Source: The Guardian
URL: http://www.theguardian.com/environment/audio/2015/apr/20/podcast-biggest-story-economics-episode5
Date: 20/04/2015
Event: The Biggest Story: Episode 5: Economics
Credit: The Guardian
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Aleks Krotoski: The biggest story in the world is really about numbers.
Alan Rusbridger: This is a story where the science is settled and it's now all about politics and economics.
Different voices: 2... 5... 7... 8... 8 to 10... 7... 26... 1 to 2... 26, 26,000... 1.... 1... 1... Doubling, tripling, quadrupling...
Bill McKibben: To have a 75% chance of avoiding a 2-degree temperature rise, we'd need to keep about 80% of known fossil fuel reserves underground. Which is a lot, you know - that's someplace in the neighbourhood of $20 trillion worth of coal and gas and oil.
Aleks Krotoski: Sometimes the plain facts, the sheer brutality of the alternatives - yes - goes viral.
Bill McKibben: So I wrote a big piece for Rolling Stone magazine, I think it became the most widely shared piece in their electronic history. And it - we talked about what I called the "terrifying new math" of climate change. All of a sudden, with this math, we understood really more powerfully just how important it was that we keep this carbon in the ground.
Aleks Krotoski: And it's quite simple.
Bill McKibben: There's a lot of money on the table that we need to leave on the table, if we're going to have a working planet.
Aleks Krotoski: So that's our programme today. If you take - as the Guardian is doing - the fact that we have to keep it in the ground, what do the numbers look like? Time to extract the Economics editor from his fish and chips on the second floor.
Larry Elliot: That was great... Lovely... [Sounds of eating].
Female voice: How's that sounding, then?
Larry Elliot: The rest of it's downstairs, but the bit I've had of it so far is fine.
Aleks Krotoski: Larry Elliot is the Economics editor of the Guardian.
Alan Rusbridger: A very sophisticated thinker about the economic consequences of what is happening and what will have to happen.
Larry Elliot: It's really hard to imagine how your colleagues would describe you. You'd like to think: suave and sophisticated and cool and having an Oscar Wilde-like rapier wit - I suppose they think of me as quite down to earth. When I talk about the economy, they listen to what I say but they can also understand what I say, because I talk in their language.
Male voice: Larry's assignment is a really important piece, I think, in the whole sweep of what we're trying to do, because it's a hard thing to say "We have to keep it in the ground", but the even harder bit is to say "Well, okay, what are we going to do, then?"
Larry Elliot: So I'm supposed to be looking at what an economy would look like that wasn't based around fossil fuels.
James Randerson: And how do we get there? And what we're talking about here is an absolutely colossal economic transformation.
Larry Elliot: So that's what I'm looking at.
James Randerson: I'm slightly conscious that I may have, sort of, asked Larry to bite off more than is possible to chew.
Aleks Krotoski: So... It's all up to Larry, then. Let's cut to the chase. If you decide, as environmentalist Bill McKibben just proposed, that you write trillions of dollars off the economy, doesn't soemthing incredibly drastic happen? [Crashing sound.] Over to the Environment team. They've been reporting on this for a fair few years.
Damian Carrington: Let me tell you the first thing, first.
Aleks Krotoski: Okay, Damian.
Damian Carrington: So, a very interesting thing's happened, in relation to how the financial institutions, the cities around the world view the fossil fuel industry, based on - largely on analyses done by a group called the Carbon Tracker Initiative, which you can summarise as being the "carbon bubble". And their contention is that if governments around the world do as they say and limit climate change to 2 degrees Centigrade maximum by reducing CO2 emissions, then the value of the companies that own these fossil fuel reserves is vastly inflated and at some point will have to pop.
Male voice: The bubble aspect is simply the idea that if the world wakes up and says "Actually, we're not going to run this crazy experiment, we are going to try and solve climate change", then those assets will be written off.
Damian Carrington: That would be the equivalent of the sub-prime crisis - it would be probably worse.
