The climate crisis is fundamentally a crisis of politics. We can therefore address it democratically, and build a post-carbon society of justice and prosperity.
But tinkering won’t suffice. Timidity is the path to deepening climate apartheid, where those least responsible for breakdown bear the brunt of change, both in the UK and globally. Tonight’s climate debate is therefore urgent and well-timed. With all the major parties bar the Conservative Party committed to decarbonising the UK significantly in advance of the net-zero 2050 legal target, one question likely to arise is the cost of decarbonisation: how much, over what time period, borne by who.
The answer? We can more than afford it, we cannot delay, and those with the broadest shoulders and most responsible for the crisis must pay. And crucially, inaction has a far higher price.
Putting an exact figure on the scale of investment required for full decarbonisation is impossible. The level of finance needed is, at least in part, endogenous and highly uncertain given the time periods involved. Ambitious and deliberate market-shaping public policy backed by large-scale investment can drive declining prices and create cost efficiencies through mass deployment of low-carbon technologies and infrastructure, significantly lowering the overall cost of decarbonisation. For example, the price of wind power is less than half it was only a decade ago, and now out-competes gas in new power auctions, extraordinary changes not predicted at the time. It is therefore impossible to give a precise rate or total value of investment required to deliver transition.
The Committee on Climate Change estimate a net resource cost (total investment and running costs minus direct revenues) that on average comes to 1-2% of GDP per year to deliver net-zero by 2050. However, the scale of public investment required in the short to medium term is likely to be larger, for two reasons.
First, the headline measure of public investment scored by the Office for Budget Responsibility is not estimated net of any income from assets. Second, it is highly likely that full decarbonisation will need to be achieved well before 2050, and this will therefore imply a higher annualised level of investment. Indeed, rapid and just decarbonisation of our economy will require the largest peacetime mobilisation of resources in the UK’s history. We should embrace this challenge. Our ambition should be simple but transformative: as the country that gave birth to the Industrial Revolution and fossil-fuel capitalism, the UK should be the first industrialised society to comprehensively decarbonise, hardwiring justice and prosperity into economic and social life, and repairing the harms of past action.
Greater ambition in terms of the speed at which we decarbonise and the resources committed to that collective endeavour is vital for three reasons: justice, capability, and benefit. Justice, because the UK’s historic and ongoing role in cumulative carbon emissions and environmental breakdown demands we go further and faster than most, redressing past harms and ensuring we use as little of a share of the world’s remaining carbon budget as possible. Capability, because we have the capacity, technologies, and resources to deliver more rapid and just decarbonisation if we make a Green New Deal the national mission. And benefit, because the gains of bold and swift action outweigh the costs, building a healthier economy, environment and society and creating new forms of good, secure and meaningful work.
Most critically, delayed or slow-paced action today will increase the cost of decarbonisation and the abruptness of transition in the future, and, more to the point, the price of inadequate inaction overall is devastating if runaway climate breakdown occurs.
The financial system as currently organised is doing far too little to decarbonise our economy, and far too much to further inequality in our already deeply unequal economy. At the same time, it is privatising decision-making power over the future. For example, in just four years since the Paris Climate Agreement, globally banks have financed $1.9 trillion of fossil fuel projects with financing on the rise each year, while the world's top three asset managers oversee $300bn of fossil fuel investments. Without deep reform, private finance will accelerate climate breakdown. At the same time, public investment is currently too low to drive the scale of change needed.
At the heart of a just transition must therefore be a transformation of our financial system and approach to fiscal policy so that we can mobilise and direct the resources and investment needed to drive decarbonisation. To deliver this, three changes are required with respect to directing private credit flows: the reorientation of private financial institutions to serve social needs through the greening of collateral requirements, radically increased transparency requirements, and introducing binding green fiduciary duties for institutional investors; the repurposing of central banking to actively guide our economies through rapid transition including the use of new macroprudential tools and credit guidance, embracing the directive power and planning function of central banks; and deep reform of the institutions of international finance – including the IMF and World Bank – to help fund a global just transition.
But ultimately, we cannot rely on market incentives and private investment to drive the pace and scale of change required. A just transition will depend on a step change in public investment to drive and direct change. Matched to a green industrial strategy that can reshape production and consumption, an expansion in public investment – both from the Treasury and from a new network of mission-oriented public banks – is not only vital to drive decarbonisation. It is an approach that is affordable, beneficial and fair. Moreover, accelerating public investment is arguably the pre-condition to de-risk and crowd-in large scale private finance (under the right terms).
The existing parameters of debate around timings for net-zero are based on a model of “acceptable cost” – defined by the lowest cost of transition not the highest ambition. Yet together we can actively choose the values that determine what is costly and what is acceptable; that is the purpose and content of politics. To pretend that costings such as the CCC’s are apolitical estimates is to deny the deeply political nature of public spending. A radical approach should choose what we deem acceptable both for ours and future generations. This requires more than a lowest cost trajectory; both people and planet deserve the highest ambition investment pathway possible that would bring forward the process of decarbonisation and increase exponentially society’s capacity to decarbonise. The exact timing – and who will bear the cost of transition – is ultimately a political decision and one we should collectively define as a mission of the highest ambition.
