What will not be addressed at the climate change conference in Paris

Ein Gastbeitrag von Will Denayer (deutsche Version folgt)

This week, the governments of more than 190 nations meet in Paris in order to discuss a global agreement on climate change. According to Hollande, if equitable goals on the climate can be met, it will be a triumph for international cooperation, for our well-being and security and for faith in the future. But the top in Paris will not be a triumph. The most important factor is power relations, specifically those that are behind Article 3.5 of the U.N. Framework Convention on Climate Change of Rio de Janeiro in 1992 (see here). This article states that there can be no question that ‚measures taken to fight climate change (…) constitute any means of imposing arbitrary or unjustifiable discriminations in international trade or disguised restrictions to trade.‘ We can work out an agreement on climate change, but economic orthodoxy and neo-liberal globalisation cannot be questioned. At COP21, negotiators will focus on legal instruments to replace the Kyoto Protocol and on a ratchet mechanism that requires countries to revisit their emissions pledges every five years. None of the major countries or blocs – the US, Russia, China or the EU – are willing to accept an agreement that will bind their hands in any way. The Paris agreement will therefore not amount to anything more than the smallest common denominator that the major powers are willing to accept. The sum total of all national measures will constitute global action.

It is not possible to base the fight against climate change on national voluntary commitments. Several studies, including an evaluation by the UN itself, show that these voluntary contributions will lead to global warming in excess of 3 ° C by the end of the century (see here). But this is flirting with disaster in the most morbid way imaginable. Many papers suggest that even a 2 ° C warmer world will cause so much trouble that essential functions, and with it, whole societies, will collapse (see the extremely detailed study by Hansen here and a study on societal collapse by NASA here). A 3 ° C warmer world will be much worse still. Studies by Shakhova and Beckwith on methane clathrates show that abrupt climate change is not impossible. In fact, it is likely: if global average temperature rises above a critical threshold, the permafrost and the Arctic will melt and methane, a much more powerful greenhouse gas than carbon dioxide, will enter the atmosphere. If that happens, the prospects for mankind look bleak.

Be that as it may, the PreCOP from early November made clear that there will be no additional efforts. Contributions will not be revised upwards. According to an assessment of the last preliminary negotiating session (PreCOP) by major NGOs, the contributions of the great majority of the developed countries are very far from what they should be. Japan’s contribution is 10% of what it should be. The contribution of the US is 20%, the contribution of the European Union is a little over 20% (see here). There will be no discussion of the role of fossil fuels, no incentives for green technologies will be discussed, although it is absolutely clear that the fossil fuel industry must implode if we want to avoid climate disaster. As Christiana Figueres, the United Nations‘ climate chief said, there will be no deal on a global carbon price either (see here).

The insanity shows up in the figures: during the last twenty-five years, carbon dioxide levels rose by 57 %. Following the proposals that are on the table in Paris, the nations commit themselves to consume almost 40 % of the global carbon budget in the next 15 years. Global reserves claimed by fossil fuel companies amount to 2.795 gigatons of carbon. We know how much carbon we can emit between now and 2050 to have a solid chance of keeping climate change below 2 ° C by the end of the century: it is 565 gigatons. This is not to suggest that the overall policy goal to keep warming between 2 ° C is sane and still realisable. The point is the Paris agreement lets the world emit 40 % of the global carbon budget within the next 15 years. What will happen after these 15 years? No one knows.

We are fully able to run our societies and our economies without fossil fuels. There is no doubt about it. Jacobson and Delucci wrote up a detailed road map showing that 100 % of the world’s energy could be supplied by wind, water and solar resources by as early as 2030. The plan includes power generation, transportation, heating and cooling. Many scientific studies and governmental reports point in the same direction. It is not true that ‚we have no choice.‘ We do not need oil, gas, coal or nuclear energy. It is not a technological problem, but a problem of democracy.

There are many more problems. It is utterly impossible to confront anthropogenic climate disruption (ACD) without decreasing greenhouse gas emissions. How will we do it? Most economists believe that decoupling is an inexorable feature of economic growth. Decoupling refers to resource productivity: we make more with less and with less pollution and less CO2. At least, that is what we think. A paper published in Proceedings of the National Academy of Sciences claims that decoupling is, in fact, a false result. Monbiot explains how it works: if, for example, ores are mined and processed at home, these raw materials, as well as the machinery that is used to make finished metal, are included in the domestic material consumption account. But if we buy a metal product from abroad, only the weight of the metal is counted. As mining and manufacturing shift to countries such as China and India, the rich nations appear to be using fewer resources. Monbiot could not believe it, so he asked two leading academics in the UK (see here). Both confirm the results of the paper. While the UK’s CO2 emissions officially fell by 194m tonnes between 1990 and 2012, this apparent reduction is completely cancelled out by the CO2 that is produced elsewhere in making products that the UK imports. It rose by 280m tonnes in the same period.

