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Kevin Anderson: Relying on market based instruments to address climate change is “doomed to failure and is a dangerous distraction”

Kevin Anderson is Professor of Energy and Climate Change at the Tyndall Centre at the University of Manchester. He’s one of the UK’s leading climate scientists. In a recent post on his website, he explains “Why carbon prices can’t deliver the 2°C target”.

Anderson’s arguments relate to a global target of no more than a 2°C increase in temperatures. Meeting this target requires rich countries (Annex 1) to reduce emissions by about 10% each year, “starting now and preferably yesterday” as Anderson puts it.

Anderson argues that underlying the problem of addressing climate change is, “the obstructive and misguided dominance of economics (or more correctly finance) in framing both the climate change issue and the mitigation agenda.”

Economists can’t even do their own job, as demonstrated by the widespread failure to see the 2008 financial collapse before it was too late. So why let them loose on climate change? In the post on his website, Anderson links to a brilliant ten minute talk about the “new priesthood of economics” by Will Self on Radio 4:

The relation between economic data, which are often imperfect and can only represent the state of an economy as it was some time in the past, and the future is tenuous at best. That’s why, if you spend sufficient time listening to these Panglosses or Cassandras, you’ll notice that more often than not they’re entirely wrong. Most spectacularly so, in their failure to anticipate the financial collapse of 2008.

Anderson points out that climate change is a cumulative issue. What matters is the amount of greenhouse gases in the atmosphere, and this amount is increasing all the time. Anderson explains this point in an interview with People and Nature:

kandersonThe climate change story has long been told in terms of “we must have large reductions in emissions by some abstract point in the future” – for example, an 80% reduction by 2050. The message conveyed is that, many years from now, we must have got our carbon emissions down by some arbitrary amount. But when you consider the science of climate change and how this links to the global rise in temperature, it is not what happens in 2050 that matters, but the total quantity of CO2 in the atmosphere. That is the carbon budget. We know how much CO2 we can put in the atmosphere for a given temperature – there or thereabouts…

Last week, at the launch of the latest Intergovernmental Panel on Climate Change report, Rajenda Pachauri, the chairman of the IPCC, said,

“An extremely effective instrument is to put a price on carbon. It is only through the market that you can get a large enough and rapid enough response.”

Anderson disagrees. He points out that, “Market theory does not address large (non-marginal) rates of change; and certainly 10% p.a. fits into the non-marginal category.” The evidence since the Kyoto Protocol is on Anderson’s side. Since 1997, there’s been plenty of carbon trading, but the concentration of greenhouse gases in the atmosphere has gone steadily up.

Anderson looks at what the price of carbon would need to be in order to achieve 10% reductions in emissions per year. This is where the pro-market arguments unravel completely.

The price would almost certainly be beyond anything described as marginal (probably many €100s/tonne)[4] – hence the great “efficiency” and “least-cost” benefits claimed for markets would no longer apply. Moreover the equity implications, even within the UK and similarly wealthy Annex 1 nations, would be devastating; but nonetheless would pale into insignificance compared with the impacts on the many millions of deeply poor, disenfranchised and powerless people around the world.

[4] Previous research demonstrated how even at €300/tonne the price of a typical flight would increase by only around 25%. It is unlikely that to frequent fliers, who typically have high incomes, such a shift would radically reduce their personal flying. Nor is it likely that a 25% increase, to just one aspect of the overall cost of work travel, would catalyse more than a marginal change to work related flights. See: Aviation in a Low Carbon UK pp. 89-109.

While “A carbon price can always be paid by the wealthy”, a realistic price on carbon (i.e. a price that would stand a chance of achieving reductions of 10% per year) would have devastating impacts on the poor. Anderson told The Independent that a high carbon price would, “push the price of goods and services up by so much that it would put them beyond the reach of large swathes of the global population while the wealthy could carry on more-or-less as normal.”

Instead of tinkering with market “solutions”, Anderson argues that radical changes are needed. The Tyndall Centre is organising “The Radical Emission Reduction Conference”, which will take place at the Royal Society in December 2013.

Anderson has set out a “very provisional” regulatory framework for how the UK, or a similar Annex 1 country, could achieve rapid and deep reductions in energy demand and therefore in emissions. “Today, after two decades of bluff and lies,” Anderson writes, “the remaining 2°C budget demands revolutionary change to the political and economic hegemony.”

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  1. Perhaps if the Tyndale Centre renamed their conference the “Rational Emission Reduction Conference” – rather than the “Radical” one, it might have a chance of success. Nothing radical has ever got through the UNFCCC, and while it is equally optimistic that any “rational” initiatives are passed, one can only hope… Anderson’s opinions do indeed sound rational, so why not rebrand? Good luck!

  2. Markets aren’t enough by themselves to increase the price of carbon, but we have evidence from other disciplines that when combined with the right policy they can have dramatic impacts. Pricing carbon is unlikely to have the behavioral changes economists are looking for, but don’t underestimate market growth to increase investment in infrastructure. The right policy will stimulate the markets. But please don’t lump finance with economics they are different disciplines, finance is a subset of economics, and by economic standards the markets had been cooked since 2004, its a defeatist argument that doesn’t help battle climate change to dismiss the role of economics. Look how dramatically the global food supply was altered after decades of ineffectual trade negotiations. Look at the investment flows into agriculture once commodity prices rose. We need to create a similar dramatic response that will tackle climate change. But it is just one piece of the puzzle, don’t rule them out.

  3. Economic growth in itself is not the problem, but rather it is the quality, nature and rate of growth that is the problem. Since the industrial revolution we have experienced exponential economic growth and this was driven by new technologies and a strong ‘feedback’ between fossil fuel utilization (exponential) and population growth (exponential). Climate change and ocean acidification are two major consequences of human activity exceeding the safe operating space for the Earth. The structural problem leading to this situation is the use of currencies that lack ethical and environmental monetary rules. So the problem is not innately a problem with human beings or capitalism, the problem sits with the currencies that were designed by sovereigns to meet their national interests, namely: political hegemony, taxation, paying for wars, industrial expansion, and controlling the national budget. The utility of these currencies has not completely expired, but they are woefully and dangerously inadequate. A new order of ‘structural sustainability’ with complimentary currencies is an idea whose time has come but the world has not yet understood.

    Time available to solve the climate crisis is very limited. The only way out of the current dilemma is for the international community to counteract the dangerous exponential growth-and-consumption with healing exponential growth-and-diversification. The way this can be achieved is by implementing appropriately designed system of complimentary currencies (and associated ‘social agreements’) that transfer wealth from the existing currencies to the new currencies to pay for the transition. Payments with the new currencies should be universally governed but locally administered, thereby building trust and community resilience. Building community resilience without a global strategy for climate change mitigation is only a localized adaptation strategy in the absence of effective global policies. The exciting news is that the required transfer of wealth and the technological transition to a low-carbon economy may be technically, economically and socially possible. The only question is whether the new monetary system can be negotiated and adopted in time.