requires extracting and processing more resources.
4. Discarded waste from resource extraction, refining and usage become pollution.
5. Pollution interferes with the growth of both population and food.
6. So the system tends towards eventual collapse of both population and food production.

It’s crucial to understand that this collapse happens not only because a specific input is damaged or reduced (which might be ameliorated by resource substitution, innovation, etc.) but because the system undermines itself. That is, the initial success of the system destroys the conditions for its continuing success. This is, I think, why it makes relatively little difference to assume that we will eventually find far more resources than are currently expected, or that we can continue to have cheap energy.

The authors made multiple runs of the model based on different assumptions. Although, like most futurologists, they avoided claiming to be making strict predictions, the consistency of the outcomes is quite frightening enough.

The book analyses quite a few scenarios (though only a fraction of those actually run, apparently). The starting point was ‘business as usual’, which led to the following outcomes:

1. Massive industrial growth depletes resources.
2. Resource prices then rise and stocks are depleted.
3. So more capital used for obtaining resources, leaving less for growth.
4. Eventually investment cannot keep up with depreciation.
5. With that, the industrial base collapses, taking with it the service and agricultural systems, the tax base for government, and so on.
6. However, population keeps rising, so the death rate is driven upward by lack of food and health services.

Radical collapse comes ‘well before the year 2100’.

As I say, the authors presented other scenarios in which:

• Nuclear power is cheap and safe.
• We manage to discover vastly increased resources.
• Innovation and technology allow much reduced pollution.
• Agricultural yields are greatly improved.

And so on. By and large, these optimistic assumptions mean that the eventual collapse is delayed by a decade or two – never more.

Here’s another typical example: the Green Revolution. This has indisputably increased food production, but at a price. The specialised seeds require a great deal of fertiliser and water. The former accelerates fossil fuel use and depletion, while the latter extracts more water than natural systems can sustain. In addition, the need for extensive capital also leads to peasant farmers being evicted from the land by their landlords, and hundreds of thousands of landless peasants end up in Mumbai, Kolkata, Sao Paulo or Mexico City, where they have no resources and no relevant skills from what they might earn a living. This increases pressure on urban systems and causes fertile land to be built over by slums.

The increase in capital requirements – tractors, petrol, fertiliser, shipping etc. – needed to operate the Green Revolution hugely depletes resources, including oil and natural gas. What is worse, the intensive treatment of the soil under a monoculture régime means that it becomes less able to support any other sort of agriculture, so the system becomes even more locked into an inherently unsustainable ‘solution’, and by this remarkable ‘advance’ we have managed to convert what one would have thought was an inherently renewable resource – fertile soil – into a non-renewable resource. Aren’t we clever? Meanwhile, the planet’s carbon footprint is made that little bit bigger, global warming is given that small extra shove upwards, and the glaciers that feed the irrigation systems that feed the crops melt that little bit faster. More jam today, but not only less jam tomorrow but also a lot less ability to manage having less jam tomorrow.

More generally, the consistent result reported by The Limits to Growth was overshoot and collapse. If the present trends in world population, industrialization, pollution, food production, and resource depletion continue, the limits to growth will be reached by 2070. The alternative scenarios only delay collapse: all end by 2100. The most probable direct outcome will be sudden, uncontrollable falls in population and industry – in other words, the ‘hundreds of millions’ of deaths predicted by the Stern Report. Only The Limits to Growth predicted it all three and a half decades earlier.

The authors conclusions about the ‘business as usual’ scenario are stark:

The unspoken assumption behind all of the model runs we have presented in this chapter is that population and capital growth should be allowed to continue until they reach some ‘natural’ limit. This assumption also appears to be a basic part of the human value system currently operational in the real world. Given that first assumption, that population and capital growth should not be deliberately limited but should be left to ‘seek their own levels’, we have not been able to find a set of policies that avoids the collapse mode of behavior.

As so often, the reactions to the original publication illuminating not only for the welcome offered to this absolutely vital book but also by the disdain expressed by those who could see no further than the status quo. It was described as ‘the most fascinating and the most disturbing book’, and it was said that ‘if this doesn't blow everybody's mind who can read without moving his lips, then the earth is kaput’. But it was also described as ‘a piece of irresponsible nonsense’ and ‘an empty and misleading work’.

The authors reviewed their findings in updates published in 1992 and 2004. These books are worth reading in their own right, as they both go far beyond updating the original methods and finding. Their original conclusions, they find, were sound. They needed some qualifications, but by comparison with the critics who greeted the original publication with such scorn and the deniers by whom they are still surrounded, they seem to have been pretty much spot-on.

Nor is this merely their own opinion. In 2008 Graham Turner published a comprehensive re-evaluation of the data, and concluded that:

The analysis shows that 30 years of historical data compares favorably with key features of a business-as-usual scenario…, which results in the collapse of the global system midway through the 21^st century.

In other words, we have done nothing significant to deflect our fate.

