The economic consequences of a climate emergency mobilisation

It would certainly be expensive to conduct a full-scale emergency mobilization. However, ‘expensive’ is a subjective reference point. It can only be considered relative to the cost of not acting and to the economic results of the mobilisation, including its economic benefits.

The whole area of modelling something that has never occurred before is challenging. There are however useful reference points that can guide us in regard to the costs. For example, assessments of dramatic emissions reduction programmes concluded they would require in the vicinity of 1 - 3.5% of GDP. It is reasonable to assume a full-scale emergency mobilisation, which would be much faster and more disruptive, would require in the range of 5 - 10% of GDP dedicated to the task. This compares to WWII for example, where the war effort required 30 – 50% of GDP in key countries involved, though for fewer years than a climate emergency mobilisation would likely last. It is a large undertaking, but it is within the parameters of what can be considered doable and reasonable, given the context and the historical evidence of other emergency responses.

More critically however, is the framework in which we consider such things as ‘costs’. Unlike war, where a large amount of the money spent is ‘wasted’ in terms of economic productivity, an emergency mobilization would:

• Be dominated by investments in productive assets;

• Deliver clearly beneficial social and economic outcomes;

• In many cases lower costs for both individuals and society.

Investments in new power generating capacity would bring an economic return for decades. The electrification of transport and the shift to renewable power generation would lower consumers’ costs and dramatically reduce outdoor air pollution, which kills around 4.2 million people each year according to the World Health Organisation. An emergency mobilisation would unleash innovation in technology at a massive scale that would most likely deliver lower cost and more accessible energy supplies around the world, while also enhancing energy security and thus reducing related economic uncertainty and military spending.

Such potential beneficial outcomes have been widely studied [FN2]. From this it seems highly likely society is underestimating the economic and social benefits of an emergency mobilisation. It could in summary leave our energy costs lower, energy supplies more secure, our cities cleaner, more people employed, and human health improved through better diet and cleaner air. It is likely it would also reduce inequality both within and between nations.

While we shouldn’t underestimate the upsides, nor should we ‘sugar coat’ the downsides. There will be significant economic losses. Productive assets that become stranded, market devaluations of major companies, social costs of economic change and many others. These ‘downsides’ also need to be considered. However, they can’t become an excuse to delay as the cost of not acting is so much higher. But they are real costs that need to be understood and managed.

As in all economically disruptive transformations, such as those driven by technology, there will be winners and losers. Based on the historical evidence, it is likely many of today’s major companies won’t survive the transition but will rather be replaced by new companies. This is the normal market process of creative destruction, where incumbents are often replaced by disruptors. While this has social consequences that need to be managed, it is not an argument against policy change. The public good is not negatively impacted by a transition of wealth between sectors and policy should not be designed to protect incumbents.

As has been argued by others, “Policy should protect the future from the past not the past from the future.[FN3] ”

A crucial question for policy makers, investors and corporate leaders is the question of compensation or other market interventions to deal with private losses. A climate emergency mobilisation will create large losses for some industries and they will argue, as companies always do, that this is ‘unfair’ and ‘unexpected’ so they should be compensated. This would be wrong for two reasons.

Firstly, it is neither ‘unfair’ nor ‘unexpected’. Carbon risk has been well studied and widely debated in the corporate and investment community for decades. So, the idea that private wealth should be ‘compensated’ for choosing to ignore the risk, then seeking to socialise their losses, makes no economic sense.

Secondly, there will be enormous economic demands on the state during this period, including to manage the social consequences of economic change, often referred to as a ‘just transition’. Therefore any ‘rent seeking’ by the private sector should be rejected as it will use state resources needed to legitimately compensate and manage the consequences for the workers and communities affected.

Footnotes

FN2 For further reading on the economic and social benefits of transitioning to a low carbon economy via climate emergency mobilisation see:
The Global Commission on the Economy and Climate (2018) Unlocking the inclusive growth story of the 21st Century: Accelerating climate action in urgent times. World Resources Institute. https://newclimateeconomy.report/2018/wp-content/uploads/sites/6/2018/09/NCE_2018_FULL-REPORT.pdf

IRENA (2019). A New World – The geopolitics of the energy transformation. Global Commission on the Geopolitics of Energy Transformation. http://geopoliticsofrenewables.org/Report

FN3 The phrase “policy must protect the future from the past, not the past from the future”, was originally penned by tech futurist Tim O’Reilly, in 2012, describing the challenge for regulators when confronted with the emergence of disruptive and innovative business models. This now popular phrase has proved useful in helping communicate the climate emergency and the disruptive change that comes with it. Alex Steffen’s 2016 paper ‘Predatory delay and the rights of future generations’, used the phrase to emphasise the absurdity of global policies protecting the institutions causing the climate crisis, instead of responding to the crisis with the speed and scale that it demands. The phase was also used in a recent Breakthrough discussion paper by Spratt & Dunlop ‘The third degree: Evidence and implications for Australia of existential climate related security risk’. In this instance, the phrase was used to urge governments to model future scenario planning around the climate emergency, rather than relying on historic trends.