The cost of climate change

Mood: Angry

I was reading the front page of “The Australian” today, and apparently scientists and economists are having a hard time predicting the exact economic impact of reducing our carbon emissions (and hence, obviously, saving the environment). They\’re talking about power stations closing, household prices shifting, and so on.

So-called “free market capitalists” are decrying any moves to regulate anything as being damaging to the economy, cutting jobs. The free market will sort it out, they say.

I see one enormous problem with everyone\’s thinking on this. The very reason why the capitalist system has been so successful: Change creates opportunity.

That\’s the reason why you can\’t model the impacts of this change: The outcomes of all these opportunities will be the product of the collective inventiveness of private industry to accomodate them, and nobody knows what radical means will be invented to do this, but invented they shall be.

What\’s more, government already regulates heavily to prevent harm to society from industry. For example, they discourage you from killing anyone in the course of doing business. This had to be legislated, and is now in operation in most countries, and we seem to be doing just fine.

So, by extension, we shall accomodate the costs of not killing the environment. The only question is when those costs are imposed.

To summarise: If the government regulates to reverse the damage to our environment (whether by a tax, or regulation, or law), then surely this will create an economic cost. But it will also create a need, and therefore new economic opportunities. The whole point of the capitalist system is that it is resistant to these kinds of shocks – industries emerge to accomodate the new reality (i.e. high cost of emitting CO2) and everyone proceeds on their merry way and makes megabucks.

And sure, you need to keep the shock small enough that everybody doesn\’t starve. But then, if it\’s too small we\’ll all starve as well – that much is certain.

To digress momentarily: In engineering, you always make things 3 times stronger than you need them to be, because there\’s a chance things will get worse than you think.

Which is why it infuriates me so much that governments the world over are only legislating to implement the merest fraction of the required changes to stabilise our environment.

I suspect the reason for all this resistance and hyperbole is one simple fact: When environmental cost is finally factored into production costs and a new status quo emerges, the people who are now at the top will be at the bottom.

If you became rich from the Century of Oil, then I think it\’s safe to say that the good times are over, one way or another. The only remaining question is whether we let them take us down with them.

4 Replies to “The cost of climate change”

  1. I don’t know about the top people ending up on the bottom… Most of them should be able to just transition their investments out of Oil and other high carbon fossil fuels and into the new greener alternatives fairly rapidly, most of the money is in public companies isn’t it?
    It’s just the oil corps themselves that’ll have to downsize.

    Also, I’m somewhat inclined to get nit picky about ‘saving the environment’ as removing the imminent threat of carbon emission just moves us on to the next thing that’ll kill it (my bet is on overpopulation and general resource consumption outpacing resource renewal)

  2. Your reply makes sense as long as wealth == cash. Actually, most wealth is tied up in investments, and if those investments are suddently worth a lot less you can’t just transition that wealth to something else.

    Most of the billionaires in the world are billionaires “on paper”, because their wealth is tied up in investments that have a large market value. Very little of their wealth (usually) is tied up in cash.

    I’m not saying they’ll end up on the bottom, but they’ll certainly move waaaay down. Perhaps far enough that they won’t be able to fund their lavish lifestyles with the dividends from companies whose profit is derived from creating an unsustainable burden on the environment.

    Yes, after the CO2/global warming crisis there will be another crisis. And yes, it will largely be driven by our unsustainably large population. But that’s hardly a rational argument for not solving the current problem.

    There is no single fix that will solve all these problems in one fell swoop.

    What, exactly, is the problem with saving the environment, if by extension we can save ourselves too? Isn’t this a win-win situation?

  3. Yeah, you’re right, saving the environment is a good thing, the nit picky thing is stupid and largely irrelevant.

    On your wealth != cash comments, I was thinking shares rather than cash itself, and shares can be dumped hella quick.

    You don’t cite any sources and I don’t have any so I guess it’s just a case of I reckon vs you reckon on that one but I reckon individuals have oil investments in shares which they can dump quickly rather than owning companies and infrastructure directly.

    Obviously they’ll have other slower moving investments but I’d expect that to be more along the line of property which isn’t really likely to be hit by a move away from oil & coal.

    I agree with your sentiment that we should move to cleaner energy sources, I also agree that many rich people are against the change because they stand to make a packet out of the current status quo, but I disagree that a major change is likely to hit richies on average any harder than it hits everyone else.

  4. You still don’t seem to understand: shares == ownership. Shares are what they say, they are a “share” of ownership of those oil investments – the pumps, the infrastructure, the companies.

    Also, when people dump shares hella quickly, the value of those shares immediately plummets. By definition something nobody wants is worth very little. If you can’t find a buyer (which often you can’t if suddenly that business can’t make money) then you are, by definition (and almost instantly) worth a whole lot less.

    Machines that produce something nobody wants are only good for scrap. The owners of those machines (usually via shares) are then by extension worth much less than before. It’s unavoidable.

    Definition of shares: http://www.answers.com/topic/share

    The reason why very wealthy people diversify their portfolios is indeed this whole problem of suddenly being worth nothing. The more well-considered definitions of diversification include stocks which “hedge” – one stock is sure to go up as another goes down, but both generally grow with the state of the economy.

    This whole push to Nuclear from the powers that be is partly about reducing the risk that the existing distribution mechanisms for energy will suddenly be worth nothing. If we start getting our energy from wind, solar, etc, then we no longer have to distribute our energy along big transport routes of boats, trains, trucks etc. to monolithic power stations.

    Given that the vast majority of money is made through distribution and not production (that’s my guesstimate), hence the push.