Vancouver city council’s unanimous decision to commit to running on 100 per cent renewable energy is the kind of political leadership the world desperately needs says Jørgen Randers, professor of climate strategy at the Norwegian Business School in Oslo, Norway.

“Despite the looming catastrophe of climate change the market will choose to do nothing,” Randers said in the keynote speech at the ICLEI World Congress 2015, the triennial sustainability summit of local governments in Seoul, South Korea.

Nor will voluntary actions on climate be enough. Strong legislation, intelligent policy and collective action are the only ways to keep humanity from a nightmare future, said the former business executive who still sits on boards of major corporations.

“It is totally obvious what we should do. And it is only a little more costly.”

However capitalism is exactly the wrong system to deal with a long-term risk like climate change, Randers explained. Capitalism is designed to allocate capital to the most profitable projects and climate action is an additional cost.

Of course, failure to act will be an economic disaster as regions and countries are forced to devote more and more of their capital and labour to coping with climate impacts. Flooding, heat waves, water and food shortages and building defences to buffer those impacts will be very costly, he said.

Randers is a co-author of the landmark 1972 book Limits to Growth, which was updated in 2004. His latest book is 2052 A Global Forecast for the Next Forty Years. Based on the latest scientific, economic and other data, 2052 is a real-world look into the next 40 years. It says global CO2 emissions will not begin to decline until 2030 producing a very hot planet 3 to 4 C hotter than today by 2080.

“The climate will just get worse and worse…it will be very unpleasant especially for the poor,” he said.

“There is a strong moral imperative to act on climate,” Andrea Reimer, Vancouver’s deputy mayor, told DeSmog Canada in Seoul.

“There’s also a fantastic economic case. So why shouldn’t Vancouver be a leader on this?” Reimer said.

Andrea Reimer addresses crowd at ICLEI World Congress 2015. Photo: Stephen Leahy

A new study substantiates this. It found that world’s biggest economies could save $520 billion a year if they go 100 per cent renewable. Such a shift would generate three million new jobs.

On March 25, Vancouver voted to make such a shift. More than 90 per cent of the city’s electricity already comes from hydro and shifting to 100 per cent will only take a few years.

Converting all of the cities’ heating and cooling systems will likely take until 2030 or 2035, she said. City staff are working out the details and timelines. Transport will be tougher still, perhaps taking until 2050.

“This could happen sooner with national and provincial government support,” Reimer said. Cities and local governments only get about eight per cent of total taxes paid by Canadians.

Vancouver is one of about 50 cities pioneering the path to a low-carbon future. Others include San Diego and San Francisco in California, Sydney, Australia, and Copenhagen which plans to be carbon neutral by 2025. Nearby Malmo, Sweden, will be 100 per cent renewable for all three sectors — electricity, heating/cooling and transport — by 2030.

Tackling all three sectors at same time works far better than just doing one said Anna Leidreiter, coordinator of the Global 100 per cent RE Alliance — an international alliance of organizations pushing for a shift away from fossil fuels. It is much easier to cope with renewable energy fluctuations and stabilize the grid when heating/cooling and transport are integrated, Leidreiter told DeSmog Canada.

That’s Germany’s approach where more than 80 regions are already 100 per cent renewable and 60 more regions are on their way.

Even Seoul is moving on this. The rapidly growing megacity of 11 million plans to generate 20 per cent of its electricity from renewables by 2020 by covering all of its public structures — water treatment plants, subway stations, schools etc. with solar panels.

Another essential policy for effective climate action is a carbon tax that rises to $100 a tonne, Randers said. “Carbon markets will not do it,” he said.

Even Ontario’s recently announced cap and trade market has been criticized by the likes of Canadian economist Jeff Rubin for being too weak to be effective. Cap and trade schemes operating in the European Union’s have also been found to be too complex, costly and ineffective by most analysis. However, even critics will agree a price on carbon is essential for meeting our global emission reductions goals.

British Columbia’s carbon tax shift is widely considered a smart policy and the best of its kind in North America. A 2013 study DeSmog reported on showed the carbon tax has allowed B.C. residents to enjoy the lowest income tax in the country (not Albertans), use the least amount of fuel per person and have arguably the healthiest economy. However, the tax needs improvement. For starters, the rate has been frozen at $30 a tonne since 2012 and there are backwards exemptions for the oil and gas sector.

Ultimately, people and businesses want to live and work in clean and green urban areas. And whoever develops expertise in shifting to 100 per cent renewable energy will own the 21st century, Reimer said.

Image Credit: Bart Speelman via Flickr

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Read At the Limits of the Market: Why Capitalism Won't Solve Climate Change, Part 1.

One answer to the question of why free market capitalism has failed to generate technological solutions to the crisis of climate change is that green innovation simply isn’t as profitable as speculation. In an era when financial markets generate record profits and investment banks are too big to fail, the long work of investment, research and construction of new energy infrastructure simply isn’t attractive to profit-seeking corporations.

