Street Smart Economics | Polluters try to sell you on the idea of buying a solution without seeking actionable change
We are running out of time to avoid climate disaster.
As signatories to the 2015 Paris Agreement, more than 190 governments have pledged to keep the increase in average global temperatures to well below 2°C above pre-industrial levels, and ideally to an increase of only 1.5°C. The stakes are high: failure means a very high risk of catastrophic climate change, with feedback mechanisms triggering unbearable heat waves, massive migration, mega fires, droughts and desertification of lands, and the flooding of low-lying cities.
The Intergovernmental Panel on Climate Change estimates that global emissions need to fall by 45% from 2010 levels by 2030 and reach net zero by 2050. And yet, global emissions continue to rise. According to a 2022 UN Environmental Program report, “Policies currently in place point to a 2.8°C temperature rise by the end of the century. Implementation of the current pledges will only reduce this to a 2.4-2.6°C temperature rise by the end of the century.”
So what gives? In short, most governments remain unwilling to pursue significant changes to existing systems of production and patterns of consumption. The U.S. government, for example, continues to act as if it believes that corporations will, in response to incentives and subsidies, produce the technologies and products needed to reduce future emissions and even remove existing emissions from the atmosphere, all while sustaining positive rates of growth.
Unfortunately for us, this is a losing strategy: it leaves in place an economic system that benefits the wealthy at the expense of the many. And there is good reason to doubt market forces will lead profit-seeking corporations to do what is necessary to avert a climate catastrophe. If we want a sustainable and equitable economic system, we are going to have to develop the organizations and institutions that will allow us to directly plan it.
Smoke and mirrors
Few corporations now outright deny the dangers of global warming. However, rather than change their ways, they have developed new products, initiatives, and claims designed to convince the rest of us that capitalism can green itself.
One example is the sustainable finance industry with its designated environmental, social, and governance (ESG) rated funds. The claim is that by allowing investors to direct their money to firms pursuing progressive policies, these funds will promote the efficient evolution of the economy in an environmentally desirable direction. Unfortunately, studies have made clear they actually do little to encourage “green” investing.
In fact, research reveals that there is little difference in the corporate composition of ESG and non-ESG index funds. The main reason is the firms developing the rating systems that asset managers use to create their funds are unregulated and generally use criteria that ignore or discount behaviors that would put the firms being rated in a bad light. As Bloomberg notes, “MSCI, the largest ESG rating company, doesn’t even try to measure the impact of a corporation on the world.”
The carbon offset industry is another example of green capitalism’s false promise. In brief, companies unwilling to change their business model can still tout their environmental commitment to reducing emissions by buying carbon offsets, basically a purchased unit of promised emission reductions usually provided by a company specializing in the business. The most common carbon offset projects involve reforestation, building renewable energy, carbon-storing agricultural practices, and waste and landfill management.
However, as with sustainable finance, there is little evidence that the carbon offset market is doing much for the climate. For example, the Guardian newspaper recently conducted a major study of the top 50 emission offset projects (those that have sold the most carbon credits in the global market). It found only three of the 50 fulfilled their promise.
Moreover, some of the biggest users of carbon credits appear to have lost interest. The chief executive of oil giant Shell recently announced that the company was ending what would have been the world’s biggest corporate plan to use carbon offsets. Instead, it will concentrate on its main profit drivers, oil and gas.
Of course, green capitalism is not limited to these initiatives. In fact, some analysts point to the ways in which changing market dynamics have encouraged a number of important new developments: the boom in solar and wind production, growth in use of electric vehicles, development of new plant-based foods, and adoption of new environmentally friendly standards for residential and commercial buildings and home appliances.
Some countries have even succeeded in reducing their CO2 emissions while maintaining growth. This “absolute decoupling” is said to demonstrate that market forces can ensure continued growth and compliance with Paris Agreement temperature limits.
Unfortunately, empirical support for this claim is weak. Scholars Jefim Vogel and Jason Hickel identified 11 countries (a group that did not include the United States) that had achieved absolute decoupling over the years 2013 to 2019 and compared their likely future emission reduction rates to those that would be required for them to remain within their “fair-share” (or population-proportionate share) of the remaining global carbon budget consistent with Paris Agreement limits.
Vogel and Hickel found that even these 11 countries would fall short of what was required. Specifically, “At the achieved rates, these countries would on average take more than 220 years to reduce their emissions by 95%, emitting 27 times their remaining 1.5°C fair-shares in the process.” Even the less stringent goal of 1.7°C “remained out of reach.”
What is to be done in the U.S.?
We need to do more in the United States to combat climate change. Beyond working to discredit the myth of green capitalism, we must work to build majority support for a radical transformation of the U.S. economy, one that can achieve both a significant reduction in energy and resource use and enhance majority well-being.
The starting point for such a transformation must be our energy system: the U.S. economy needs to transition as quickly as possible from fossil fuels to sources of clean energy like solar and wind. However, this cannot be a one-to-one replacement of energy sources.
As the scholar Michael Löwy explains: “Most renewable energies, such as wind and solar, need raw materials that do not exist on an unlimited scale . . . But the issue has a more general character: the production of most goods is based on the extraction of raw materials, many of which are becoming increasingly limited and/or create serious ecological problems in the process of extraction. All these elements point to the need for degrowth.”
Achieving an overall reduction in energy use will therefore require taking steps to curtail the provision of ecologically destructive and socially less necessary goods and services, including single-family mansions, giant sport utility vehicles, private jets, luxury cruises, fast fashion, industrially produced meat and dairy, single-use/disposable products and the like. Many of these goods and services are those consumed by upper-income households.
According to one study, “In 2019, fully 40% of total U.S. emissions were associated with income flows to the highest earning 10% of households.”
We can achieve further energy and emission reductions and contribute to a more peaceful world by dramatically reducing our military budget and global infrastructure for the projection of power. As Neta Crawford, Co-Director of Brown University’s Costs of War Project, points out, “the Department of Defense is the world’s largest institutional user of petroleum and, correspondingly, the single largest producer of greenhouse gasses in the world.”
The combination of greater clean energy production and reduced energy use will allow for a significant expansion in a number of socially beneficial goods and services, ensuring that our new economy will also deliver a more secure and higher quality of life for the great majority. In particular, that expansion should be anchored by a well-funded national health care system and public housing program, as well as support for affordable public transportation and community-run preschool and child care programs, universal digital connectivity, and regenerative agricultural practices. To ensure the benefits of these initiatives are also experienced at the workplace, we must develop and implement new labor policies, ones that will support strong democratic unions, living wages, full employment and a shorter work-week.
Market dynamics will not produce this transformation. Rather, its achievement depends on our ability to democratically plan and direct economic activity. Helpfully, we have the conversion experience of World War II to draw upon. Then, the U.S. government rapidly developed a series of mobilization agencies, investment and resource allocation boards, and policies, often in the face of corporate opposition, which enabled it to successfully convert the economy from civilian to military production.
Although that conversion experience cannot serve as a model for the transformation we need, it does offer useful lessons. Most importantly, that experience should give us the confidence that a rapid system-wide transformation is possible.
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