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Wanted: A Global Green New Deal

To live within our planetary means, we will have to change many aspects of how we live – how we organize our economies, our cities, and our transportation, energy, housing, and food systems. The good news is that most of the world now recognizes this; the bad news is that its largest polluter does not.

NEW YORK – Nearly a quarter-century ago, I was a lead author on “Climate Change 1995 – A Report by the Intergovernmental Panel on Climate Change.” In that report, we made one big mistake: we should have sounded the alarm louder. But we lacked the overwhelming evidence that we have today concerning the pace and consequences of climate change, so we didn’t fully anticipate the extreme weather events that have had such devastating effects on our planet and on our lives and property.

Back then, we thought the impact of climate change would be focused on the world’s tropical countries. The United States, the United Kingdom, Canada, and northern Europe might actually benefit. The beaches in places like Maine and Nova Scotia might actually become swimmable.

Who would have anticipated that the US would be among the major losers, with damage in 2017 alone – from hurricanes, wildfires, floods, and the consequences of heat waves and severe frosts – amounting to about 2% of GDP, with cumulative costs since 1980 totaling $1.6 trillion (in inflation-adjusted dollars). And who would have anticipated the rapidity with which the Greenlandic and Antarctic ice caps would melt, or that glaciers around the world would retreat so rapidly? We knew that sea levels would eventually rise, but so rapidly?

We now know that we have no choice but to live within our planetary boundaries – nature is not always forgiving – and that we have not been doing so. The enormous increases in standards of living over the last two and half centuries have been based on taming energy, and – especially over the last century – that has meant using fossil fuels, taking carbon stored deep in the Earth and burning it, spewing carbon dioxide into the atmosphere at a far faster pace than natural processes can remove it. The consequences of this profligacy are now upon us.

The evidence in support of an overpowering response – something with all the urgency and scope evoked by US President Franklin D. Roosevelt’s New Deal of the 1930s, or wartime mobilization – is overwhelming. We will have to change many aspects of how we live – how we organize our economies, our cities, and our transportation, energy, housing, and food systems.

The good news is that most of the world now recognizes this. The incoming president of the European Commission, Ursula von der Leyen, has committed Europe to achieving carbon neutrality by 2050. She has also committed Europe to a fundamental change in the global economic architecture: the imposition of cross-border taxes on goods produced by any country not doing its part to preserve the planet.

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There is more good news: we can well afford these changes. The “Report of the High-Level Commission on Carbon Prices,” which I chaired with Nicholas Stern of the London School of Economics, concluded that the goal, enshrined in the 2015 Paris climate agreement, of limiting global warming to 1.5-2ºC above pre-industrial levels could be achieved with a tax of only around $100 per ton of carbon. That would imply a 2-3% increase in energy prices – well below what the world has absorbed on earlier occasions.

The costs are made even more manageable by the enormous advances made in renewable energy in recent years, which have made it competitive with fossil fuels in most arenas. Indeed, a New Deal-like commitment to the green transition is likely to unleash an enormous burst of innovative energy. That kind of energy is going to be good for the economy.

The irony is that today, we worry about how artificial intelligence and robotization will lead to job losses, or about secular stagnation (persistent unemployment even at zero interest rates) or about what former US Federal Reserve Chair Ben Bernanke called a “global saving glut.” Yet, even as we fret about surpluses of labor and capital, some bemoan that we can’t afford the green transition.

The absurdity of this position should be obvious. At the very least, those who hold it – sometimes even serious economists and financiers who should know better – are demonstrating that they have lost confidence in the market system’s ability to address our real economic and social needs. And in some ways, that lack of confidence is deserved: financial markets react to short-term cues, and the long-term economic costs of environmental degradation have not been priced in.

As I explain in a forthcoming paper in the European Economic Review, carbon pricing is necessary but insufficient: we will need large amounts of public and private investment and regulations to guide the economy and stimulate innovation. To finance these investments, we will need more public green investment banks and more capital for existing development banks. Current institutions, including the World Bank and the European Investment Bank, may be doing a good job, but they simply don’t have the resources that a green transition requires. The more investment there is, and the better the regulations are, the lower the carbon price required to achieve the Paris goals.

France’s “yellow vest” (gilets jaunes) movement has drawn attention to the necessity of being attentive to the green transition’s distributive consequences. We are now paying a high political price for having ignored the distributive consequences of globalization and financialization. We should have learned that lesson. But if we manage the green transition well, the overwhelming majority of citizens around the world can be better off.

And there are two dimensions of distribution that too often get short shrift in discussions concerning sustainability and the green transition: between generations and between developing and developed countries. Politicians who champion low deficits and austerity always talk about the costs imposed on future generations. But the costs imposed on future generations by climate change and rising sea levels are an order of magnitude greater. Young people around the world recognize this, and now they are refusing to sit still for it.

Rightly so. Even the way governments go about making decisions systematically discriminates against future generations. To see this, one need look no further than Juliana v. United States, the ongoing lawsuit brought by 21 young Americans against the US government (in which I am an expert witness). The US government, for example, uses cost-benefit analysis to assess the desirability of regulations and investments; but in doing so, it discounts future benefits and costs – those borne by our children and grandchildren.

The Trump administration has essentially said we should ignore future generations completely: that it is worth spending only $3.25 today to avoid a cost of $100 in 50 years. Trump’s calculus seeks to make America great today, without regard to the future – which is precisely how we got into our current predicament. And yet the US remains the world’s largest polluter, by far, on a per capita basis (China, with more than four times as many people, is the largest polluter in absolute terms).

We are already living beyond our planetary means; imagine the burden on the planet if and as developing and emerging countries close the income gap between themselves and today’s advanced economies. We cannot ask these countries to sacrifice their living standards so that the advanced economies can continue their profligate ways.

With its commitment to achieving carbon neutrality by 2050, Europe is facing up to the moral as well as economic implications of climate change. Many US businesses, cities, and states are doing likewise. What is now needed is a commitment on the part of the US government.