Aleks Krotoski: Think of other economic bubbles - the Dotcom Bubble, the South Sea Bubble, the 16th century Tulip Mania. When these bubbles popped, there were ripples of shock felt through the financial system. That's what we're talking about, but potentially much worse.
Damian Carrington: There would be a massive stock market crash, without a doubt.
Aleks Krotoski: So we know the risks. Back to Larry. What options have we got, here?
Larry Elliot: There's a "do-nothing" option, there's a climate sceptic option, which is that you just assume this is not really happening. And then there's a deep green and a light green option.
Aleks Krotoski: Three options. Let's take them in turn. First: we do nothing.
Larry Elliot: I see that really as the equivalent of appeasement of Nazism in the 1930s, with the similar consequences that if people had stood up to Hitler earlier, then they would have actually been much better and much less costly thing to have done.
Aleks Krotoski: The free-marketeers might say that the market will work by delivering a natural market correction, and it may. But the risk - the big risk - is that the market doesn't wake up in time. And if we do leave it to the last possible moment, after an un-ignorable series of climate disasters, the balloon will pop very suddenly. Doing nothing doesn't mean that nothing happens. So, not really a solution. Okay, Option Two is light green, to leave it in the ground without anyone noticing.
Larry Elliot: Light green is essentially the social democratic option.
Aleks Krotoski: A light touch that doesn't affect our way of life - at least, not too much. Larry invites Nick Stern to the Guardian. Nick is a big fan of light green - it's his colour.
Lord Stern: How long, roughly?
Larry Elliot: Forty minutes... Hello, this is Larry Elliot, I'm here with Nick Stern.
Lord Stern: And this is Nick Stern, I'm here with Larry Elliot, is that all right?
Aleks Krotoski: Yes, perfect.
Larry Elliot: Okay... The Guardian, Nick, has got a campaign to leave 80% of fossil fuels in the ground. Is that feasible?
Lord Stern: Yes, I think it's feasible and I think the campaign makes sense.
Aleks Krotoski: Nick wrote the Stern Review, at the behest of British Prime Minister Tony Blair, back in 2006. The idea was to tally up what climate change was really going to cost us, and what it would cost us if we didn't do anything. Stern describes light green to Larry - it does use markets but government intervention, too.
Lord Stern: So markets will drive it, but markets in which the failures have been overcome by government policy. Because greenhouse gas emissions are the biggest market failure the world has ever seen.
Aleks Krotoski: The market failures that Nick is talking about are things like our failure to invest in innovation, to build confidence in green markets, to sort out our networks and communication, to acknowledge the cost of pollution. And, importantly, we don't recognise the cost of carbon itself.
Lord Stern: We should have a strong price on carbon, because the emission of carbon damages other people, it places a huge cost on other people. We don't let people throw their rubbish in the streets and expect to pay nothing to do it. And we shouldn't let people throw carbon dioxide, greenhouse gas pollution, in the atmosphere and damaging other people.
Aleks Krotoski: It needs to be acknowledged, both in the west and in the east.
Jayati Ghosh: Take just one example, transport in towns and cities. Now across the world, in particular in developing Asia, we're adopting what you might call the American model, which is one based on private vehicles.
Aleks Krotoski: Jayati Ghosh is an economist who advised the Indian government and, like Nick Stern, she also sees a cost in carbon.
Jayati Ghosh: We need to put in huge disincentives to private vehicles, but we can't do that unless we provide much more clean, green, efficient public transport. For example, in India we allow diesel private vehicles. There's no reason why we should do that. We should be taxing them, we should be in fact banning the use of diesel cars for private personal use, and we should be putting really heavy taxes on any kinds of cars and automobiles that use these.
Aleks Krotoski: Failures, right around the world.
Lord Stern: So you've got half a dozen market failures there, all of which are important and all of which require public policy. If that public policy is put in place and if it's credible, if people can see it lasting, then it seems to me the power of the market forces will be, I think, so strong that this will be bigger than previous [inaudible].