Faced with the clear failure of the free market to respond to the approaching dangers of climate change, politicians have reacted by attempting to coax corporations into serving the needs of people as well as the bottom line. This is typically referred to as finding “market-based solutions.” It sounds good at first: we’ll harness the best minds in the private sector to develop new technology, create new jobs and solve climate change in the process.

But all too often the phrase “market-based solutions” works as a kind of coded communication. In effect, it signals to corporations that the government will not take any measures that could interfere with their business model. Rather than impose meaningful restrictions on emissions or the extraction of fossil fuels, market-based solutions focus on changing behavior by creating the right set of incentives.  

But without strong penalties to go along with those incentives—a stick alongside the carrot—market-based solutions simply end up creating profitable new markets without addressing the underlying economic drivers of climate change.

When the Kyoto Protocol was adopted in 1997, the creation of markets for trading carbon emissions (typically referred to as a cap-and-trade system) was established as the primary means of tackling climate change without endangering profits. The basic idea of carbon markets is simple: establish a cap or limit on the total amount of CO2 that companies can emit. That amount of carbon is then divided up and allocated to different companies through the creation of carbon permits: in order to emit any amount of carbon, each company needs the corresponding permits.[view:in_this_series=block_1]

For those companies that emit less than the allotted amount, carbon permits can be traded or sold for additional income. For those companies that produce carbon emissions over the limit, the need to purchase costly permits should function as a reason to innovate and develop low-carbon production methods.

But carbon emissions trading hasn’t lived up to its promise. The world’s largest market for carbon emissions trading, the European Union Emissions Trading Scheme (EU ETS), is failing. The European system is awash in excessive permits, meaning that the price of emitting carbon is so low that corporations have no incentive to clean up their production methods. At the global level, the United Nations Clean Development Mechanism (CDM) is suffering a similar fate.

As Steffen Böhm, director of the Essex Sustainability Institute at the University of Essex contends, “Carbon markets have lost us more than 15 years in the battle against climate change.” A combination of aggressive industry lobbying for additional permits, a lack of transparency and inadequate oversight mechanisms has simply turned carbon markets into yet another profitable arena for speculation, with no measurable effect in terms of reducing emissions.

One of the staunchest critics of the emissions trading approach is NASA climate scientist and activist James Hansen. Hansen has accused carbon markets of failing to rein in emissions and allowing “polluters and Wall Street traders to fleece the public out of billions of dollars.”

Hansen’s critique is more than grousing from the sidelines. Alongside groups such as the Citizens Climate Lobby in Canada, Hansen advocates an alternative approach to reducing emissions called fee and dividend. Although it remains a solution based on the market, fee and dividend takes a different tactic: rather than work to create new avenues for profit, it restricts markets, makes the fossil fuel sector less lucrative, and attempts to direct markets to meet human needs.

Unlike the cap and trade system, which is plagued by an opaque structure and dominated by bankers, industry insiders and technocrats, fee and dividend relies on a simple mechanism. It works by imposing a carbon fee directly at the point in which fossil fuels enter the economy: the port, the wellhead or the mineshaft. The collected fees are then distributed in their entirety to the population in the form of a monthly dividend. Everyone receives the same amount deposited directly into their bank account, regardless of income or assets.

The carbon fee would then increase each year, slowly making reliance on fossil fuels less and less economical, while driving incentive for green innovation. Since the increased cost of fossil fuels would then be passed along to consumers in the form of higher prices, the monthly dividend provides a cushion to compensate for higher heating and transportation costs.

The advantages of this system over cap and trade are clear and significant. It is simple and transparent, requires no new government bureaucracy, and does not create new opportunities for speculation. When coupled with the removal of all fossil fuel subsidies, it aims straight for the heart of the economic motor of climate change: cheap oil, gas and coal.

Crucially, fee and dividend also has a progressive dimension. According to a 2011 report by the Canadian Centre for Policy Alternatives (CCPA), the emissions of the top 1% of households are approximately three times the average, or six times greater than those of the bottom 10%. The report also shows that two-thirds of Canadians have average or below-average emission levels. Since every household receives the same size monthly carbon dividend, fee and dividend acts as a progressive income boost for lower-income, lower-emission groups. Plus, it provides an economic incentive for all Canadians to reduce their household emissions.  

By ensuring that the costs of reducing emissions are largely borne by the enormously profitable fossil fuel companies themselves, fee and dividend provides an equitable and effective way forward. With the window for action on reducing emissions rapidly closing, we can’t afford to wait for the market to decide that preventing catastrophic climate change is profitable.    

Art by Will Brown. All Rights Reserved.

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One of the great mysteries of contemporary capitalism is the fact that as a system it appears absolutely incapable of responding to the crisis of climate change. Why can’t a system that made the automobile into an accessible mass consumer good provide us with clean and efficient mass transit, or at the very least electric cars? Why are we still burning coal, the energy source that drove the Industrial Revolution over 200 years ago? Where are all the new green enterprises leading the way into a low-carbon future?

