Some highlights from a thought-provoking exchange with my colleague Sarah Best, who works on private sector and climate change issues.
· The roots of the financial crisis lie in a failure to properly assess risk (e.g. of sub-prime loans), an absence of proper oversight and regulation (e.g. of complex financial instruments) and consumption beyond our needs (e.g. credit, mortgages). The causes of the climate crisis are similar: decision-makers still do not properly understand the climate risks and what it means for people and planet. Rules for capping emissions and incentivising greener technology are absent or weak. We have been using up carbon reserves at an unsustainable rate – getting deeper and deeper into nature’s debt.
· Both the economic and climate crashes will particularly hit poor people (north and south), if not managed properly. Many of them could lose their jobs, livelihoods or homes. Worse, they have to subsidise the reckless behaviour of the rich minority, whether through tax bail-outs or losses to their natural resource base (upon which poor people particularly depend for food, water, income etc). Meanwhile, those responsible for the problem have built up enough assets to cushion the blow and so could emerge relatively unscathed.
· A key difference between the two crises is the scale of long-term impacts and adequacy of politicians’ response. The financial crisis could be mild compared with the climate crashes that lie ahead. Latest predictions from the National Institute of Economic and Social Research are that the UK economy will contract by 0.9% next year. By contrast, the 2006 Stern Report concluded that, if we do not act on climate change, we will lose between 5-20% of global GDP every year.
· Worryingly, political will seems to be in inverse proportion to potential long-term impact. It took just two weeks between the collapse of Lehman brothers and the US government passing a $700 billion banks’ bail-out plan. By contrast it took 15 years of talking (after the Rio Earth Summit) before governments passed the Kyoto Protocol.
Common cures: green economy offers a way out of climate crisis
· The solutions to the financial and climate problems are similar. Both call for a global response, especially from the most powerful nations. Both require much stronger state regulation, transparency and oversight of markets. Both require transformational public and private investment programmes. Both require financial support for families and individuals most at risk, with fairness dictating that the bill be picked up by those most responsible for causing harm.
· The good news is that climate and economic solutions can support, rather than compete with each other. For example:
– Creating jobs: The renewables sector reportedly generates 3-5 times more jobs per dollar of investment compared to fossil fuels and already employs more people than the fossil-fuel sector. Recycling creates 10 times as many jobs as dumping rubbish in landfills. Germany has created 250,000 new jobs in renewable electricity, which now constitutes 14% of its electricity supply. In Mexico, 1.5 million poor people earn incomes by planting and managing the forests that conserve the country’s soil and water supplies.
– Creating enterprise. Green markets are growing rapidly, particularly in Germany, Japan, China, Brazil and the United States. There are huge opportunities in the UK too. For example, the UK Green Business Council estimates that goods and services for energy efficiency in homes are worth £3.5-6.5bn a year.
– Cutting bills. Green economising cuts costs for individuals. Properly insulating walls can save households around £120 a year, and a loft, £155 a year. Turning the heating down by 1 degree centigrade, switching the lights off when not needed, and turning appliances completely off when not in use, creates savings of around £75 per year
Adaptation financing – a modest insurance premium for long-term security
· The £31bn ($50bn) Oxfam estimates will be needed in annual adaptation financing to support millions of poor people affected to climate change looks modest compared to what tax-payers are being asked to stump up in the bail-out, or what financiers reward themselves for underperformance.
· It also seems modest compared to what financiers reward themselves for underperformance, or the eye-watering profits made by oil firms. For instance:
– Despite the economic downturn, City bonus pay-outs are expected to be £2.8bn this year ($4.7bn). This would more than cover the UK’s share of adaptation financing.
– Oil giants Royal Dutch Shell and BP have just announced record quarterly profits, of £6.7bn ($10.9bn) and £6.4bn ($10bn) respectively . Using a share of these profits for adaptation fits with the ‘polluter pays’ principle, where those responsible for the damage pay compensation to help those they harm.
– The pay packages planned for staff at 3 of the bailed-out Wall Street banks could foot virtually the entire adaptation bill: combined salary and bonus payments at Citigroup, Merrill Lynch and Goldman Sachs came to $49 billion for the first nine months of this year
– Dick Fuld, former boss of the failed bank Lehmans, received $485m in salary, bonus and options between 2000-2007. Compare this with the $341 million that 21 of the world’s poorest countries have calculated they need to tackle their most pressing adaptation projects (and the mere $91 million that rich countries have put into the pot).