Now is the time to invest. The UK’s macroeconomic conditions – weak aggregate demand, the historically low cost of borrowing, continued demand for sterling-denominated assets meaning the UK can issue bonds to cover the cost of spending – makes the moment ripe for an ambitious expansion of public investment, an expansion that would bring multiple, transformational benefits, from boosting productivity to improving health and wellbeing. Boosting investment therefore makes macroeconomic sense for the UK.
The scale of investment required will necessitate public borrowing which, when used to fund investment, is a virtue. Financing the cost of decarbonisation should be shared across both present and future generations given the benefits are spread over time. Investment now will benefit society decades into the future, the costs cannot nor should be borne wholly by today’s taxpayers. Long-term public sector borrowing is an effective mechanism for pooling resources and fairly spreading the costs of decarbonisation. Public investment based on borrowing is therefore a strength of any programme to deliver a just transition.
Achieving sufficient public investment at the pace and scale required will require two things in principle. First, the UK’s fiscal rules will need to be rewritten so that the costs of inaction, and the costs of not borrowing to invest, are considered in a balanced way alongside any possible risks to the public balance sheet. The value of public surpluses and low debt to general societal good is likely to pale in significance next to the damage of higher average temperatures and global sea rises. A new fiscal framework will be needed to reflect this.
Second, and relatedly, the UK will need far more deliberate coordination between monetary policy and fiscal policy. Explicit cooperation is needed between the Bank of England and the Treasury, in managing, maximising and deploying the scope for productive public investment. Part of this arrangement could make use of a new network of public investment banks to increase commercial lending to green industries, as well as the coordinated purchase of government debt by the Bank of England, in order to help keep public borrowing costs at an optimal level.
Beyond costings: the transformative purpose of a Green New Deal
How a Green New Deal is financed is arguably the easiest challenge to solve. What is urgently needed is a detailed, technical, and sector-specific set of roadmaps for rapid and just decarbonisation of the economy. But a UK Green New Deal must be more than a series of discrete policies to decarbonise the country. It must be a common project to transform society, extending freedom to all, and supporting new ways of living and working. The purpose is not just to decarbonise today’s economy but to build the democratic economy of tomorrow, one based on new and purposeful goals that centres what Tithi Bhattacharya describes as “life-making over profit-making”. That requires rapidly and equitably transforming the institutions, infrastructure, and ways of life of the carbon age in little more than a decade and dismantling the inequalities of fossil fuel capitalism that underpin our economy to ensure we can all flourish.
Such an economy would centre new kinds of work and value, rooted in solidarity, care and creative expression. As Alyssa Battistoni writes, it would be “oriented toward sustaining and improving human life as well as the lives of other species who share our world.” It would be based on a decolonising economics that would tackle existing and longstanding disadvantages experienced by marginalised groups, challenging the multiple and reinforcing forms of oppression that lace through our society. A Green New Deal would build new forms of stewardship to re-embed the economy in nature, ending the false separation of the economic from the environmental, scaling new institutions of communal flourishing, and rewiring control and ownership so we all have a stake and a say in decision-making that shapes our workplaces, communities, and society. And it would scale an expansive social commons, new forms of shared affluence, and build public, green infrastructures that support new forms of solidarity, creativity and commoning.
Such an agenda will require a decisive break with the status quo. Too often our politics seeks to insulate capitalism from democracy, to transform the economy into an object beyond the realm of politics, to privilege private power over common wealth. The Green New Deal must be its opposite: an embedding of the economy within natural systems by conscious design, a recognition of the plasticity of institutions and their political ordering, and a belief that deepening democracy and the capacity for democratic intervention in all spheres of society is a precondition for a better collective future.
There is no alternative
Inaction and timidity guarantee escalating breakdown, and their costs become greater the longer we wait to act. Proceeding with technocratic, managerial politics – a climate Leviathan – is not only anti-democratic, but risks securing decarbonisation at the expense of justice, amplifying the failures of an economic system that is driving climate breakdown. Still worse is the possibility that an ethno-nationalist response to climate crisis could triumph: a dangerous mix of a reckless defence of the commanding heights of the carbon economy rather than a justly managed transition, an aggressive acceleration of the inequalities of global capitalism, and the increasingly violent policing of people displaced by environmental crisis. A politics of incrementalism is thus not simply complacent, it is actively dangerous.
A “hothouse earth” of profound inequality, disruption and hollowed-out democracy does not have to be our future. We are not passive bystanders. But we are the last generation that can avert runaway climate breakdown and build the forms of resilience we need to cope equitably with the inevitable change to come. The window to act is narrowing though. Only transformative action – underpinned by a purposeful step-change in investment – can deliver this, rescuing our collective futures from its current trajectory. In the face of climate crisis, there really is no alternative.