So are there no scenarios that lead to a happy ending? Maybe - it depends on what makes you happy. If you want interminable consumerism, then no, there aren’t. If you ever wanted a ringside seat at the end of the world, consumerism represents the front row. But if you are willing to settle for mere sufficiency, to imagine that there might actually be an ‘enough’, then yes, a somewhat reduced standard of living – something like the 1940s or 1950s, it is said – is available for all. Not bad, given the alternative, and hardly desperate poverty by any standard. It’s not as though we are any happier than we were then, though it might take a bit of getting used to. Nor need it look quite like that slightly dismal era – we start from here, not there, and a great deal can be done with a 1950s carbon footprint, give the science and technology of the 21^st century.

But there is a lot to be done – population control, the end of ‘the American Way of Life’ (which surely represents the biggest threat to the planet since the last ice age), serious support for developing countries, and so on. But it’s hardly worth thinking about – we never have done anything about these things, we show no signs of doing anything about it, and we are led by politicians, media and business people with as much grasp of our situation and as much interest in dealing with it as a bucketful of molluscs.

But not to worry – it will soon be too late to deflect the worst effects of our own actions, so we won’t have to worry about it any more. Just die in our millions. If you have ever wondered what the fall of the Roman Empire looked like, stay tuned.

Read this book.

References

Ehrlich, P. (1971). The Population Bomb. Cutchogue, N.Y.: Buccaneer Books.

Forrester, J.W. (1971) World Dynamics. Cambridge, Mass.: Wright-Allen Press.

Hubbert, M.K. (1974). Testimony to Hearing on the National Energy Conservation Policy Act of 1974, hearings before the Subcommittee on the Environment of the committee on Interior and Insular Affairs House of Representatives. June 6, 1974. Published as The Nature Of Growth by Technocracy.org.

Meadows, D.H., Meadows, D.L., Randers, J. and Behrens III, W.W. (1972). The Limits to Growth. A Report for the Club of Rome’s Project on the Predicament of Mankind. New York: Universe Books.

Meadows, D.H., Meadows, D.L., Randers, and J. (1992). Beyond the Limits: Confronting Global Collapse, Envisioning a Sustainable Future. Earthscan.

Meadows, D.H., Randers, J., and Meadows, D.L. (2004). The Limits to Growth: The 30-year Update. Earthscan.

Turner, G. (2008). A comparison of the Limits of Growth with thirty years of reality. CSIRO Working Paper Series 2008-2009.

Ward, B., and Dubos, R. (1972). Only One Earth. Harmondsworth: Penguin Books.

Paying India and China to do what, exactly?

Anyone with a sense of decency and proportion about humanity’s current environmental predicament understands and sympathises with the claim by developing countries that the developed countries should actively support their contribution to controlling global warming by technology transfers, improved terms of trade and direct funding. Conversely, as India and China’s own governments have pointed out, the attitude of the governments of developed countries to their position is hypocritical at best and shameless at worst.

But at the same time, is it really clear exactly what would be accomplished by such support? Just as the justice of their cause is clear to anyone with half an eye, so the doubtfulness of their chosen route to development is clear to anyone with half an ear for the brilliant but discordant disharmonies of emerging capitalism. For both India and China (and most other developing countries) have certainly set themselves on a strictly capitalist road to industrialisation, and it is exactly this that undermines their claims to the sympathy and assistance of developed countries.

Not that the latter are any less culpable – after all, we invented capitalism, we made sure that most developing countries (with the notable exception of China itself) would adopt a capitalist strategy for economic development, and we have wilfully turned a blind eye to the environmental (not to mention social, cultural, political and psychological) consequences of our own road to wealth. But to support the industrialisation of any country on the same basis would only be more of the same problem we already have. Indeed, capitalism’s incessant demand for growth and more growth, coupled with the lower ‘carbon efficiency’ of less developed countries’ industries, would actually make the problem disproportionately worse. So even if the global environment could countenance the rapid doubling and trebling of the global economy, the environmental impact is actually likely to be much worse than that.

So what is the answer? Beats me. But it isn’t capitalist development, because that can only lock us – and in this case it really is us all – into a worse problem. Nor will it solve developing countries’ developmental problems, given that they are far more likely to suffer from the resulting climate chaos, resource depletion and ecosystems damage than their more developed neighbours.

Should We Seek to Save Industrial Civilisation?

Yeasterday George Monbiot's website published a debate between George and Paul Kingsnorth on the question Should We Seek to Save Industrial Civilisation?

I commented on this rather abstract discussion, and here is what I said:

I find myself bemused by this debate. On the other hand, after reading
George’s Captive State, I would have expected a more specific focus on exactly
what it is about our economic system that drives its relentless growth, and on
the other I am sure I can’t be alone in finding any dispute that lays the blame
for environmental disaster at the door or either ‘founding myths’ or ‘humanity’
a bit abstract, to say the least.

