“Business-as-usual” economics will lead us to “Hothouse Earth”

From Economic Growth and Carbon Emissions: The Road to ‘Hothouse Earth’ is Paved with Good Intentions

Enno Schröder and Servaas Storm∗ + Working Paper No. 84 November 2018

It is high time that we do whatever it takes to stop the self-destruction of capitalism, not just in the interest of society and nature, but in the economic interest as well: “a self-regulatory free market system that makes the rational pursuit of economic gain the only maxim of social action, will ultimately destroy its own human, social and natural conditions…” (my edit)

Taken together, this means we have reached a fork in the road and have to choose. One path is that we continue to ‘green’-grow our economies in close to ‘business-as-usual’ ways, but that implies adapting to mean global temperature increases of 3°C and possibly more already by 2100 and to ‘Hothouse Earth’ thereafter. The adaptation also means that we have to come to terms with the impossibility of material, social and political progress as a universal promise: life is going to be worse for most people in the 21st century in all these dimensions. The political consequences of this are hard to predict.

The other path that should lead us to a ‘Stabilized Earth’ (Steffen et al. 2018), is technically feasible according to Earth Systems and climate and energy scientists (Grubb 2014; Millar et al. 2017; Steffen et al. 2018; IPCC 2018). The real barrier is the present fossil- fuel based socioeconomic system (aka ‘fossil-fuel capitalism’), which was built up step by step over two-and-a-half centuries (McNeil and Engelke 2016; Malm 2016) and which now must be comprehensively overhauled in just 30 years, and not in a few countries, but globally. Such radical change does not square with the ‘hand-off’ mindset of most economists and policymakers (Sachs 2008).

There are at least four reasons why we have to discard the prevalent market-oriented belief system, in which government intervention and non-market modes of coordination and decision-making are by definition inferior to the market mechanism and will mostly fail to achieve what they intend to bring about (Sachs 2016).

First, a deep overhaul of energy systems and production and consumption structures cannot be done through small incremental steps, but requires disruptive system-wide re-engineering. Market prices give short-term (often myopic) signals only for incremental change and can block larger, non-marginal steps in innovation and economic restructuring (Wade 2018). If markets plan only 10-15 years ahead, as is typical in the energy sector, rather than 50 or more years (as is needed now), they will tend to make poor system-related choices; electricity providers will move from coal to lower-carbon natural gas, for example, but continue to underinvest in the much more decisive shift to (zero-carbon) renewable energy.

Second, there are still large technological uncertainties in moving to a low-carbon energy system—and the radical innovation needed is beyond the capacities of even very large firms (Mazzucato and Semieniuk 2018). What is needed, writes the Global Apollo Programme (2015, p. 12), is “the application of basic science to produce fundamental disruptive technical change of the kind we have seen in telecommunications and IT. Those revolutions all began with publicly supported Research, Development & Demonstration.”

Third, climate stabilization requires international cooperation in emission reduction, mission-oriented investment in the renewable energy transition, technology development and dissemination, and the sharing of the global burden of fighting global warming (Stiglitz 2008).

Finally, powerful vested interests in the fossil-fuel industry are resisting change.

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