Peace in Our Time?

A friend in my first year of University had a poster of the picture shown opposite with the caption “Before you make deals abroad be sure that you know what they mean.”  With two days left of the COP15 and ministers arriving I would not be surprised if a “political agreement” which can be written on a piece of paper and signed by the assembled leaders will emerge.  How much such an agreement will mean in practice is questionable.  So more than 70 years on another British Prime Minister may come back from a meeting in Europe, declares that the paper he holds has meaning, that the signatories can be trusted and that disaster has been averted.  Plus cá change.

The link has previously been made by several commentators that addressing climate change is akin to fighting a war.  I think this analogy is apt and if we were to link it specifically to the Second World War I think our leaders are still in the “Appeasement” stage of 1937 to 1939.  They are still hoping that small reasonable action will be sufficient rather than addressing the threat head on.

Successfully addressing both mitigation and adaptation requires an enormous transfer of economic resources away from where the market currently allocates them towards climate change tasks.  This requires intervention by states quite possibly on the scale of fighting total war.  The political ramifications of these actions in a democratic system in “peacetime” are extreme.  Again to use the WWII analogy, to fight the war the UK introduced strict rationing covering food, petrol and clothing and men were conscripted both to fight and to work in strategic industries such as coal mining.  Democracy was also partially suspended.  No general elections were held for a decade between 1935 and 1945.

Are we really serious about the threat climate change represents and the scale of the action required?  Are we ready for the social implications of a worthwhile (i.e. binding) agreement?  Or are we just hoping it will be all over by Christmas?

Sleepwalking into a Steady State

A steady state economy is the ecological economist’s vision for sustainability.  The economy is limited in physical scale relative to the size of the eco-system and throughput of matter and energy are kept within ecological limits.  Economic growth and the policies required to promote it are seen as intrinsically harmful (at least in the developed world) entailing greater social and environmental costs than the benefit economic growth.  This idea has not caught on in policy circles and those who advocate them are generally seen either as quaint idealist or dangerous revolutionaries.

The outcome of the 15^th Convention of Parties (COP15) in Copenhagen this month is far from certain but, ignoring political realities for a moment, would a serious (and upheld) agreement to limit carbon emissions to the level that scientist are claiming is necessary actually result in the first steps towards a steady state economy?

If carbon emissions are to be limited this will require fossil fuel use to be limited.  A binding agreement on carbon is a de facto limit on energy throughput.  This would result in a huge cut in the world economy’s energy budget.  Since all systems, and the economy is no exception, grow or shrink due to available energy this would result in economic growth stagnating.  A sustained contraction in the size of the economy, known by those still thinking in a growth paradigm as a recession or depression, would be a likely and quite possibly necessary result of a binding and ambitious agreement at Copenhagen.

With an energy limit in place there is probably no need for further global regulation on matter throughput.  Matter moving through the economy is refined and altered by energy inputs.  Thus a limit on energy also acts to limit matter throughput.  With these two limits in place and the world economy readjusting in scale we are well on our way to achieving a steady state.

The problem is in the transition to this stable state may be through severe instability.  Prolonged economic contraction is a serious, and possibly mortal, threat to the continuation of the world financial system.  Furthermore the inequalities of the rich and the poor in the world means that distribution of a limited flow of wealth becomes essential.  The poor are quite rightly not going to sit idly by whilst they are condemned to eternal poverty in a steady state economy.

Unless these transitional problems are highlighted, and debated a sustainable climate agreement is not possible.  Social and economic instability during transition will represent a huge temptation for governments to renege on the deal, increase their energy budget and gain some short term relief from the pains of transition.  Capping our energy is required and will cause significant economic and social upheaval but governments have a duty beyond “sealing the deal” to consider how they will protect the basic access to resources for everyone during transition in some form of rationing to prevent the poor being trampled as the rich adjust.

Copenhagen could (though I doubt it will) be the first step towards a steady state economy.  Recognising that this is the implication is important to prevent disaster during the transition and to maintain the required agreement.  Sleepwalking into the social and economic implications of transition will likely be more harmful than confronting them consciously.  For Copenhagen to be successful governments really need to wake up.

The end of the world as we know it?

Property booms can do funny things to people’s sense of proportion.  Nowhere is this more apparent than Dubai’s “The World”.  Dredging up sand and rock to create a man made archipelago that looks like the land masses of earth is undoubtedly impressive as engineering feat.  It’s almost all the more impressive for the fact that part of you knows that it’s unjustifiable on environmental, commercial or social grounds.  Something about it is undeniably cool just for it sheer audacity.

Alas it looks like the Dubai property boom has come to an end with many projects half completed and with no real purpose (none more so than a number of interestingly shaped islands).  It is becoming clear that Dubai is having some difficulty in servicing its vast debt.  Even if some agreement is found to restructure this burden appetite for investing in Dubai is unlikely to return.  So a sense of proportion is returning almost like financiers waking up the morning after the night before. “Wow, what a great party, I’ve got this vague memory that a one point we thought spending $14 billion to create some cool shaped islands a great investment.”  The hangover is only just about to kick in.