Industry does not lead to environmental collapse. Firstly, any machine or
factory or oil well or fishing fleet can be shut down or made more
environmentally friendly any time its controllers want to do so, and secondly I
see no reason to believe that those who control these things are inherently
blind to the facts of climate chaos, peak oil and all the rest. Rather, the
issues are what it is that motivates whether or not we turn down industry and
who realistically exercises enough control to do so. These are matters of
society’s political and economic structure, not abstract speculation.

As far as motivation is concerned, our economic system is driven by profit,
and practically every sector of our global economy is committed to investments
that demand a return for decades to come. So although there is no technical
reason why the factories and power stations cannot be switched off, the economic
consequences would be disastrous. So cars keep roaring off the production lines
and the oil keeps gushing not because of Judaeo-Christian foundation myths about
control over nature or because we are too weak to give up foreign holidays, but
because if stopped buying, there would be no revenues to repay the bank loans
that fund all those hotels, aircraft, oil wells, and all the rest.

The same can be said of industry as a whole – the issue is not one of
industry as such but of the economic motivation that determines how industry is
used and developed. There the answer is simple: it is run and developed for
profit, and unless the state intervenes to impose specific environmental and
social obligations, nothing else. Nor, while those who control this whole cycle
limit their perspective to profitability, can things be otherwise. But at the
same time, they could not change this perspective to something more socially and
environmentally responsible even if they wanted too without markets and
investors simply demolishing them. That is only likely to change if there is a
truly vast realignment of our economic system, such that social and
environmental sustainability became our ultimate criterion for economic success
and profitability, if it remained at all, would become a secondary accounting
issue, not the be-all and end-all of industrial civilisation.

In short, it is capitalism that is the ‘fifth horseman’ who drives the four
horsemen of our impending environmental apocalypse – global warming, ecosystems
collapse, resource depletion and (the disastrously adverse effects of)
population growth. Conversely, it is wholly implausible that the motivation for
and control over our industrial civilisation will shift away from profitability
and radical unsustainability without equally radical political
intervention.

All in all, I don’t know how far capitalism can be adapted to social and
environmental sustainability – given its inherent drive for economic growth,
either it or civilisation itself will have to give – but I am quite certain that
capitalism is a much more realistic answer than Paul and George’s rather
speculative abstractions.

Global solutions: effective, efficient, equitable?

A persistent theme in much writing about the coming decades is the need for global agreements that go a good deal further than the technical questions of environment management. Nicholas Stern (the author of the authoritative Stern Review on the economics of climate change) is typical of this line of thought:

But we have to act together, to create a global deal – this is a problem that is global in both its origins and its impacts.

That global deal must be effective, in that it cuts back emissions on the scale required; it must be efficient, in keeping costs down; and it must be equitable in relation to abilities and responsibilities, taking into account both the origins and impact of climate change. (From Stern's A Blueprint for Safer Planet, p.4)

Everyone seems to say as much, and as a statement of how we should approach the coming decades, it is impossible to contradict.

I just don’t believe it will happen. In fact I suspect that the most we can realistically expect is that the actions we take will be moderately effective. Civilisation will probably not collapse. But as for efficiency and equity, what is it in our performance to date that would lead anyone to expect either? I doubt that, whatever the deals we collectively agree too, our collective response will be anything of the kind. There are far too many countervailing forces for that to happen.

The efficiency of any future global strategy is almost certainly out of the question. As everyone admits, we are faced with global problems. But we do not have global systems in place to deal with them. On the contrary, our systems are not only fragmented but also full of conflict and antipathy between individual nations. There is also a profound conflict of interest between the owners and senior management of global corporations - the other most powerful economic players on the planet - and the rest of us.

Of course, in some profound sense we are all in this together, and completely failure will be fatal for all of us. But between here and complete failure there are many decisions to be made, each of which will benefit some and burden others. Reluctant though I am to say it of my fellow human beings, those who control the decision-making at each of these branching points will, more often than not, make sure that the decision is made in their own favour. That is to say, they will be decisions which are efficient for them. In Stern’s very appropriate words, they will be ‘keeping costs down’. This may mean keeping down the costs for humanity at large, but it will almost certainly involve minimising the costs of those who control the decisions. If this means increasing the ‘costs’ – the poverty, the danger, the hunger, the misery, the disease, the fear, the agony – of everyone else, then that will be presented as the best – or at least the least bad – alternative. Those who do not control these decisions will take the consequences. Which, in many cases, will be fatal.

As for equity, we have never taken this seriously in the past and I believe it will be a lot harder to take seriously in future. In the current (relatively) stable and affluent industrial world, only a handful of the most wealthy nations ever fulfils its public commitments on aid. We announce and re-announce help for long term development and short-term disaster, and then fail to live up to either. Given that the sums involved – currently just 0.7% of GDP – are so small that we would not miss them if we paid them in full, what can we expect of decisions about disasters that are not yet even visible. And in a future world of successive environmental crises, mass migrations, resource wars and much else, there will be far less concern for, let alone commitment to, equity. On the contrary, most of humanity will not even show up on the radar screens of the key decision-makers.

