Poverty, Green Growth, and the New Industrial Revolution

Last week I went to a series of lectures by Professor Nicholas Stern, author of the hugely influential 2006 Stern Review. For those of you familiar with the contents of the original study, these talks did not necessarily provide much novelty, but, as an overview of the economic and political ramifications of climate change, the message dispensed through them is vital and important. I'd heartily recommend that you all take a little time out to review the slides and listen to the podcasts here, here, here, and here.

Stern is certainly an eloquent speaker and his ability to transcend the worlds of academia and public policy is particularly impressive. His appeal for a new industrial revolution to combat climate change risks is sensible, and, more importantly, achievable. The difficulty lies, as he makes clear, in galvanising the political will to take definitive action against the hazards of global temperature increases.

I won't go into too much detail on the contents of the talks because his podcasts will undoubtedly do the topic more justice, and his forthcoming book sounds like a must-read for anyone with an interest in the economics of climate change. I will, however, highlight just a few of the points that most appealed to me, partly because they help to validate much of my own thinking, and partly because his central arguments have such far-reaching consequences for international development.

The most vital sentiment I took away from these lectures was the idea that there simply cannot be any passengers in this battle. To keep to a roughly 50/50 chance of a 2C rise in temperatures, world emissions need to be cut by a factor of 2.5, which is equivalent to lowering emission flows from nearly 50 billion tonnes in 2010 to less than 20 in 2050. If we account for a conservative growth in output of a factor of 3 over this time, then we need to cut our emissions to output ratio by a factor of at least 7. In case anyone was in any doubt about the scope of change needed, these figures should leave you under no illusion. We are talking about making industry between 7 and 8 times more environmentally efficient by 2050. That is a huge task.

It is largely these figures that explain the title of this lecture series, 'Climate Change and the New Industrial Revolution,' because the scale of the changes required necessitate no less than a complete reappraisal of business practice in general. Little good comes of targeting specific industries or sectors (though obviously larger efficiency savings in some areas can help mitigate more sluggish change in others). We must instead revolutionise the way in which the whole of our world economy is run. From the largest fossil fuel emitters right down to the average household, we all need to live much more efficiently.

Stern is also keen to demonstrate the important link between combating poverty and combating climate change, describing this story as one of "deep injustice." One of the most distressing features of global warming is that those peoples that played historically little part in fossil fuel emissions will be those that are hit earliest and hardest by rising temperatures and sea levels. Because of this injustice, reasons Stern, we cannot insist upon treating the small remaining carbon space that we have as a commons. The fossil fuel reserves that we can still safely use should be focused on helping developing and undeveloped countries to grow and build their own sustainable futures. The rich countries were the ones that reaped the whirlwind, and it is the rich countries that must take the lead in correcting their failure. 

Not only does this make sense economically, it is a moral imperative. If we picture reserves as currency, it would take a hard heart to claim that a poor man and a rich man alike should both be given an equal amount of cash. It is far more just and equitable to prioritise the needs of the poor man, over those of the already rich. By allowing poor countries to develop quickly, whilst rich countries lead the way in technological innovation, we can hope to overcome the two greatest challenges of our age, poverty and climate change. Who knows, in 200 years time people might look back on this period as a turning point for the better in human history.

Beyond these two core arguments, Stern also provides a refreshingly sober analysis of the role of the state in tackling AGW. As I have mentioned in previous blogs, the argument, or supposed argument, between the private and public sector has taken on such a toxic quality that we have reached the point where some on the right perceive any State intervention, no matter how slight, as a gross violation of liberty. Stern gives this view short shrift. The argument, he maintains, that the markets should be free to navigate themselves out of this mess does not take account of the fact that it was market failure that caused it. By utterly failing to properly cost the environmental damage produced by fossil fuel driven growth, markets have locked us into a road to ruin. Even the most fervent free-market economist recognises that in an instance of market failure, the State needs to intervene to provide direction. Indeed, many see this as the State's key, and perhaps sole, responsibility to the economy.

The tone of Stern's first two lectures was largely optimistic, in spite of the scope of the challenge he presents. He makes it clear that we are pretty much aware of what has to be done, we are pretty sure of the amount of investment required (roughly 2% of annual GDP), and we are already seeing rapid technological innovation. What we are clearly lacking, as he discussed in the third, is the political will to enact these necessary changes. The reason for this becomes obvious by a simple comparison. If we look at the British economy during the Second World War, people were united in their recognition of the need to combat the threat of fascism in Europe. There was no objection when the economy was transformed into a centralised war machine. Today, in contrast, it is very difficult for a public, who are not necessarily familiar with the science, who are preoccupied with a fiscal crisis, and who are regularly subject to denialist drivel, to perceive the dangers and risks of climate change, that, no matter how real, seem distant and opaque. When we think of these things, our current lack of political will becomes increasingly understandable.

This, then, is our major task. We simply must get better at communicating these risks and making them more relevant to the person on the street. We have the knowledge, we have the ability, we have the money and the expertise; all that is lacking is the will power. It is one thing to know that we can do something, but quite another to know that we will do it.