Larry Elliot: Some have said that what governments should do is what Kennedy did in the early 1960s and say "Our mission" - when he said "Our mission is to put a man on the Moon" - if the governments got together and said "Our mission is to tackle climate change within the next 20 years", that would give very strong signals to the private sector to innovate and invest in the way that America did put a man on the Moon in eight years, I think it was, after Kennedy. Mission-oriented finance.
Lord Stern: You need really strong statements about the trajectory and where you're going. That's why our climate change legislation is so important. Institutional structures, long-term policies where people believe, have reason to believe, that that long-term commitment's there. And you do see quite - you do see very powerful responses, and the innovation we've seen in the last ten years is quite remarkable. And that's on policies which are sort of believable. If we were - if we strengthened the degree of commitment, if we build the development banks, if we have carbon floor prices that are credible, and so on, if we keep that up, then I think the innovation which we're seeing beginning, and is already strong, would really accelerate. So I think - I think you're right but it's not just declarations. You've got to have mechanisms - institutional structures, policies, financial backing - that are credible, over the medium term.
Larry Elliot: On the other hand, there are forces of conservatism here, I mean the fossil fuel industry is quite power- I mean very powerful, enormous lobbying power, draw parallels between, you know, the arguments used against tackling fossil fuels, same arguments were used by the tobacco companies in the 1950s. Is that a valid comparison, do you think? Do you think the fossil fuel companies will eventually be seen in exactly the same way as the tobacco industry is today?
Lord Stern: In some ways, for some of them, it's a valid comparison. Indeed some of the same people involved, actually, as were trying to undermine the science which linked tobacco and ill health. So it has been worrying. I think that that is much less strong than it used to be, I think people are seeing the failure of attempts to undermine the science, I think the increase in the people are seeing the strength of the science behind this. But there has been an attempt to undermine, it's to some extent still there, I think it's getting weaker with the power of the science itself, and I think scientists are getting rather better at communicating that.
Aleks Krotoski: Bill McKibben feels that as well as people finally accepting the science, they're also accepting the economics.
Bill McKibben: You know, it's no longer me on Rolling Stone writing about stranded assets and carbon bubbles - now it's the World Bank, now it's the Governor of the Bank of England, Mark Carney, explaining that stranded assets are very real, now it's Tim Yeo, the guy from the energy committee, the Tory telling BP and others that by 2030 they're not going to be burning anywhere near as much fossil fuel, because the world simply won't be able to allow it.
Aleks Krotoski: And this recognition of the carbon bubble and the precarity of the stocks and shares that are in fossil fuel companies is being questioned.
Naomi Klein: Over the last few months, or even a year, there has been growing awareness in the financial community that companies that were once seen as sure things - coal companies, oil companies, gas companies - that those companies have built-in long-term risks.
Bill McKibben: It's also quickly reaching the point where investors are thinking carefully about whether they want to keep investing in this stuff anyway, because it's very clear that if the world ever acts on climate change, these stocks lose most of their value.
Naomi Klein: Those companies, as it stands now, are overrated, potentially. Their value is overrated. And so holding on to them, in the long term, is not a very good economic thing.
Aleks Krotoski: That was the conclusion of the Rockefeller Brothers Fund, who control about $860 million in assets, and who last year divested themselves of all fossil fuels. Stephen Heintz, President of the fund, said that he reckons that John D Rockefeller, the astronomically successful founder, would have divested from fossil fuel companies, had he been alive today, for sound economic reasons.
Stephen Heintz: I'm convinced that if he were sitting here today, he'd be cheering us on and he'd be actually leading the investments in the new energy economy, because he would see that's where, in the longer term, there is real opportunity. This new economic analysis from people like Carbon Tracker gave us the opportunity to say "Gee, you know, there's both a moral argument here but also an economic argument, that in fact these investments are going to start losing value and, over time, the alternative investments in the clean energy economy are going to gain value and why not be at the front end of that trend, as opposed to wait and catch it in the middle".