Why then should we expect equity from any future arrangements to curb climate change, resource depletion, ecosystems degradation, population growth and other environmental threats? I suspect that the real fount of future ‘equity’ is likely to be what it has always been - the economic power that countries like China, India, Brazil and Russia are already starting to wield. In a world of declining fossil fuels, the European Union will not be allowed to forget that Gazprom alone controls a sixth of the world’s natural gas reserves. The United States Treasury has long since started to eye nervously China’s enormous dollar holdings - they currently hold nearly $2 trillion in US Treasury bonds, whose manipulation could easily hole the entire western economy. These are people we will treat ‘equitably’ – because they come to the negotiating table as equals, not to mention rivals. But the hundred-plus countries that are each smaller than all of the world’s hundred largest companies? If GlaxoSmithKline, Cisco Systems and Wells Fargo are unlikely to be granted a seat at the top table, what can lesser economic entities like Estonia, Ethiopia, Cameroon, Trinidad and Tobago, Ivory Coast, Panama, El Salvador, Tanzania, Bahrain, Jordan, Iceland, Bolivia, Ghana, Paraguay, Zambia, Uganda, Botswana, Honduras and the many other yet smaller countries expect?

But not even the effectiveness of any future ‘global deal’ can be taken for granted. There are after all degrees of effectiveness. I previously suggested three levels of outcome for our current position: a setback comparable to a world war; an impact on our civilisation as a whole comparable to the fall of the Roman empire; and a threat to civilisation as such, comparable to a new ice age. As I have previously said, I do not know which we are really facing, but for all the reasons that we should expect neither efficiency nor equity, we should expect the effectiveness of our actions to be limited too - perhaps to the point where the twenty-first century goes down as the worst in history.

More precisely, we should expect rich and powerful countries that are situated in relatively cool regions to do as little as possible until they have no choice but to act in their own interests. That is after all what they have always done about global problems and what they have done so far about our current environmental threats. Even if they have the foresight to recognise that disaster in developing countries now will mean disaster for them later, they will almost certainly do only what is needed to forestall the later disaster to themselves. This will almost certainly be much less than preventing or remedying the original disaster to developing countries, no doubt accompanied by a great deal of hand-wringing, protestations of good intentions and dishonest claims to be taking ‘appropriate’ action. The real focus being on deflecting the negative consequences for the rich and powerful. Again going by our experience of aid, we will even find opportunities to benefit from the suffering of developing countries. Again, we always have. And then millions and millions of people will die.

The upshot of all this is simple. Simply continually asserting that our approach must be efficient or equitable will result in neither. If we want our response to the many environmental threats we face in the twenty-first century to be efficient or equitable, we must take a very firm and explicit decision that it should be so. More than that, we must create global institutions that represent humanity at large – which is to say, people rather the most powerful corporations and nation states.

It is hard to imagine what such an institution would look like. After all, none of our existing systems operate at that level. But in any case, I can still think of no compelling reason to expect any such institutions to be created even if they could be easily described, and the chances of their coming into existence will recede faster and faster as the real problems caused by 3° and 4° temperature increases start to hit us, as the global economy starts to unravel in the face of accelerating oil and gas prices and whole populations start to move in the face of poverty, hunger, disease and war.

There's no money in saving the world

We continue to see the repercussions of relying on business to deliver our response to climate chaos, global warming and resource depletion. The last few days have thrown up these stories in the media:

• Canadian environmental groups on Wednesday accused Royal Dutch Shell, Europe’s biggest energy group, of reneging on its promise to reduce greenhouse gas emissions at its oil sands project in Alberta. (FT, 8/4/09)
• At least five big wind energy projects are in danger of being delayed or shelved owing to higher costs and a shortage of credit, the British Wind Energy Association said on Wednesday. (FT, 9/4/09)
• Japan is expected to restart the world’s biggest nuclear power plant shortly – nearly two years after it was damaged by an earthquake. The prolonged shutdown of the Kashiwazaki-Kariwa plant’s seven reactors knocked Tokyo Electric Power into the red and threatened Tokyo with electricity shortages during the hot summer months, when air-conditioner use pushes up demand. The facility accounts for 13 per cent of Tepco’s generating capacity and without it the company has been forced to rely on more expensive coal, oil and gas plants. (FT, 9/4/09)
• Several prominent energy companies have scaled back their commitment to renewables, including BP, Shell and Iberdrola. (FT, 9/4/09)

And so on. On the other hand, Mars and Cadbury have promised to move to sustainable, Fairtrade supplies of cocoa (FT, 9/4/09). So we don't need to worry about Peak Chocolate just yet. On the otehr hand, I would not be very confident that they would ahve done anything about this were it not for ethically motivated public and staff pressure - as Fiona Dawson, managing director of Mars UK, has said, consumers and employees expected Mars to “do the right thing” because “nobody has to buy confectionery”.