From Joseph Schumpeter’s description of “creative destruction” to the fabled entrepreneurial powers of innovators like Steve Jobs, we’re accustomed to thinking that capitalism provides the social and economic framework that best nurtures human creativity and fosters technological innovation.

But with atmospheric concentrations of CO2 sailing past 400ppm and scientists warning of a global environmental catastrophe caused by the breaching of the nine planetary boundaries, the forces of the market are curiously silent.

To be fair, there is no shortage of innovation in green technology. Just recently, Australian scientists developed a printer capable of printing out sheets of thin, flexible solar panels that can be integrated directly into building construction materials. But while it sounds cool, the prospect of such technology rapidly scaling up and replacing fossil fuel use is limited by one overwhelming problem: profitability is the guiding force behind investment and production, even when the long-term costs massively outweigh the short-term gains. 

No longer are the long-term costs of climate change some abstract threat to be dealt with in the distant future. Earlier this year, the IMF released a report calculating that the damages incurred by climate change will cost $25 per ton of CO2 emissions. Other researchers put that number as high as $85. To put that into perspective, all of the bitumen in the Alberta tar sands amounts to an estimated total of 240 billion tons of CO2. While the oil companies are posting record profits now, we’re all going to be picking up an enormous tab later. [view:in_this_series=block_1]

It’s not that capitalism as a system makes us oblivious to the consequences of our actions. Quite the opposite: from market research to insurance to financial management, legions of people are employed in fields devoted to predicting and measuring the future.

Nor is the problem that corporations and investment banks are staffed exclusively by climate deniers—you’d be hard pressed to find a risk analyst at Goldman Sachs who doesn’t accept the science on climate change. Plus every major oil company has a climate change division devoted to calculating risk and making business plans for a warming planet.

Is it greed? It’s a tempting conclusion, particularly when we look at the spectacular excesses of Wall Street in an era of stagnant wages, precarious employment and rising living costs. But since capitalism is by definition a system of competitive profit maximization, what looks like greed from the outside is actually rational behavior; if one firm doesn’t pursue a profitable opportunity their competitors will, driving the first company out of business.

As with all complex systems, effects rarely have a single cause. But there is one explanation that’s increasingly difficult to ignore: capitalism cannot respond to the climate crisis because it is a system that seeks to commodify everything, including the negative consequences of the system itself.

Take derivatives as an example. In the United States, derivatives were originally developed as a hedging instrument to shelter farmers from the financial risks of a bad harvest. But derivatives have since evolved into a massive global market for managing all kinds of risk, with a total value between $600 and $700 trillion, according to the Bank for International Settlements. Other estimates put that value closer to $1.2 quadrillion, or more than 20 times global GDP.

The derivatives market is like a massive network of countless, interlocking insurance policies against risk, loss and negative outcomes of all stripes. Derivatives also double as a high-yield financial instrument for speculative investors.

But where we once thought of the careful calculation of risk as being at the core of capitalism, derivatives function to take uncertainty itself and turn it into a highly profitable commodity. With so many different companies purchasing derivatives as insurance policies, and banks and hedge funds then investing in the success or failure of those policies, the global derivatives market has become an incomprehensibly complex, high-stakes casino.

Even as extreme weather wreaks havoc on crop yields and threatens coastlines, new custom-made financial instruments offer the savvy investor the chance to profit from destruction. Weather derivatives offer both a profitable investment today and an insurance policy against future damages by flooding or drought. While the estimated costs of climate change continue to climb, the profits to be made by betting on those costs keep growing faster.

In effect, what we have is a situation in which investors are busy betting on what’s going to happen with the climate. Depending on how they invest, they can make money if things get worse or if they get better. If they pick the wrong horse, their bad investments can also be insured by purchasing still more derivatives.

When too many bets start going bad at the same time, as happened during the subprime mortgage crisis, the entire financial system is at risk. But the game is rigged: the now-familiar principle of “too big to fail” holds that governments will bail out megabanks and businesses when they go broke, and impose austerity policies on their own populations in order to pay for it.

Ultimately, this means that ordinary people bear the costs when the casino falls apart, but the financial players get all their bad bets reimbursed. If the costs of financial crises and climate change can be socialized while maintaining private profits, why bother with green energy and reducing emissions?

Developing new green technology, hiring workers and investing in new productive facilities involves a real risk: it may not be as profitable as purely speculative investments. With derivatives and the implicit backing of government removing the fear of failure for the world’s biggest corporations, there simply isn’t an economic incentive to make investment decisions that would help to avert climate catastrophe.

In the second installment of this post, we’ll look at a policy proposal that aims to make CO2 emissions too expensive to be profitable. By changing the structure of the market, can capitalism produce the solutions to the climate crisis?

Art by Will Brown. All Rights Reserved.

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