Aleks Krotoski: Did you suffer any losses, dumping the...?
Stephen Heintz: Uh, no, we worried a lot about that, we worried that we were going to leave a lot of money on the table, in the process, but we really didn't, and um, at the end of the year, and I don't remember the numbers offhand, but we had a pretty good year - I think the overall year performance was something around 7.8%. So it was pretty good.
Aleks Krotoski: Okay, so light green looks pretty rosy. But can it happen in time? Nick Stern's wishlist - will it make its way to the international climate change summit at the end of the year?
Larry Elliot: If you look to the road ahead to the Paris meeting at the end of this year, those commitments don't look like being nearly enough to fit in with what you're talking about, in relation to the climate science, do they. I mean, those commitments are too weak, and we need... How do we get to actually toughen up those commitments?
Lord Stern: Well, in this next 9 months or so, between now and Paris, we've got to look for stronger commitments. The second thing is to look for what we're embedding in the Paris agreement, ramping up of ambition. So you meet every four, five years, see how we're doing, recognising that gap, working on ways to bring it down, and we need to build into the Paris agreement that review mechanism and the ramp-up mechanism. And of course we should be looking particularly at innovation and the finance of infrastructure investment, so that we've got the new ways of doing things and we've got the finance in place, so that with the right kind of policies, those investments can come about.
Aleks Krotoski: And another blot on the light green canvas - divestment. The Rockefellers are pretty convincing about the financial implications of leaving their funds in fossil fuels. But Larry is not convinced about whipping them out for solely economic reasons.
Larry Elliot: Most of the fossil fuels are not owned by individual companies, they're under the control of governments, and it's hard to see why, for example, the Russian government would be that affected by a divestment strategy.
Aleks Krotoski: And here Larry has opened Pandora's Box. Because light green needs to focus on where the biggest change will happen. That's in the developing world.
Larry Elliot: Most of the emissions in the future, over the next 25, 30 years, are really not going to be coming from already developed, rich western countries. The build-up in carbon emissions is essentially going to be coming from developing countries.
Dieter Helm: China is very, very coal-intensive - it has been responsible for a substantive chunk of the total increase in global emissions since 1990. You have together a real sense of the importance in respect of this. In India's case, even more so.
Aleks Krotoski: Dieter Helm.
Dieter Helm: I'm Professor of Energy Policy at the University of Oxford, and author of The Carbon Crunch. So what do we do? Well, one thing is that we should pay, in the west, for the carbon emissions in the stuff that they've produced for us - that's what a carbon border tax is about. That's why, for example, in Britain in particular, carbon consumption's been rising ever since 1990 - we've just been displacing our own industrial production for imports from overseas countries, China in particular. If we imposed those kinds of burdens, we take the money, but of course if they have their own carbon tax, they keep it and we don't take it. So we have an international game here, if you like, where trade is absolutely essential to show that we're serious about not distorting trade with polluting products.
What will really leave the oil, coal and gas in the ground is if we have an alternative technology, or technologies, to product energy at comparative cost. But if there's one area where markets can't deliver, it's R&D and technology. But we have to put some perspective on this - we can't find even a billion to develop the new technologies. And my guess is that rather like the Stone Age not ending because of the end of stones, in the old cliche, actually what will kill the fossil fuel world is that we'll find better and cheaper ways of getting the energy out. And that's what we should spend our money on. And I'm personally pretty optimistic about that. [Sound of a whistle blowing.]
Aleks Krotoski: Half time. Orange quarters on the sidelines.
Larry Elliot: I've got to the stage where I've interviewed half a dozen people, I've skim-read probably half a dozen books, written notes in the margin and I'm an old-school journalist so I take shorthand notes of what people say and then go back afterwards and pick out the most interesting parts.
Aleks Krotoski: Back to the pitch. Option Three - deep green. Introduced by our special correspondent Felicity Lawrence.