The fact is, a monkey will type Hamlet before profit-driven companies will create a credible and effective answer to our many, many environmental problems in the middle of a slump. (I was going to say that Hell will freeze over, but at least that is one outcome global warming protects us from.)

The tragedy of the commons: tosh

One of the most famous essays in the history of economic thought was not, at first glance, an economic essay at all. Garrett Hardin’s 1962 paper in Science, ‘The tragedy of the commons’, bestowed a name on the whole class of social phenomena in which many people are vying for a given resource (e.g., the common land on which they can all graze their cattle and sheep), but because there is no control over how much each one can use it, they all try to use it more and more, until eventually the resource collapses through overuse.

The standard interpretation of this paper is that, had someone owned the common land, those would not have happened. They would have husbanded their resources more thriftily, nurturing it so that it was not exhausted. In this way, converting the common land to private property would save the say. This is supposed to be a lesson for our various environmental conundrums: if only someone owned stuff, they'd take care of it properly and all our climate/resource/ecosystem problems would go away. Hurrah!

It is hard to say why this idea should have caught on. Certainly from an economic point of view it is not very plausible – especially in cases that impact our current environmental problems. Take the case of non-renewable resources such as oil or gas or mineral wealth. A country such as Saudi Arabia may wish to conserve its fields so that future generations may also benefit from them, but that is only a factor because the Saudi régime has responsibility for future generations. The same cannot be said for ExxonMobil, BP or Total. Their paramount interest is quite clear and usually (by environmental and social standards) very short term: profit-maximisation. If they leave the oil in the ground they will incur continuing costs (rent, interest, maintenance and operating costs) while being unable to extract a single penny from their investments. They also run the risk that their resources will be taken from them by future governments. It is even possible that future fears of carbon emissions could lead to oil being banned from vehicles, power stations and other uses for which emission control is difficult.

By and large, oil wells are costly and precarious investments. So what should be done about them? Unless there is a realistic expectation that future price spirals will raise prices high enough to justify the risks and the costs, the answer is surely to pump it out of the ground and sell it right now. From a capitalist perspective, there is after all no other point in conserving such resources. In the ground they are worth nothing, and no matter how carefully I husband them, oil will not grow again. The only question is when the right balance of risk, cost and price tells me to start pumping. Given that time is a factor in all three of these, the chances are that the correct answer will be ‘soon’. Or if not ‘soon’, then ‘right now’.

So there is little incentive for a capitalist corporation to conserve non-renewable resources, and if the ‘tragedy of the commons’ argument is deployed to ensure that such resources are properly managed from society’s point of view, it will almost certainly fail.

But renewable resources aren’t likely to fare much better, and for very similar reasons. It is true that a forest or a field of ripening wheat is a valuable resource made all the more valuable by the fact that, carefully conserved, it will generate a return indefinitely. If I over-exploit it – by clear-cutting jungle or exhausting soil by intensive monoculture cropping and massive inputs of artificial fertilisers – then I will eventually shrivel it up to the point where it ceases to be a valuable property. In that respect at least, privatising is seems to be at least a possible solution to the potential tragedy of the commons.

Unfortunately the situation is not quite so simple. As before it comes down to a balance of prices, costs and risks. What if the cost of the resource is extremely low? If, for example, it can be acquired from a friendly government for a very low price? For instance, until his government was understandably overthrown in March 2009, President Ravalomanana of Madagascar had an arrangement with the South Korean conglomerate Daewoo to lease 1.3 million hectares of farmland – an area a little less than half the size of Belgium - for nothing more than a somewhat nebulous promise concerning local employment. Rent? Nope. Guaranteed return? Nope. Or what if – as is often the case in developing countries - the local population is simply ousted from the land?

In such conditions, costs do not include a significant price for the land itself. In other circumstances, other combinations will lead to the same conclusion: that it does pay (commercially, if not for society as a whole) for a private owner to exploit a renewable resource to the point where its vitality is destroyed and it is left worthless. At that point the company moves on, to new land and rapid returns. And the people they leave behind, whose land they have destroyed? Who cares.

So again, if I hand over a non-renewable resource to private interests, will this help society avoid the tragedy of the commons? Probably not. Indeed, so great is the disparity in resources between agribusiness and individual commercial farmers that even if both took an equally predatory attitude to the land (which, in the history of farming, farmers have not always been reluctant to do ), the damage would be done far faster by the corporations.

Note also the one option this approach does not allow for: that all the people who share this common resource will simply get together and agree how it will be used. Which is odd, because that is exactly how the land – the very ‘commons’ from which Hardin starts out – was managed before the triumph of capitalism. Medieval and early modern rural communities used to agree on who could use the land and how much. They also used to rotate who farmed which land, so that everyone had a fair turn at the best land. This method for avoiding the tragedy of the commons continued in use until the local landlord decided they could make more for themselves if they threw the peasants and the small farmers off the land and replaced them with sheep or cash crops. This process, know to European history as ‘the Enclosures’ is notorious as one of the most brutal in our history.

