Saturday, October 1, 2022

The climate emergency is not part of the cultural war

Some comentators argue that the left makes a mistake to focus on cultural wars about gender and identity, instead of focusing on social class and income or wealth inequality. I am very much in favor of focusing on social inequalities, although I am also convinced that these should include categorical inequalities such as those related to gender and ethnicity.

It is also common to add environmental issues to the list of “cultural issues,” as if the climate emergency was some aesthethical concern related to birds and landscapes. That would be a very serious mistake. The environmental catastrophes that we are facing are a human social concern, because they will affect dramatically more the poor, and because unless we transition to a carbon-neutral world in an equitable way, we will never have carbon neutrality. Also, because it is a matter of social solidarity with future generations. Thanks to economists like Nicholas Stern, now we know more about how to address these issues.

Since the publication of the Stern Review in the first decade of the 21st century, two important trends stand out in terms of knowledge about climate change and the tools to deal with it: first, the problem is worse than first thought (containing the average rise in temperatures to 2 degrees Celsius is not enough) and it is happening faster; but second, there is new evidence that technological change to base the economic system on non-polluting activities is more affordable and faster than expected. The cost of renewable energy has fallen considerably, the expansion of electric vehicles has been faster than expected, and the adoption of healthy dietary patterns has become widespread.

For humanity as a whole to cope with the problem of climate change, a different kind of economic growth based on rapid technological change will be necessary. This will require high levels of social coordination. This need and virtuality of coordination is associated with an acceleration in the adoption of new technologies. The existence of non-linear temporal evolutions, that is, subject to rapid accelerations, increases the risk of unambitious and slow reactions. These overly slow and unambitious reactions are often based on short-sighted economic models (or misconceptions about “culture wars”). In a table on the "failures" (failures or imperfections) of the market mechanism that occur in relation to climate change, Stern shows in a recent article that these are more than those traditionally considered when the phenomenon has been addressed by economists. Traditional economics focuses on the imperfection of the market associated with the external effect (or externality) that occurs when polluting. The solution in this case is a tax that "internalizes" the externality, or a regulation that prohibits emitting more emissions than those that result from taking into account the interests of all affected parties, or a market system of emission permits that put a socially optimal price for emissions, resulting in incentives similar to those resulting from a carbon tax. 

However, in a broader and more realistic view of the climate change phenomenon, the negative externality is just one among several failures of the market mechanism to be considered. It is in this sense that the author proposes to change the way in which economists develop their research work, to take into account this broader perspective. Specifically, Stern believes that five other market failures must be taken into account, and public policies developed to correct them. These five additional market failures or failures are i) the incentives for technological innovation (people who innovate do not take into account the positive externality they generate, thus requiring public support policies); ii) the imperfections in the risk allocation markets and in particular the financial markets (financial mechanisms must be introduced to reduce risks and reduce the weight of dirty technologies); iii) the need for coordination in a variety of networks and systems (which makes it necessary to improve urban planning policies to ensure coordination, for example, of energy and transport networks); iv) information problems (which lead to a lack of knowledge on the part of many agents about the possibilities of new technologies); v) the need to consider benefits that go beyond those that can be obtained through the market, such as the valuation of ecosystems and biodiversity. Even if we limit ourselves to strict negative externality analysis, the risks of moving too slowly are potentially huge, and there are increasing returns to scale, fixed costs and uncertainties in key industries, so setting standards and regulations is also necessary in addition to taxes. A great challenge for action is how to promote collaboration and act together, which raises important questions from the point of view of social institutions and mutual support. The analysis of the necessary changes would be incomplete in this sense if the distributional effects at the international and local levels were not taken into account, in order to move towards a rapid transition that is just and is perceived as such, while developing institutions that survive political changes. Economics, in connection with other disciplines, can contribute to accelerating the changes necessary to stop climate change, provided that it broadens its perspective.

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