Are Economics Spelling Our Doom?

Mainstream Western neoclassical economic theory has caused strong reactions in the kitchen sociologist* in me this week. The more I understand it, the more disillusioned I become about its possibilities help us to prevent dangerous climate change. The reality is that, particularly in these times of crisis, economic considerations are salient in all decision-making. This often means that much of policy-making world-wide ends up being in fundamental conflict with trying to prevent a 2°C global temperature rise.

The negative feelings were stirred up by a book by Frank Ackerman titled Can We Afford the Future? The Economics of a Warming World from 2009, which I picked up from my university library. Ackerman, a well-known critic of conventional economic approaches to climate change from the Stockholm Environment Institute, makes several compelling observations that show the limits and problems of contemporary economics: Most importantly, certain things, like biodiversity and human life, are priceless. By way of an example, there is no way to put a numeric value on lives lost due to the droughts in Somalia, or on the potential complete disappearance of species like the Orange Spotted Grouper (commonly known as Hamour) from Gulf waters due to overfishing.

Secondly, contemporary economic calculations, based on discount rates, are generally incapable of dealing with long-term issues like climate change, which will span over centuries. And thirdly, action against climate change needs to be thought in terms of insurance: insuring our future, not in terms of cost-benefit analysis. According to Ackerman, climate economics starts going wrong right from the beginning by assuming that business as usual (or inaction) is a desirable state of affairs always if a cost-benefit analysis of a policy or an action does not indicate otherwise. To take an example from recent events, should Western governments become convinced that the financial costs of the UNFCCC’s Green Climate Fund (consisting of transfers from the developed to developing countries, amounting to US$100bn annually by 2020) will be higher than the total achieved financial benefits from the resulting mitigation and adaptation efforts, then they most likely should not strive to deliver those funds just yet. Away with notions of equity, responsibility and precautionary action; it’s just too expensive right now!

A similar logic applies governments and economists that suggest that it is better to wait for certain energy technologies, like renewables or CCS, to become economically more viable in relation to fossil fuels before large-scale employment. Meanwhile, the invisible hand of technology development will take care of climate change mitigation. Dubai at least seems to think along these latter lines, if judged by its recent, rather embarrassing 1% renewable energy target by 2020. (For a comparison, similarly fossil fuel-poor Morocco is aiming at 42% of total installed capacity by 2020.)

Like myself, Ackerman belongs those of us who thinks that "the status quo is not an option". Our business as usual is taking us to dangerous climate change. He argues that while climate policy must continue to be based on sound economic knowledge, what needs to change is the set of values that guides choices between different options. Fighting and solving climate change, ultimately, as Ackerman expresses it, consists of “ethical and political judgements about what we can and should do for each other today, and for the generations that will follow us”.

I’m sure most people can agree with this. Most will, nevertheless, also dismiss Ackerman’s message as idealistic and far removed from reality. Here we arrive at the core problem of climate change: not only in economic theory, but more generally, in the much-spoken global shift to a low-carbon economy, the risk of losing money in the short term still seems to be considered by our decision-makers as the greatest risk of all. Not global inequality, the destruction of species, biodiversity, human lives—or even the entire planet.

Sustainable development in most societies still predominantly translates, in the minds of businessmen and decision-makers, into economic, rather than environmental, sustainability. This is of course most apparent in developing countries where socioeconomic development and fighting poverty comes first on the agenda (and partly justifiably so). Particularly in the MENA region, the economic crisis, coupled with the Arab Spring, is reinforcing the regional tendency to keep forgetting this “other ‘E’”. Most standing Arab governments now regard economic sustainability as more crucial than ever. From Morocco to the United Arab Emirates, maintenance of the status quo is sought through controlled political openings, but it is the governments that have been able to afford to throw money at the problem through price freezes and increased public and welfare spending who have been the most successful in (re-)establishing stability—for the time being.

This process, in which securing short-term economic security becomes perceived as pronouncedly important, notions of social and environmental sustainability (saving natural resources and enabling sustained wealth and welfare for future generations by tackling the current energy and lifestyle-related environmental problems) are in a real danger of getting largely sidelined.

As said, confronted by the financial crisis and related popular unrest and protest, avoiding short-term economic losses seems to be the prevailing logic determining most government responses to the issue of climate change, not only in Dubai but elsewhere in the world too. If this weren’t the case, we would not be steadily heading towards three or four degrees of global warming. As recently noted by Christina Figueres, the Executive Secretary of the UN Climate Convention, there is currently a 40% gap between emission reduction pledges and the 2-degree limit. Most worryingly, unlike Ackerman who wrote his book before the 2008 downturn, given the economic realities, I don’t see an alternative model of thinking, “a better economics”, taking over anytime soon—and definitely not in time for the COP-17 meeting in Durban. Someone please disprove my fears.

* Back in my undergraduate times, pretending to be scientific while analysing anything from consumer habits to global injustices used to be called kitchen sociology.