Human civilization is faced with unprecedented challenges caused by a mixture of economic, demographic and climate-related factors. We would be misguided to imagine that “orthodox” solutions cautiously and slowly applied could actually work. It won`t happen. They will yield no results or if they do, it will be too late. What is required is a complete paradigm shift to replace the old scaled-up solutions. The changes are exponential and so should the impact of solutions be…not linear…
This requires vision, courage and an ability to stand up to the sarcastic sneers of those around us. An intense effort to make the public understand and assuming the political price wouldn`t go amiss. “Theory says otherwise”, “it`s silly” or “it has never been done before” are no longer sufficiently strong arguments in a case against an extra-ordinary approach.
If 10 years ago an economist had dared to talk about central banks buying their own government`s debt, he would have lost all credibility and the respect of his peers. And yet, this is exactly what happened to save the world economy from a devastating end.
The farther from the “box” we think, the better our chances to find answers. And today I am extending an invitation to think outside the “box”.
Climate is changing at a faster pace than statistics predicted. The Paris Agreement on Climate Change signed under the aegis of the UN sets as objective to limit the average temperature rise to 1.5oC above pre-industrial levels. The planet, however, is warming up much faster and makes the achievement of this goal unlikely. According to the Goddard Institute for Space Studies (GISS), a NASA institute located at Columbia University, temperatures have already risen by 1o above 1880 levels. Two thirds of the rise have occurred since 1975.
The Intergovernmental Panel on Climate Change, established by the UN, estimates that the 1.5o C limit is going to be reached between 2030 and 2052. To remain here would require dramatic cuts in CO2 emissions over the medium term. How dramatic? About 50% over the next 12 years, according to the expert group estimates.
Let`s not be naive… This will not happen. At the slightest sign of economic slowdown or looming crisis the first to be sacrificed will be the expensive measures to reduce carbon emissions. Would going over the 1.5 limit really matter? The UN experts` projections show that exceeding the limit by just 0.5o would have devastating impacts.
It would double the number of people with difficult access to water supply, would expose 10 million people to higher sea and ocean levels, would push hundreds of millions of people into poverty due to the famine caused by crop collapse. Add to this geopolitical and social tensions caused by huge flows of climate migrants. The stakes are high. The answer? Governments` commitment to limit carbon emissions. Does it work?
Slowly and with substantial costs. Let us take a look at the country that wishes to be a champion in this area: Germany. Its forced march towards green energy is closely watched by less developed countries hoping to skip the stage of using fossil fuels to generate power. A recent survey by the Der Spiegel daily draws attention to the fact that the Energiewende, “the biggest German project since reunification” to switch to green energy is not on track to meet its target.
In recent years alone, Germany has invested EUR32 billion into this energy revolution only to find out that resistance to green energy is rising in rural areas, most affected by wind turbine installation requirements. Under these circumstances, there were 50% fewer wind turbines installed in 2018 compared to 2017, a trend that will have Germany miss its 2020 carbon target.
Where am I going with this? If limiting carbon emissions to prescribed levels proves so difficult to meet by a rich and driven country such as Germany, what chances do countries with less money, motivation and conviction stand to reduce their carbon emissions?
In fact this is not the solution. Or better put, it is just half of it. The carbon dioxide constantly released into the air is the difference between man-made emissions and what is absorbed mainly by plants or seas and oceans. While plants absorb carbon and produce oxygen, oceans only get more acidic.
The thing is that the current emission reduction mechanism addresses only CO2 production by decreasing it progressively in an attempt to cap the CO2 amount existing in the atmosphere and as a result climate change. This is mission impossible because it overlooks the importance that CO2 consumers, i.e. the woodlands, have in reaching the objective.
There are obviously the constant calls to protect forests, we see rallies, protests, voluntary reforestations and so on and so forth, but the honest truth is that they have yet to prevent the world`s forests from being cleared. According to the World Wildlife Fund (WWF), the Earth is losing the equivalent of 22 football fields of forests per minute. National Geographic estimates that, all things being equal, rainforests might completely disappear over the next 100 years.
Should that come as a surprise? Not in the slightest. It actually makes sense. At the end of the day what matters most when making a decision is the economic value of a forest left untouched compared to that of the land beneath it. The value of the land lies mostly in its agricultural or mining potential. In fact, this is the main cause of deforestation. In most cases, it makes more sense for owner countries to cut down a forest that keep it to avert the global warming generated by the developed economies, despite all climate change-related criticism and indignation from the latter.
This is what it all boils down to in the end. The large developed countries would like to see the underdeveloped states in the southern hemisphere keep their forests intact for the benefit of those able to use fossil fuels: in power plants, motor vehicles, planes, etc. It lacks economic sense and will never cause deforestation to stop.
All countries desire economic prosperity and as long as the economic value of a forest removed exceeds that of a virgin forest, what right do we have to condemn the countries which take rational economic decisions? The problem is not them, it lies elsewhere.
Let us take a look at the mechanism meant to limit carbon emissions: the emission system trading in carbon allowances. A system allocates carbon allowances to each country in an administrative manner. They are “created” by administrative bodies to be passed on to polluters. The logic may be the prevention of economic shocks by progressively adjusting polluter behavior, the final outcome, however, is a mechanism which does not stop CO2 levels from rising.
The solution would be to have a part and then most of the allowances sold based on the contribution that the country`s natural environment has to CO2 absorption (oxygen generation). If limiting the amount of CO2 in the atmosphere is indeed a priority, then as a human and economic civilization we should come to terms with the creation of a new group of countries: those growing on the basis of nature conservation to ensure the survival of the planet.
Will this entail a wealth transfer? Undoubtedly. From the big industrial polluters to states called upon to absorb the carbon produced. Is it outrageous? I don`t think so. Why readily accept countries making a profit from their mineral resources alone, but not those benefiting from the environmental resources that they preserve and help stabilize the planet`s climate? The time has come for a decision. What carries more weight? The oil underground or the air that we breath?
The law of demand and supply would work perfectly. The higher the price of allowances, that is the amount of money cashed in by oxygen producers (CO2 consumers), the stronger the motivation to keep forests intact and reforest. And it will go on until excess supply and deterring polluting activities will strike a balance between the “lungs” of the planet and polluting activities.
In real terms the value of virgin forests would be equal to or even exceed that of the land beneath cleared forests which will make keeping them the rational thing to do.
Clearly it is not easy to make this decision. Wealth transfers from more economically developed countries to poor states just to incentivize the latter to preserve their forests and enable them to tap into substantial funds will not go down well with the political or economic elites, nor with the general public. And yet… Billions of euros are set to be invested into equipment pumping CO2 into the ground, and it is an outrage to pay the same money to increase the global tree cover just because it goes to other countries?
I think that the concern regarding higher CO2 concentrations and climate change is real and not faked, and daring decisions are in order to make a clean break with current patterns, clearly ineffective. That may be achieved by going back to the standard theory under which pricing and quantity adjustment affect both the supply and the demand side, not just one of them.
The million dollar question to which industrial countries need to answer is: would you agree to a wealth transfer (and even see your standard of living lower or stall) to allow a new group of countries to emerge as the “lungs” of the planet?
If the answer is “no”, then our civilization deserves its fate. All the rest is hypocrisy, naivete and PR.
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