Climate change science is clear and undeniable in its general thrust. Climate change politics by contrast are murky and uncertain. Peter Newell and Matthew Paterson have spent nearly two decades researching and writing about the politics, and their new book Climate Capitalism: Global Warming and the Transformation of the Global Economy reflects all the uncertainties and ambiguities.
They well understand the suspicions and anxieties felt in relation to the capitalist economy by many who take seriously the threat of climate change. The economy’s growth has been fed by increasing CO2 emissions and many of its actors seem heedless of the need to change that dependence. The early business response to climate change was automatic denial. More than that, positive attempts were made to discredit the scientific base on which the case for action was made and to give the impression of widespread public opposition to action. Some companies are still stuck in those responses and in some sectors of the economy they seem likely to remain vociferously opposed to the economic transformation required.
However the authors see no likelihood of the abandonment of capitalism or its dependence on growth. For them the question has to be how capitalism can be configured to grow while gradually replacing coal, gas and oil. It’s a very difficult task but not a hopeless one. They point to those within the world of business and finance who have come to realise that the science will not be gainsaid and that the costs of action would not be disastrous. In a variety of ways those firms have begun to discern economic opportunities in a low-carbon economy. For sunrise industries, the nuclear industry and biotechnology companies the advantages are clear. For others reputation management and corporate social responsibility are to be considered. Overall there is a tendency to see failure to anticipate likely possibilities as a business risk — risk to reputation, risks of legal liabilities, risks of losing out on new market opportunities. It remains a mixed picture, but there is a policy momentum likely to keep the issue relatively high on the executive agenda.
Whether we like it or not, neoliberal capitalism has already shaped the character of our response to climate change. That is why emissions trading has become the preferred policy approach, ahead of environmental taxation measures. The authors comment that emissions trading became almost unstoppable once the dominant financial actors realised its potential as a new market, with its derivatives, options, swaps, insurance, and so on, and thus as a profitable enterprise.
The power of investors is to some extent being felt in driving an orientation to face climate change issues. One example is the Carbon Disclosure Project (CDP), effectively a consortium of investors who write annually to corporations listed on stock exchanges asking them to report on matters relating to CO2 emissions and their perception of risks from climate change. The uptake has been impressive and by 2008 the CDP was backed by $57 trillion worth of assets from over 3000 financial institutions. Investment growth in renewable energy has been considerable in recent years. The book recognises that, given the neoliberal context we live in, mobilising the money of large institutional investors like insurance companies and investment funds will be crucial to the transformation to a low-carbon economy.
The authors lead the reader patiently through the apparently bewildering variety of mechanisms by which the demands for a flexible carbon market are addressed. Of particular interest is their examination of the Kyoto Protocol’s Clean Development Mechanism and its emission credits whereby purchasers in the North can enable projects in the South. It has proved far more popular than expected, though in practice the book acknowledges that it has not yet delivered the benefits that many hoped for and expected, and critics continue to see it as a fraudulent mechanism that lets rich countries off the hook.
As the explanations proceed it becomes very clear that market governance is the key to whether a market-based approach to climate change will succeed in reducing emissions. The book tackles this squarely. A market requires more than a minimum of creating property rights and enforcing contracts. It needs rules by which trading can occur, elaborate accounting systems to measure emissions and make companies report on them, and complex methodologies to estimate whether a project has reduced emissions. The authors distinguish three basic sorts of governance. First, by quantity. Here rules are set which establish overall limits for carbon emissions, allocate them among different players, and enforce those limits. Second, by price. In emissions trading schemes so long as the targets produce scarcity a price is created for carbon emissions permits which exerts a governing effect on behaviour. Price can also be affected directly, through carbon taxes. Some governments have instituted such taxes and the authors consider they should remain a possibility if necessary. The third type of governance is by disclosure, where business and other actors are required to report on their emissions profile.
How good is all this governance at present? Not very, is the impression given. Targets set are often too weak. The flexibility allowed in meeting commitments means that carbon offsets are not sufficiently rigorous. The voluntary market is particularly prone to such problems. Can we learn and improve? The authors think the EU has made considerable improvements to its emissions trading scheme as time has progressed, tightening its allocations and data collection methods. The voluntary carbon market has also considerably strengthened its certification schemes.
In the very uncertain future for climate capitalism the authors have a preference for what they call climate Keynesianism, where strong governance directs the markets more closely towards the goal of decarbonisation and integrates them globally, including a green Marshall Plan-type global scheme. Their filling out of this vision is central to the positive view they have tried to achieve of the potential of a capitalist economy to successfully meet the climate challenge.
The book is sympathetic to those whose interest in climate change is driven not by the potential to make money but by the gravity the issue poses. But, say the authors, we have to understand how capitalism works if we’re going to have any chance of success in dealing with the threat in a humane way. It’s not easy, and it’s urgent. However there have been significant transformations of capitalist economies in the past. They instance the Bretton Woods system after the second world war which in a short space of time created a new global deal that produced an unprecedented period of smooth, rapid economic growth. On the technology side their analogy is the development of the railways in the mid-nineteenth century, a messy affair involving a number of entrepreneurial engineers acting competitively, and one which had far-reaching effects on daily life. They urge novel and probably uneasy alliances – environmentalists and venture capitalists for example – as we assemble the necessary coalitions to rewrite the rules of the global economy.
In the course of developing its major themes the book is valuably informative on many of the details of carbon markets and trading. The reader who wants a better picture of complicated systems within reasonably brief compass will be rewarded.