In short, the tragedy of the commons was not solved by the introduction of private property rights to the common land – rather, it was caused by converting socially managed resources into private property.

Social alternatives to privatisation have been shown to work over and over again all around the world. Over and over again local populations have demonstrated that they are capable of managing local resources is highly productive yet sustainable ways, given only access to modern knowledge and small amounts of specialised support. And yet over and over again they have been ousted by local landlords and international businesses intent on seizing their land for their own selfish purposes. This pleases international economic bodies like the IMF, the World Trade Organisation and the many other bodies that cannot imagine a solution to the world’s problems that does not start from global markets. It also pleases national governments, whose all-important economic indicators are nicely bolstered by the increase in GDP and other pleasingly visible data. After all, non-market economic activity, however fundamental it may be to the real lives of real people, is not visible in the economic data, and so is obviously not real. The only people it does not please, in fact, are the families who are expelled from the land and end up in the slums of a Sao Paulo or a Mumbai, hundreds of miles form home and with zero prospect of sharing in any benefits from their land being stolen from them.

There have been many cases where local people have organised themselves to share resources in ways that are both economically and ecologically sound. They owe little to market rationality and less to the idea that the only solution to the ‘tragedy of the commons’ is for someone to own everything and for the rest of us to work for them.

So why does enthusiasm for Hardin’s paper – historically false and logically unconvincing even when it was written – persist to this day, to the point where it is routinely cited by environmental economists and enthusiasts for markets alike? Because, I suspect, it creates a pseudo-historical, pseudo-scientific justification for the status quo. Despite the fact that capitalism is so destructive to the environment, the correct answer, say both Hardin and economic orthodoxy, is more of the same. You cannot have too much property, too much competition, too much exploitation – otherwise people might start to ask not whether we should have more but whether we should have quite as much as we have now. And that would never do.

Leadership, Mr President? No thanks!

The United States is ready to lead. Barack Obama says so – in an article in yesterday’s Times. Oh good.

Actually, Mr President, I don’t think we need any leadership right now. The world has been its usual bickering and politically incoherent self while the USA was away, but actually I can’t think of anything that would have been better had it been around to offer its ‘leadership’ since 2000.

After all, what have the US government and its eager allies been up to all that time on the global stage? Iraq. Afghanistan. Radical disregard for climate change. Creating the sub-prime housing disaster. Deregulating finance to the point where the entire global economy was dislocated, millions thrown out of work and tens of millions of the already poor in developing countries were pushed down even further. The Washington Consensus thrust down everyone’s throats by the IMF, World Bank and WTO. I can’t say that American leadership is likely to lead us anywhere I would want to go.

Or perhaps it is American example closer to home we should admire. Gun crime. Banal culture. Corporate greed on a staggering scale. Untrammelled capitalism that, left to its own, would do it all all over again.

Meanwhile, who do they think they will be leading? The toadies in London, maybe. But France? China? Russia? India? Anyone at all in the developing world? No, not only do they not want American leadership but they would be deeply – and rightly – suspicious of anything the US government thinks is a good thing. With Russia as a neighbour and our energy supplies at Putin’s mercy, we Europeans have every reason to look for allies wherever we can find them. But leadership from the USA? No thanks. You may have the power - or at least, lots of guns and a proven enthusiasm for using them - but the authority leadership presupposes? What on earth makes Obama think American presidents have any of that left?

I like President Obama. He seems like a decent guy. But I still have problems with three things. Firstly, apart from his immediate reaction to the current economic disaster (largely created by allowing the American interpretation of capitalism – with which, as far as I can tell, Obama agrees - to have its reckless head), I have no real idea where he would lead us. Yes We Can? - Yes We Can What, exactly?. Secondly, until I see different, I will assume that American leadership will, as ever, assume that what is good for America is good for the world. This has not proved to be a very helpful policy in the past. And finally, I just don’t want his or anyone else’s ‘leadership’. I would be more than happy if the USA would just join in for once. Climate change in particular is far bigger than World Wars One + Two, so it would be nice if you could just show up on time for this one. If it isn't already too late.

Meanwhile, I really think it’s time Americans stated thinking seriously about the whole End of Empire thing. As we Brits know, it’s a long, slow, painful process that makes you do and say all sorts of dumb things. Ah, Suez… I have no idea how the Americans will handle a multi-polar world over the next few decades – no better than we did, I suspect. But as a word of advice, can I suggest that, every time an American president is tempted to say something especially fine and resonant, they stop and have a long think about it? It will probably turn out to be a lot of pretentious tosh that will just bore or exasperate the rest of us.

Source: We are ready to lead. Are you ready to join us? The Times. March 25, 2009.

What about asking us, Sir Nicholas?