Felicity Lawrence: The consensus, economically, in recent decades, the sort of neoliberal consensus, has been that we have to have growth, we have to have unfettered markets, and that we deregulate to allow that to happen. The global ecomomy has actually grown almost five times over half a century ago, and if you want to do something about climate change, you have to bust this myth, that the only way for economics is relentless growth.
Tim Jackson: So, let's start with something nice and easy - if you could say who you are and what you do...
Felicity Lawrence: This - the guy who's really wonderful and eloquent is Tim Jackson; I suggest - I sent the paper to Alan, because he's the real intellectual underpinning of it but he also is a beautiful writer and philosopher, so he's able to articulate it really well.
Tim Jackson: Mm. My name is Tim Jackson and I'm a Professor of Sustainable Development at the University of Surrey. I have a - at the moment I have an ESRC research fellowship here, a professorial research fellowship on prosperity and sustainability. Let's start with, you know, what the economic system is supposed to do. And ultimately, I think, you know, there's at least a reasonable supposition that the economic system is supposed to deliver prosperity. Now, to some people, those two things are the same, that the rise in economic output is the same as the rise in prosperity, and I think that's, you know, that's one of the assumptions on which the existing system sits.
Felicity Lawrence: At the moment, all success is measured in this GDP growth, and the minute there's a blip in growth, politicians panic and there's some disaster and we have all sort of efforts focussed on stimulus to restore growth. And the idea that growth economically depends on more and more people consuming more and more and more... And you can't do that - we've reached the planetary buffers. There aren't enough resources left, so we have to rethink that, we have to come up with a new form of economics.
Tim Jackson: Prosperity, in its original meaning, is about doing well, it's about living in accordance with our hopes and our expectations - it is, to some extent, about hope and so it's kind of ironic, in a way, that the existing system, in trying to deliver prosperity, is undermining hope by undermining the conditions on which our future prosperity actually depends. So there's a fundamental distinction there, that if - if it's about prosperity, if it's about doing well, then its's - the next question is: what are the conditions of doing well? And the conditions of doing well, of course, to some extent, are about nutrition and they're about housing and about shelter and about security - that's undeniable.
But beyond those material conditions, which actually largely were met in the developed world and in particular in the UK, in more or less in the post-war period, beyond that fulfilling of material conditions, actually prosperity is about different things - it's about our friendships, it's about our family, it's about our sense of community, it's about our health. It's a number of tasks which are partly social and sociable in character. Then, there is the question of how to build the economy which makes that possible.
And in that task, I would start from basics. I wouldn't start from saying, you know, "We have to have neoliberal free markets, in which this form of financial capitalism is exactly as we've seen it in the last 20 years", because we know that that actually isn't delivering that kind of prosperity, it's not delivering it in a socially equitable way and it's doing it in a way which is destroying the environment.
Aleks Krotoski: Someone who has written up what an economic solution could be, that doesn't embrace the neoliberal consensus, is Canadian author, social activist and film-maker Naomi Klein.
Naomi Klein: So, if it's a little under an hour, it will help me a lot to get to my appointment on time.
Aleks Krotoski: It'll be far less than that, Naomi.
Naomi Klein: Okay, let's go.
Aleks Krotoski: Naomi Klein published a book earlier this year called This Changes Everything, which suggests that to solve climate change, we need a radical new politics and a radical new economics.
Naomi Klein: Yes, so the argument in the book is that it's not too late to prevent catastrophic warming. The road we're on will change everything about our physical world. We can get off it, but we've waited so long that getting off it requires changing pretty much everything about our political and economic system, and by that I mean we live in this age of dereulation and austerity and low taxes for the rich. Um, if we take climate change seriously, we need massive investments in the public sphere, we need to reverse many core privatisations of energy systems and transit. Um, and the good news is: this will create a better and fairer economy, it will create millions of jobs, it will create fairer energy systems where the wealth stays in communities, where people have control over their energy systems, and it will close the gap between rich and poor within our countries and between our countries.
Aleks Krotoski: The Guardian's editor Alan Rusbridger has read the book, heard the arguments.
