Climate emergency? It's the economy, stupid

Juan Palenzuela

Climate emergency? It's the economy, stupid

The industrial revolution brought humans a plethora of benefits, but our impact on the environment since then has been steep. Sustainability efforts might not be new, but it wasn’t until the end of the 20th century that they caught on in the mainstream and, even then, mostly among rich Western countries that are still struggling to curtail their anthropogenic carbon emissions. By the time the Kyoto protocol of 1997 expired in 2012, most signatories had abandoned their pledges and the Paris Agreement of 2015 seems to be destined for the same fate.

Like the technological changes that powered the industrial revolution, we need to devise new fundamental economic and political changes if we are to muster an effective response to climate change. But rather than viewing environmentalism as the latest weapon with which to fight the horrors of endgame capitalism, I suggest that the solution lies in harnessing capitalism to the benefit of the environment.

Research provides plenty of evidence for “economic voting”. It is particularly present in large polluters like the US and India, where voters tend to choose their leaders on the basis of their perception of their country’s economic performance. That performance is measured principally by one indicator in particular: Gross Domestic Product.

By definition, GDP is the added value produced in an economy within a year; the sum total ?of all the products and services at each production stage, minus the input costs of producing the goods and services, such as raw materials. While GDP is a comprehensive and useful measure in many respects, there is a clear discrepancy between it and the actual state of the economy. Regardless, the indicator itself holds considerable weight when people are forming their perceptions of an economy’s performance, which in turn influences voting decisions, and ultimately shapes policymaking. The latter occurs even in non-democratic states like China or Russia, as authoritarian regimes care too about the perception of their economies, and they often set – and endeavour to reach – GDP targets.

Traditional criticisms of GDP include that it overlooks volunteering, the underground economy, and ignores the role of unmonetised labour. Another as yet unaddressed concern is that it doesn’t take the long-term cost of pollutants into the equation, despite the fact that these costs will inevitably be borne by countries in the future. For example, governments will have to invest in new infrastructure and contingency plans to face the consequences of the man-made climate emergency. Why then, shouldn’t this be accepted and recorded as a cost of producing the current output?

By taking into account these costs, the indicator will necessarily be different (it will be nominally lower). It also means that the short-term perceptions of the economy, which we know shapes voter behaviour, will be more closely tied to long-term sustainability. This way, politicians will no longer have to choose between short-term GDP boosts and long-term sustainability, and they will in fact be incentivised to consider the impact of their policies on an ongoing basis, regardless of the context. Creating policies that yield minimal pollution will result in lower input costs and thus higher GDP. Citizens will form their perceptions accordingly, and the voter phenomenon will do the rest.

Implementing a new measure of economic prosperity will also give us a more accurate picture of the true added value of an economy. Perhaps lawmakers could pass on the cost to citizens, incentivising all of us to change our habits by implementing carbon taxes.

The challenge, of course, is in estimating a fair value for the cost of polluting inputs for each country. Unlike the other components of the GDP calculation, the cost of the climate crisis is a burden that all countries must share. How should individual countries allocate this cost, then? It will probably depend on which country you ask and would doubtlessly vary wildly from state to state. You don’t have to try too hard to come up with ways of questioning and undermining any such scheme.

However, the fact that a puzzle is difficult, shouldn’t be reason enough not to try solving it. We need to act now to find new ways of ensuring climate costs are recognised as part of the bigger economic challenge and that GDP growth and environmental sustainability are bedfellows rather than strangers.