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Markets and Technology May Hold Out the Real Green New Deal: Part I

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Inclusive Capitalism must encompass sustainability initiatives. The global community widely recognizes that we need to get on a trajectory of limiting global warming to 2°C (3.6°F) by to reach net zero by 2050. We’ve been warned by the UN that we’d be better off still holding to a 1.5°C target—this would mean tens of millions fewer people exposed to life-threatening heat waves, water shortages and coastal flooding. Whichever way you slice it, government action is not going to achieve this.

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Although the severity of the environmental crisis is gaining renewed traction with some Democrats, such as  congresswoman Alexandria Ocasio-Cortez, there are serious flaws in her Green New Deal or, as we’ve been calling it in the UK, Green Keynesianism, which casts the state as the only real funder of the public good. In this case, bringing the environment back from the edge of the precipice would involve huge government spending—hence higher taxes and/or debt would be incurred. The Modern Monetary Theory argument espoused by senator Bernie Sanders holds that this wouldn’t matter, as governments can print money at will. In the U.K., we have the same argument advocated by the left, branded as the People’s QE (quantitative easing).

Of course, Keynes produced so much material on economics that you could cite him in support of almost anything, but there’s a further conundrum that supporters of Green Keynesianism can’t resolve: the perceived tradeoff between green initiatives, which they see as  anti-growth, and growth initiatives, which they see as anti-green. In our free market economy, we will always need the latter to pay back the former. This circular argument could—and if the internet is any indicator, clearly does—go on and on, the most absurd extreme coming from those who want to reduce or reverse growth until we are environmentally neutral and living in pre-industrial yurts.

However, these arguments overlook the simple fact that markets have access to funds that dwarf those available even to free-spending governments, and much of it is earning very low returns. Indeed, around $12 trillion globally is invested at negative interest rates. No individual would give their fund manager $10,000 on the basis that they would get $9,500 back in ten years’ time—yet this is happening at a global level.

Surely any return, including a return from green investment, looks attractive in comparison. So things are not so binary after all: there does not have to be a zero-sum game between doing good and being commercial, nor do we have to rely on the government’s capacity to tax, print and spend money.

Business is increasingly aware of the need to, for example, limit carbon emissions, and has been on a path to do something about it. There are more and more examples of markets and technology delivering solutions to decarbonizing the environment—cheap solar energy, nuclear fusion, battery technologies, and increasingly useful electric vehicles that will become more affordable than internal combustion vehicles, to name just a few.

And government can help by laying the course, focusing regulation in such a way as to support these initiatives. As the Green Keynesianism school would have it, investment is indeed required. But as my ongoing platform on Inclusive Capitalism holds, this investment can—and should—come from businesses rather than from taxpayers and cash-strapped governments. Companies need to lead remediation efforts—or at minimum, slow down the process of making the earth uninhabitable. Investments in these projects can be made from existing funds, and can earn healthy returns—hence, no significant green/growth tradeoffs. It is also in companies' best interest to shift to a 2°C trajectory, or face being left with "stranded assets" such as coalfields, oil reserves, and water intensive crops. These can be quantified: one report finds that 60 to 80 percent of coal, oil and gas reserves held by public companies are “unburnable” if they are to remain within the 2°C limit.

For business, and especially for big companies with capital and the vision to use it wisely, there is no more pressing issue or greater opportunity than climate change. A rise in temperature of more than 2°C would mean climactic catastrophe. To do nothing and simply extrapolate from today’s business position implies a 4°C rise with enormous consequences. The pathway will be determined by constraining carbon emissions. In the U.K., some organizations are responding directly with a call for ‘mission connected investment’—Ethical Markets’ Mission Possible is one such initiative, highlighting the problems imposed by heavy industry and transport. However, countries like the U.K. should not overstate their impact, as there is still a wholesale exportation of carbon to developing, third world countries. The crisis is one we have seen coming for a long time, but one to which we have yet to form a coherent response.

Climate crisis is not the same as financial crisis, where a bank bailout can plug the holes of a recession until the market rebalances itself.  Climate crisis requires massive intervention with debt, equity and insurance players all stepping up, supported by policy and regulatory changes within an inclusive capitalism framework.

The government's role, meanwhile, is to nudge business along. Consumers will support these initiatives... after all, who doesn't want cheaper heating or transport?  Not to mention a planet where it’s still pleasant to walk in the park on a spring day?