Alan Rusbridger: One of the criticisms of your book which you must be familiar with, Naomi, is that actually you just don't much like capitalism. How do you respond to that criticism?
Naomi Klein: Well, I don't really understand it as a criticism, unless the implication is that I'm manufacturing my concern about climate change, right? Because it supports the thesis - and that's simply not true. I do have a critique of capitalism and overconsumption, that I would have, whether or not it was causing the climate to warm. But I - you know, I see these issues as intimately connected, I mean, we know that an economic system that acts as if resources are finite [?] will deplete those resources, and one of the impacts of that same system is that it acts as if our pollution sinks are infinite as well, and that's what's happening with the atmosphere. But climate change, I think, deserves to be seen as part of a broader ecological crisis of depleting those pollution sinks and depleting finite resources, and you know, it also has extremely damaging social impacts as well.
Alan Rusbridger: So it's not - it's, it's simplistic to say this, that you want to get rid of capitalism.
Naomi Klein: Well, I think it's simplistic to say that I want to get rid of markets. The argument I make in the book is, you know, it's not about doing away with private property, no. But would you call an economic system that is as deliberate as the one I'm describing, where we make these kinds of choices, where we expand the public sector quite dramatically, where we put very real restrictions on markets - you know, it would be a much more mixed economy than we have right now. And I think that the challenge this poses to the growth imperative makes it a challenge to the fundamental propulsion of capitalism. Frankly, I don't - I am not too hung up on whether or not, at the end of that, that is called "capitalism" or not. I'm very clear in the book that industrial socialism was just as bad for the climate as capitalism. But we are talking about a massive economic shift.
Aleks Krotoski: Close of play. You heard the three options. Larry's on deadline.
Larry Elliot: The first option we looked at was "do nothing". This is the appeasement option, really, I think. It's: allow this problem potentially to become much, much worse, because you see costs in doing something about it now. Um, I think that's a dead end, that approach. We also looked at the green options, of which there are two main ones.
Aleks Krotoski: There was the dark green option.
Larry Elliot: I think the dark green option has something to be said for it, but I don't think it's a feasible answer to the problem.
Aleks Krotoski: Why not, Larry? I love the good life. We could do that, couldn't we?
Larry Elliot: We have to take account of the system that currently is, I mean, I'm a social democrat, I don't believe in revolution, particularly - I don't think revolutions ever really work, I think capitalism is there because it's actually delivered an amazing amount of prosperity to a large number of people. Do we really want to return to a sort of pre-1750 form of economy? I don't think that's remotely possible.
Aleks Krotoski: One remaining option.
Larry Elliot: So that leaves us with light green. I think the light green option makes a big carbon-bubble type crash less likely, because you're not saying "Leave all this stuff in the ground right now" - what you're doing is leaving the most dangerous stuff in the ground. Part of it involves a carbon tax, some of it involves changing the way we live our lives, some of it is going to involve making a priority of getting out of the worst forms of fossil fuels, so that might mean making a transition from coal to gas. But in the end, I think, it's the only feasible way forward.
Aleks Krotoski: It's a big ask of us, of our political leaders, of the power of global diplomacy. Question is: can we, will we do it?
Larry Elliot: It is doable. It is possible to get us off this path, and onto something better. It is feasible, but it is going to be very, very hard - anybody who suggests this is going to be a stroll in the park is deluding themselves.
Aleks Krotoski: Next time, we climb inside your mind in our episode on the psychology of climate change.
James Ball: Hey, I'm James, I'm the special projects editor of the Guardian, and I think I should just quickly confess - I find climate change really hard to engage with.
Aleks Krotoski: The biggest story in the world is narrated by me, Aleks Krotoski. It's produced by Alannah Chance, Lindsay Poulton, Matt Hill, Nabeelah Shabbir and Lucy Greenwell. Sound and mixing is by Chris Wood, head of Audio is Jason Phipps, and the executive producer is Francesca Panetta. Subscribe.