Tackling Climate Change Could Jump-Start The Economy

There's too much pollution and too little economic growth. A green revolution could fix both.
People ride their bikes in heavy smog on Feb.12, 2015 in Liaocheng, China.
People ride their bikes in heavy smog on Feb.12, 2015 in Liaocheng, China.
ChinaFotoPress via Getty Images

There's little doubt that curbing pollution and halting the relentless rise in global temperatures would improve the environment. Turns out, it could also create countless jobs and stimulate the global economy.

That's the takeaway from remarks by Bank of England Governor Mark Carney, who spoke at the United Nations on Thursday ahead of the planned signing of the Paris climate accord on Friday, which is Earth Day.

Nearly 200 nations agreed last December to reduce pollution in order to limit global warming to “well below” 2 degrees Celsius (3.6 degrees Fahrenheit) over average temperatures at the dawn of the Industrial Revolution. More than 170 nations are expected to sign the agreement.

To Carney, an influential central banker, implementing the Paris agreement and tackling climate change is just one effort global leaders should pursue to lift the world's economy out of its "current malaise" of persistent low growth.

Goals like arresting climate change and ending poverty are an "economic imperative," Carney said. "Their achievement would mean greater productivity, increased labor supply and ultimately, stronger growth. In short, they could pull the global economy out of its current malaise of secular stagnation."

Secular stagnation is a theory recently popularized by former U.S. Treasury Secretary Larry Summers that describes an economy shackled by low growth despite low interest rates and little inflation. Carney had spent much of the past few years arguing that Summers is probably wrong, but he appears to be reconsidering his position. Aside from a massive amount of additional government spending, there's likely little that can be done to improve prospects in such an economy -- and that could well be the case in the U.S.

But perhaps the shift away from a fossil fuel-powered global economy could do the trick. Putting a price on carbon emissions, which forces fossil fuel producers and users to pay for the pollution they cause, might be the best way to get there.

"Carbon pricing is an invaluable tool for redirecting investments and transforming markets to build low-carbon, climate-resilient economies that will drive prosperity, strengthen security and improve the health and well-being of billions of people," UN Secretary-General Ban Ki-moon said.

Ban and heads of other global organizations like the World Bank and International Monetary Fund are pushing nations to quickly implement carbon pricing schemes, calling them "essential" if the world is to deliver on the promises of the Paris climate agreement. They want national leaders across the world to double the amount of carbon emissions subject to pricing by 2020 and quadruple today's levels by 2026.

Just 12 percent of today's emissions carry explicit costs, according to the IMF. About 40 nations have attached prices to carbon pollution. The U.S. has not.

Officials such as World Bank President Jim Yong Kim and IMF Managing Director Christine Lagarde said they hope that attaching a price to emissions will cut pollution and stimulate more investment in green energy.

"Prices for producing renewable energy are falling fast, and putting a price on carbon has the potential to make them even cheaper than fuels that pollute our planet," Kim said.

Companies and the financial industry could encourage a green revolution if they start reporting the risks they face from climate change, Carney said, and if they increase the issuance of so-called green bonds, which are securities that finance environmentally friendly projects.

Less than one percent of the world's outstanding bonds are "green," he said, adding that "financing the de-carbonization of our economy is a major opportunity for investors."

Moody's Investors Service this week increased its forecast of green bond issuance this year from $50 billion to as much as $70 billion.

Some U.S. environmental groups are skeptical that financial markets can bring about the kind of change necessary to halt global warming. They've also criticized the Paris agreement as inadequate.

"The Paris Treaty is largely symbolic and wholly toothless in dealing with the threat of climate change," said Wenonah Hauter, the executive director of the consumer protection group Food & Water Watch. "False 'solutions' like market-based schemes and carbon pricing will only keep us using and abusing fossil fuels when what we need is a clean energy revolution."

Ángel Gurría, the secretary-general of the Organization for Economic Cooperation and Development, said this week that his organization of mostly rich countries has been pushing carbon pricing for decades.

But OECD members and other nations still have nearly 800 spending programs and tax breaks on their books that encourage fossil fuel production or usage.

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