What about energy-efficiency? Over the last decades, major advances have been made in energy productivity. Reducing energy consumption aligns with general business pressures to be more efficient and reduce costs. Be more efficient and you will make higher profits (see here). But it is clear that a focus on improved business efficiency will not be enough to drive the required radical change. In less than ten years, supermarkets managed to decrease their energy use, in some cases with 20%, but the model involves more stores and more sales. Cars have become much more efficient since the 1970s – gains of over 70% of fuel efficiency were made, but because of the worldwide growth of the number of cars, the net result is an upward pressure on greenhouse gas emissions. This is the Jevons paradox (or the Khazoom-Brookes postulate). If Jevons is incorrect – if we are getting better in making products using fewer materials – how is it that iron ore production rose by 180% in ten years? Rowan calculated the inevitabilities of compound growth: if last year’s predicted global growth rate for 2014, which is 3.1%, is sustained and even if worldwide we miraculously reduce the consumption of raw materials by 90%, we delay societal collapse by a mere 75 years. We will, of course, not reduce our consumption of raw materials by 90%. The consumption of raw materials will increase. Global demand for energy is estimated to rise with 40% by 2040 (see also here). How is any of this going to work?

Is there nothing that we can do then? The elephant in the room is politics. Let me give an example. The split incentive problem occurs when someone has the power to make decisions for others without having their best interests in mind. For example, landlords buy cheap appliances that are not energy efficient for their tenants. It makes no difference to them that these appliances use a lot of energy. They do not pay the utility bills. This creates social problems (the poor pay more for their energy than the well-off). Ecologically speaking, it makes no sense either. Hundreds of articles have been written about this. Neoclassical economists see the split incentive problem as yet another market failure. But the split incentive only became a market failure after neo-liberalism hollowed out the economic, social and ecological regulatory power of the state. It’s not a difficult problem. Bring regulatory power back and the split incentive problem can be solved immediately. The problem is that we lost the capacity to regulate our societies in intelligent and democratic ways and with consideration for the common good. The failure does not lie in the market. The failure lies in the belief that the market can organise society efficiently.

There is only one way to deal with ACD. It does not guarantee success, but how can we know if we do not try? The fight against ACD has to become the centre piece of what we are doing: we need to completely redesign our productive system. We need changes in the macroeconomics of the global system. It may actually be less herculean than it sounds. We have the technologies we need. Flassbeck and Lapavitsas convincingly argue that the euro zone cannot function as long as certain countries accumulate large trade surpluses and create pressure on wages, unemployment, lack of investment and deflation. In theory, the solution is straightforward. It is, basically, what Keynes proposed at Bretton Woods when he advocated the foundation of an International Clearing Union: force creditor countries to make loans available to debtor countries, so that they can invest in their productive economies. As a result, everyone will be better off. Imagine that something like this would really happen, for example through the European Investment Bank (as Varoufakis proposes), then we are not going to invest in a coal plant in Greece. We need to invest in green manufacturing and in green technology, accomplish the contraction of old infrastructure and the reconversion to a new one. The fear that this will cause widespread unemployment is unwarranted. The contrary may be true. This new economy would be competitive with the rest of the world: Europe has a competitive edge in green technology. But is this anything more than a mere pipedream?

Since 2008, thousands of papers and books have been written about the financial crisis. Seven years later, nothing at all is solved. We are still following the destructive path of austerity. But the literature has deepened. Many macroeconomists – even economists working for the IMF – now agree that there is a crisis that underlies the financial crisis, a crisis of profitability. Companies in the productive economies of the OECD progressively realised less return per unit of output. As Wolfgang Streeck explains, the history of the last 35 years can be seen as a series of attempts to either restore profitability or to fake it (‘buying time’ – the title of his book) by letting both households and governments accumulate enormous amounts of debt. But if it is true that a crisis of profitability underlies the current crisis there may, paradoxically, be some hope. Then it is possible, at least on paper, to devise coherent, realistic and implementable policies that are advantageous to several groups at once, or, to be concrete, to capital and labour, notwithstanding their different interests. If we destroy old capital, entrepreneurs in the new economy will get higher returns. This addresses the investment conundrum: investments take place when there is the realistic anticipation of profitability. If investments grow, wages can rise, employment can increase. The transformation that the world needs is one from a situation of macroeconomic diminishing returns, with all their toxic human, social and ecological consequences, to a dynamic that leads to macroeconomic increasing returns (more profits, more work, higher incomes, better government, green technology and decreasing CO2 levels). There is no law in the universe that says that this cannot be done. This may sound like optimism that is out of this world. Streeck may be right. Capitalism may have become too dysfunctional to regulate itself. On the other hand, sea-changes do happen. When Keynes published his book on the economic consequences of the peace treaty in 1919, few took notice. Twenty-five years later, all developed countries in the world implemented policies of a sort that capitalists from the 1920s would have considered alien and unacceptable. They were Keynesian policies. Today we need an even bigger sea change. The first thing to do is to make politicians address the real issues.