Green or Greenspan

AMSTERDAM – When forced to explain why so few anticipated the global financial crisis, former US Federal Reserve Chairman Alan Greenspan blamed “animal spirits,” investors’ herding behavior, unimaginably large tail risks, and black swan events. In other words, he absolved the money managers and financial institutions that had been taking massive risks on the assumption that overvalued assets could be passed on to less-informed market actors, their own shareholders, and, ultimately, taxpayers.

When it comes time for global leaders to defend their decades of inaction on climate change, which is set to trigger an environmental and economic crisis on an unprecedented scale, their defense may well look a lot like Greenspan’s. And it will be just as unconvincing.

The hope, of course, is that world leaders wake up to the threat in time to address it. This will require, first and foremost, a massive push by policymakers to reduce greenhouse-gas emissions over the next 15 years. At the same time, investors and businesses will have to adjust to the new policy environment by disentangling themselves from carbon-intensive assets.

With climate experts and the general public largely convinced that global warming is real, it is virtually impossible for opponents of action on climate change to deny the problem outright. Instead, they increasingly argue that its effects will be modest (and even positive for some); that the market is best equipped to address this historic challenge; and that policy-based solutions might well exacerbate the problem.