In today's FT, Sir Nicholas Stern, who is currently Professor of Economics & Government at the London School of Economics and has served as Chief Economist at the EBRD and World Bank, argues for an independent authority to evaluate economic risk on behalf of the world.

Good idea. But his idea of independence is a bit limited - too independent, in fact. He rightly argues that it should, unlike the International Monetary Fund, the World Bank, the Financial Stability Forum or the Bank for International Settlements, be beyond the influence of big countries and should have no lending or policy responsibilities that would bias its perspective.

Yet his idea of independence seems to revert to a now-antiquated notion that 'the economy' should be treated as just this system that rolls on, with no need for anything much more than the occasional warning and adjustment to keep it on the rails.

For the lead author of the UK Government's 2006 Review of the Economics of Climate Change, this is a little odd. Any such body certainly should have policy goals. Stopping the planet boiling might be a good one, and one that Sir Nicholas is more aware of than most. He is also singularly well equipped to say what that means, at least among conventional economists.

But focusing on climate chaos - and ecological collapse and resource depletion and the population explosion - are all themselves only sensible economic goals because they represent (in a still very abstract way) what society needs out of the economy.

So one final question: if this risk assessment body should be independent of governments, does it then have to be 'independent' of the people whose interests these governments that are so singularly failing to represent? That is the real risk: that all the institutions - political as well as economic - are tainted with the same economistic obsessions, and will not see the wood until all the trees have been burned down.

Source: 'The world needs an unbiased risk assessor', Nicholas Stern, Financial Times, March 24 2009.

Why capitalism must expand - whatever the environmental consequences

I have suggested several times that capitalism’s destructive relationship with the environment is not a matter of greed. Nor is it natural to industrial systems. Rather, it inheres in the basic economic structure of capitalism itself – in the things that make it capitalism rather than any other kind of economy. But how is this so? One would never have drawn any such conclusions from economic theory as it is taught in our universities or the way most professional economists talk about their subject.

The key question is how investment works under the rules of a capitalist economy. These rules have evolved along with capitalism itself, but the basic cycle as it now operates is very simple. Imagine that you have a good deal of money available to invest, and choose a sector where a lot of ‘fixed’ capital is needed. That is, your business will need to pay for a lot of materials and facilities before it can even start doing business. This might mean almost anything – expensive tools, specialised equipment, vehicles, energy generation, storage, offices, changes to the terrain, and so on – all of which must be paid for before production can start and none of which will be paid off until you have been in business for a long time – certainly years, and quite possibly decades.

For example, a car or a cement factory can cost several hundred million dollars, almost all of which must be paid for before the first car or bag of cement comes off the production line. A nuclear power station can costs several billion dollars, yet will not generate one iota of revenue until long after its owners have had to start paying out to build it. To fund these enormous outlays, even the biggest company has to borrow equally enormous sums, all of which must be paid back, typically over a very long period.

The upshot of this is that there is a constant pressure on the owners to keep selling the product. That makes it extremely difficult to reduce sales of even the most environmentally destructive product, once the capital has been raised and the factories, roads and power plants are in place. On the contrary, there is bound to be a pressure to deal with any such problem far more economically, such as be simply denying its reality. Other stakeholders in this process – including the workers whose jobs are at risk and the governments whose loans and tax revenues are equally on the line – will frequently back them up, sometimes (as in the case of global warming and other environmental problems) beyond all reason. So it is no wonder that every successive environmental problem, from industrial accidents to global resource depletion to climate change, are routinely denied by big business: they know who will be expected to pay for the damage.

In fact, far from showing restraint, there is ample reason to believe that having a lot of fixed capital to pay off will not only encourage owners to look the other way when problems loom but actively encourage them to expand production as much as possible. The more any given piece of equipment or building or other facility can be used while the debt is outstanding, the more income it will generate to pay off the debt. For example, if a car production line is used for three shifts each day rather than one or two, then the part of the costs that goes towards paying for the factory building (or approach roads or office space or any number of other items) can be spread out over more cars. As a result, both the costs and the value of the output will go up, but because nothing extra is being paid to use the factory 24 hours each day, the cost per car goes down and the revenue available to pay off the debt goes up. So it always makes sense to look for new ways to intensify production, so that more revenue can be had for the same costs.

On the other hand, the value of your investment is constantly being eroded by competitors. If you plan for your investments to pay for themselves over many years, you can assume that three things will happen. Firstly, your equipment will wear out, while more recent entrants to your market will be using more up-to-date machinery that does the same job at lower costs. Secondly, notwithstanding all the laws of patents and intellectual property, you can expect any innovations you have made to be copied by others without them having to bear the research and development costs you had to pay for. And finally, the longer the term of your investment, the more likely it is that you will find the whole way your investment works radically undermined by a truly ‘destructive’ innovation that simply changes the way things are done in your industry. Thus, the car destroyed the horse and cart, the valve was all but eliminated by the transistor, the European and American car and electronics industries wilted before the Japanese quality revolution, supermarkets are destroying small retail businesses everywhere, and right now downloading is destroying CD and DVD businesses all around the world.