This leaves us with some questions; who has invested in this project (and Dubai more generally),  for how much and who might step in to bail Dubai out?  Everyone seems to expect a bail out because too many people were involved with this farce but who?  Dubai World, the conglomerate that has driven expansion in the emirate, is reported to have $59 billion in liabilities, almost three quarters of Dubai’s total liabilities of $80 billion.  Standard and Poor have just down graded all six state backed corporations in bond rating, some of them to “junk” status.  Abu Dhabi may step in but haven’t committed to it as yet and if they refuse to all bets are off.  Since the answers to the first two questions are at best unclear a third arises.  What might a default by Dubai mean for global financial markets?

All in all there would be something deliciously ironic if finance for The World brought down finance for the world.  In the meantime keep an eye on Dubai.

Engineers, Economists and Politicians

Which one of the above is the odd one out?  The engineer; the other two don’t live in the real world.  The Institute of Mechanical Engineers have released a report suggesting that the UK government’s plan to cut CO2 emissions by 80% by 2050 are physically impossible.  They argue that there is insufficient capacity in the economy to manufacture the wind turbines and nuclear reactors required and that crucially there are insufficient trained engineers in the workforce to deliver these projects within the government’s projected timeframe.

The response from the Department for Energy and Climate Change (DECC) was as follows:

“The Institution of Mechanical Engineers’ can’t do, won’t do attitude is sending out a defeatist message ahead of the crucial climate change talks in Copenhagen.  The truth is that if we act now we can not only beat climate change but gain from the green benefits that will flow in terms of jobs and investment from going low carbon. That’s what our transition plan is already doing, so it’s a shame the Institute is not embracing the vast opportunities available for engineers in the shift to a low carbon economy.”

So there!  There’s nothing like reasoned engagement with criticism from government.  Statements such as this make me see why this government is lampooned in Private Eye as being akin to the Soviet regime.  If it’s in the government’s five year plan it must be possible.  Be quiet you unpatriotic, defeatist, intellectual.  What could you possibly know about a shift to a low carbon economy?

Economists are not well renowned for existing in the real world either but on this occasion I think would have to back the engineers.  Too often politicians and economists forget that when considering issues of macro-economics the constraint is real production.  If financial flows (such as the ‘investment’ in the above statement) are to mean anything they have to be backed up with real, valuable things.  This is where engineers come in.  New economic capacity is built over time rather than appearing magically out of the blue.  Transition will not occur through government decree or by clever financing but by practical people building the new systems we need.

Carbon Backed Money

My search to find official recognition of Prosperity Without Growth was not entirely fruitless.  Amongst the other documents for download from HM’s Treasury I found this little gem produced by Feasta (Foundation for the Economics of Sustainability, see link opposite) inputting into the Stern Review on the Economics of Climate Change.  It’s a couple of years old now and doesn’t take account of recent events in the financial markets but not withstanding that still has an interesting idea to put on the table.

This paper recognises that the current financial system is based on debt produced money (97% of money in the OECD).  More money and economic growth is constantly required to prevent the debt laden financial system from collapsing.  New growth is constantly required to service old debts.  Without growth the current financial system collapses with all of the real social effects that we have witnessed over the past year magnified many times over.  As such much as politicians would like to concern themselves with social and environmental aims these are always trumped by the need for economic growth.

Feasta recognise that if global green house gas emissions are to be rapidly curbed fossil fuel usage will have to be rapidly reduced.  This would cause economic growth to slow and quite possibly be negative for a protracted period.  A long depression caused by contraction in the real economy would be likely to bring down the global financial system.  For sustainability to be achieved therefore Feasta insist that the global financial system must be overhauled.

Feasta also recognise that whether by peak oil or by climate change restrictions the price of energy is going to increase in the coming years.  They also note the importance of not simply allowing distribution of this vital good to be left to the market.  In times of shortage (such as war) even very market oriented governments have introduced rationing systems to protect the poorest from being priced out of an unregulated market.

They suggest that a global buyer’s club for fossil fuels be created and that rights to buy fossil fuels be granted to governments on the basis of population.  Developing countries with currently no need for their full allocation could sell their ration providing them with resources for convergence.  The benefit beyond being a global cap and trade system is that it also puts effectively a new currency, not based on debt and with the seignorage benefit accruing rather more evenly across the world.  If the financial system does collapse having at least one hard currency left could be rather useful.

Prosperity Without Growth

The Sustainable Development Commission released its report “Prosperity Without Growth” in March this year arguing that economic growth no long makes us prosperous in the developed world.  Tim Jackson, the lead author of the report, has used and expanded the work to produce a book of the same name which was launched last week.

The report and following book have been welcomed in sustainable development and climate change circles.  Support for the book has come from many individuals including such heavy weight economists as Anthony Giddens, Robert Costanza and Herman Daly.  Some seem to think this is one of the most important books to come out this year, with one individual stating that this could be as important to sustainable development as the Brundtland Report.

This begs the question as to why when I typed “Prosperity Without Growth” into the DEFRA, Number 10 and Treasury search boxes I didn’t manage to find it.  I found a single reference to on a search on the Conservative’s website, contained within a speech which then went on promote “green economic growth” which misses the main theme of the report.

It would appear that while the Sustainable Development Commission is an independent advisor to the government, the government can and does ignore much of what it produces.  Herman Daly is quoted as saying that Prosperity Without Growth “Provokes official thought on the unthinkable.”  I wish it did but I’m still waiting for the evidence.