Stern warnings

28/10/06

“We are sleepwalking to catastrophe” said the Environment Secretary, David Miliband, last week in the latest dire warning about climate change. He is wrong. We aren’t sleepwalking; we are walking towards catastrophe fully awake, with our eyes wide open.

There is no longer any significant dispute about the scientific evidence for global warming. Even the last of the climate-change sceptics, the Danish statistician, Bjorn Lomborg, now accepts that climate change is happening, that we are responsible for it and that the worst impact will be felt in the developing countries. He announced as much during a recent debate at the Edinburgh Parliament Futures Forum.

The only remaining argument is whether it is worth doing anything about global warming right now. Many economists have argued that it makes little sense to destroy the world economy in the interest of combating a problem which may take decades to develop. This has been the standard response of the American Right.

Until now. For, even the market case for doing nothing will be destroyed tomorrow by a report prepared by the former chief economist of the World Bank, Sir Nicholas Stern. He will say that the world is in imminent danger of the most profound economic dislocation in history - a recession more serious than the Great Depression, a disruption more devastating than the Second World War. And the cause will be global warming.

This is no woolly-minded tree hugger, but a hard-headed conservative economist. The World Bank, for which Stern was Senior Vice President, has been widely criticised for its neoliberal policies and its promotion of free-market globalisation. For someone with Sir Nicholas Stern’s background to say that we are heading for an economic black hole is like George W. Bush apologising for Iraq.

Why should there be a recession? Well, the capitalist economy is composed of markets, which are made by humans guessing about the future. This is what the FTSE or any hedge fund is: a group of investors speculating about the future worth of a company, whether it is making cars, producing energy, leasing planes, lending money.

Investment is all about risk. So far the markets have not started to factor the risk of global warming into their speculations. But pretty soon they will have to. Insurance companies like Swiss Re are already agonising about how to set realistic premiums when no one knows the future risk anymore because of climate instability - extreme weather events, hurricanes, droughts, epidemics.

We know that the seas are going to rise. At present melting rates, summer ice in the Arctic will be gone in sixty years, and all that frozen water will go into the oceans.
So where does that leave house prices in flood planes and low lying areas like central London? Where does it leave low-lying nuclear power stations?

What happens when investors realise that air travel, motor transport, power generation and all the other carbon-based economic activities no longer have a future? We know that this is the case right now. The government’s chief scientist, Sir David King, says that Co2 levels in the atmosphere will reach catastrophic levels within thirty years. The horizons are getting very short.

Mass air travel can only have a decade or so left. Cars as we understand them have maybe fifteen years before we start riding around on electric trikes (bring back the Sinclair C5). When cracks were discovered in the pipes at the Hunterston B power station on October 16th, the share price of British Energy collapsed by 24%. Imagine what will happen when the government says that Hunterston will have to be moved to higher ground to avoid inundation?

Then there is mass migration, desertification, disappearing lands. At present the world economy is in denial about climate change, but eventually it will wake up. By then it might be too late.

Climate scientists have been trying to alert humanity to its greatest ever threat for most of the last decade. Last week alone there was confirmation that the destruction of the Larsen B ice shelf in 2002 was caused by Antarctic global warming; that the Gulf Stream was actually turned off briefly in 2004; and that a six year drought South Australia has been caused by climate change. Prime Minister John Howard, a sceptic, has now been persuaded that even Australia has to join the climate consensus.

Can the capitalist economy come to the rescue? Stern will argue that there could be economic benefits to tackling the carbon economy. We know this very well in Scotland - or at least we should. Sitting on our vast reserves of untapped renewable energy, with the first commercially viable carbon-capture project waiting to go on line in Peterhead, we could build the first post-carbon economy tomorrow.

But there is something about market economies that makes it very difficult to make this kind of change other than through economic crisis. This is because it is very difficult to plan for change when you are leaving all the key decisions to economic speculators. They tend to act, not calmly and rationally, but with the instinct of the herd, as they did after the dot.com frenzy in 2000.

Capitalist development is all about discontinuities, “creative destruction” as he great economist Joseph Schumpeter called it. But this might be a destruction too far; we cannot afford wait until the market makes its own climate change correction.

It is as if, right at the moment when the world needs a leap of human technological ingenuity, we have lost that capacity for adaptation that made our species so successful. We have instead become fatalists, passive objects instead of agents of renewal. The market is seen as some kind of inviolable force of nature. Politicians are hypnotised, irrationally convinced of its infallibility in the face of all evidence. We keep waiting for the free market to somehow make it all right.

It is not that we are incapable of acting collectively, even in a capitalist environment. During periods of crisis, like the Second World War, societies like ours were able to achieve extraordinary feats of organisation based on a selfless and single-minded pursuit of the common good. There’s a lot of evidence that collective, altruistic behaviour is hard-wired into the human animal. We tend naturally to form associations in which the interest of the individual are subsumed in the interest of all.

Yet here is a global emergency, a crisis of Biblical proportions, and we seem to have lost our ability to act. We are still promoting air travel, building roads, turning out millions of internal combustion engines, constructing houses that waste energy on a massive scale. Well, we say, the Chinese are building a new coal-fired power station every week, so why should we bother?

Unfortunately, the triumph of liberal capitalism came at precisely the wrong moment for humanity. Never before in history have governments been so reluctant to intervene as they are today, at the very moment when they must. We are all waiting for the market to tell us what to do.

Well, the market will get the message in the end, but it is likely to be through the greatest stock market panic in the history of capitalism. Then will we see what has been staring us in the face.