All these forces means the same thing: you need to exploit your capital as much and as quickly as you can, which ultimately means one thing: make and sell more. The environmental effect of this imperative may be mitigated by improvements in efficiency, but the likelihood is that any given business will also find easier but less desirable techniques for solving their economic problems, such as to manipulating customers, markets and suppliers. Obsolescence can be built into products in all sorts of ways. They may also be eased by protective governments (many of which have not hesitated to put the interests of business before those of their own people), by buying out competitors and by flagrant abuse and dishonesty of one kind or another.

A good deal needs to be added to the basic production process to make sure that all these extra goods and services are sold, of course, and it is no coincidence that mass production and mass marketing came into existence hand in hand, or that encouraging debt and consumerism has long since been a matter of government policy. The stability of our society relies on industrial systems that operate on a larger and larger scale, and under a capitalist economic system that means the ability of big businesses to repay the loans and bonds that have been used to finance all this. That in turn means profit, without which not only these investments would collapse but the entire system of employment and the entire tax system that underpins government would simply disappear.

Yet there is no economic necessity for our economy to work like this. Society is perfectly capable of identifying its own needs. We are perfectly capable of building factories and offices and communications and energy generation systems and all the rest without all the paraphernalia of big business. To claim that we need the profit motive to make people behave in an economically rational manner is not so much doubtful as absurd, given how irrational every bubble and collapse proves profit to be. Likewise the severely deceptive ‘price signals’ from mostly imagined ‘markets’ – they serve the purposes of a small elite that does so well out of these fictions, but the continual assertion that we are capable of nothing more intelligent surely requires more than the routine abstractions of discredited politicians, ivory-tower economists and toadies to big business itself.

And as the above argument I hope shows, any idea that capitalism can be the centrepiece of any attempt to deal with serious environmental problems is not so much absurd as grossly irresponsible, not to say terrifying. Capitalism is incapable of weaning itself off growth, because that is what the basic rules of investment demand. So where it has invested in selling physical goods, it must grow its output and so increase its physical impact; and where it is a non-physical service, it must intensify its use of the many physical resources even the most ‘dematerialised’ service employs. It is incapable of shutting down the most filthy factories or deliberately choosing a more expensive but environmentally more rational way of delivering our economic needs, unless this can also be proved to be the most profitable way of proceeding. That may sometimes be the case, but to rely on such a foolish assumption in the face of the worst threat to the planet in human history must surely be regarded as verging on insane.

Climate change: Back to the wrong drawing board

The head of the IPCC is reported today as saying that Barack Obama is unable to introduce the kind of carbon cuts EU countries are aiming at, lest he face social revolution. As a result, report the media, the new post-Kyoto climate deal is in jeopardy.

Tosh.

And the problem is, as with the perennial What about China? Conundrum, we have exactly the wrong approach to how climate agreements work. Look at it like this. Imagine that there are two hundred or so people – one for each country on the planet – standing in your neighbourhood park, evenly spread out, all wearing blindfolds and each carrying a gun. Every now and again they each fire in a random direction. Some, such as the ones representing the USA or China, fire more frequently than the ones who represent Somalia or Tanzania. Given how they are spread out, few bullets kill, but inevitably some do.

So what is the right solution to the rising death toll? To only stop firing when we all agree to stop? Or does it make sense for everyone to stop as soon as possible, regardless of what everyone else does? If I fire more slowly, I kill fewer people, and if I’m not firing at all, I don’t kill anyone. Why on Earth would I wait for anyone else to stop firing?

Likewise with climate agreements. If China and the USA and Australia and India and Russia go on putting carbon into the atmosphere – or depleting resources or encouraging population growth or allowing ecosystems damage - many will die. But regardless of what anyone else does, the rest of the world can minimise the casualties by slowing and then stopping the damage they are doing, and the USA and China and everyone else is more than welcome to join us - ASAP please.

How much your government cares about your children

If you have children and expect to have grandchildren, you might like to know just how little your government is thinking about them. The following table (data from the Financial Times) sets out the national 'economic stimulus' packages for dealing with the current economic crisis and the fraction – typically pretty small - that goes to green programmes.



Even the green investments are rather illusory. Most of them are only partially credible (especially in China), and many are bound up with very ungreen initiatives. For example, the Italian, French and German figures all include programmes to encourage car owners to buy newer, greener vehicles. But not only is this of doubtful environmental value (because of the 'embedded carbon' put into the environment by building new cars) but thsi approach simply perpetuates the car culture that is half of the current problem.

Nor are things that are not in these packages exactly helping. For example, Canada will spend $150 million on low-carbon energy in this package. Very nice. What a pity is also plans to invest billions and billions in digging up the environmentally catastrophic tar shales in Alberta. It’s as though they have decided to take an aspirin before chopping their leg off.

I think I’ll move to South Korea.