1. Introduction
Growth is the funding myth of capitalist market society, without which the entire system would collapse: we must believe in the gospel of growth, in its myth. Growth is therefore the pillar of the modern economicist religion: an ideology is debatable, a faith is not. The term growth – not to be confused with development – as we conceive it today, is a metaphor of a natural process applied to social phenomena, as if what is true of one must necessarily be true of the others. The naturalistic metaphor is deformed for the authors’ use: any natural organism is born, grows until it reaches a climax, and then inevitably begins to decline until it irrevocably ends its life. This last part, however, is forgotten in the transposition of the metaphor from nature to society. Growth, thus conceived, never ends. Rather than the Anthropocene, we should therefore speak of the Novocene, since not all anthropoi have contributed equally to the degradation of the planet. It is the rich world that bears the main responsibility. This myth has also led to what Amitay Gosh has called ‘the great blindness’, the inability to foresee a future. This was evident at the beginning of the pandemic: it only took two weeks of shutdown to bring the entire world economy to its knees and demonstrate its fragility.
What is to be done? It is late, perhaps, but not quite. ‘Our thinking small does not serve the world,’ said Nelson Mandela. We need to be able to think big, like the builders of the great cathedrals. None of them ever saw the end of the work they had planned, yet they did. They thought of a future even without them: it was the cathedral that was important, that lasted. And if today we can enjoy such beauty, it is because someone was able to look beyond and think not only of themselves, but of those who came after. Inspired by those masters today means setting in motion studies, practices, struggles against environmental degradation, against the loss of biodiversity, against the social and economic entropy of growth models that create chronic inequalities and unjust privileges. It is a path that requires urgency and patience at the same time, research in the field, cultural and political action, clear and shared objectives, first and foremost on common goods. A sort of ‘Factory of the World’, understood as a common good, must be born.
We must then rediscover and reintroduce at the centre of our discourse that word now expunged from every political lexicon which is fraternal solidarity by extending it to all the components of the planet. Concretely, this implies that in addition to the necessary mitigation policies and adaptation policies, we should start thinking about real transformation policies. Mitigation policies aim at the progressive elimination of anthropogenic factors that produce the earth’s temperature increase, thereby reducing climate risks (i.e. bending the warming curve down with the adoption of nature-based solutions). On the other hand, adaptation policies aim to protect health, human society and the natural environment from the impacts of climate pressures on them. In other words, such policies tend to reduce exposure and vulnerability to unavoidable climate risks by enhancing adaptive capacity. All this remains valid and therefore necessary, but not sufficient. The time has come to take into serious consideration transformation policies, whose ultimate target is to modify life styles; to enact mass education in ecological citizenship; to actively involve civil society organisations; to enhance a major engagement of science, both natural sciences and socio-economic sciences; updating and modifying the institutional architecture of our market economics. The conclusions of the IPCC Report (Climate Change, 2022, CUP, Cambridge, 2022) warrant the urgency to implement transformation policies, as the following pages will document and elaborate.
2. Explaining the substantial failure of COP Conferences
The many COP Conferences fell somewhat short of what it was to be expected for a plurality of reasons. One of the most relevant of these was the lack of trust that has burdened global climate negotiations since COP1 (Berlin, 1995). Developing countries regard climate change as a crisis whose main responsibility falls on developed countries, which failed to honour their promise – dating from COP15 in 2009 – to mobilise $100 BLs per year for fair burden shoring in favour of the weakest countries. This fund could be financed by adopting the Global Carbon Incentive proposed by Raghuram Rajan (Project Syndicate, 31 May, 2021), which envisages a contribution to be imposed on countries that emit more than the world average (more than 5 euros per capita) and to finance countries with below-average emissions. The poorest countries could then be helped to ensure a green transition that is not only effective, but also fair.
A second reason of the partial failure of COPs is the disconnection between climate models and macroeconomic models. Up to now, fiscal policies have been based on the assumption that the costs of climate damages would appear in an uncertain future, and should undergo a cost-benefit type of analysis, whereas the costs of transformation are now. This brings to underestimate the damages of extreme events and also the long-run benefits of climate policies. It would be expected that COPs would have advanced a radical revision of the principles and models utilised up to now to direct the choices of policy-makers. We urgently a ‘green golden rule’, where by public investments for the transition do not contribute to the creation of so-called ‘bad’ public debt.
Third. Economists generally agree that the way to reduce greenhouse-gas GHG emissions is to tax them. But such taxes almost certainly will cause disruptive economic changes in the short run, which is why discussions of imposing them tend to run quickly into free-rider or fairness problems. For example, industrialised countries are concerned that while they work hard to reduce emissions, developing countries will keep pumping them out with abandon. But at the same time, developing countries point out that there is profound inequity in asking a country that emitted a little amount of carbon dioxide per capita to bear the same burden of advanced countries. The least costly way to reduce global emissions would be to give every country similar incentives. But each country will want to reduce emissions in its own way – some through taxation, others through regulation. The question, then, is how to balance national-level priorities with global needs so that we can save the one world we have.
Fourth. Designing policy for climate change requires analyses which integrate the interrelationship between the economy and the environment. However, much of the standard economic modelling – including the celebrated Integrated Assessment Models – does not embody key aspects of the problem at hand. As J. Stiglitz and N. Stern (“The social cost of carbon, risk, distribution, market failures: an alternative approach”, NBER, Feb.2021) have indicated, there are fundamental flaws in the methodologies commonly used to assess climate policy, showing systematic biases, with costs of climate action overestimated and benefits underestimated. The consequences are that using Integrated Assessment Models, with their choice of calibration, has lodged policy makers to conclude that societal optimisation entails accepting an increase in temperature of almost 4°C, while the upper limit was set at 2°C already at the Paris Conference (2015). The many COP Conference should have underlined such a serious inconsistency and should have announced the constitution of a Global Working Group charged with the task of advancing an alternative methodology to directs the choice of policy-makers.
It is a fact that the most important economic models of climate change produce climate dynamics inconsistent with the current crop of models in climate science. First, most economic models exhibit far too long a delay between an impulse of CO2 emissions and warming. Second, few economic models incorporate positive feedbacks in the carbon cycle, whereby carbon sinks remove less CO2 from the atmosphere, the more CO2 they have already removed cumulatively, and the higher is temperature. These inconsistencies affect economic prescriptions to abate CO2 emissions. Controlling for how the economy is represented, different climate models result in significantly different optimal CO2 emissions. A long delay between emissions and warming leads to optimal carbon prices that are too low and too much sensitivity of optimal carbon prices to the discount rate. Omitting positive carbon cycle feedbacks also leads to optimal carbon prices that are too low. So it is important for policy purposes to bring economic models in line with the state of the art in climate science. (See F. van der Ploeg, “Are economists getting climate dynamics right and does it matter?”, CESifo, 8122, Feb.2020).
To conclude. Economic models of climate change are out of line with the state of the art in climate science. We therefore recommend the climate modules in economic models be replaced. Models of the carbon cycle need to incorporate positive feedback effects, as suggested by R. Millar et al., “A modified impulse-response representation of the global near-surface air temperature and atmospheric concentration response to carbon dioxide emissions”, Atmospheric Chemistry and Physics, 2017, 11. Models of temperature dynamics need to either be replaced or recalibrated so that they can reproduce the fast temperature response of Earth System models to CO2 emissions, as the model of O. Geoffrey et al. (“Transient climate response in a two-layer energy-balance model”, Journal of Climate, 2013, 26) does.
3. Transformation policies
Climate change poses major risks to natural, human, and economic systems. To limit its impact, reaching carbon neutrality by 2050 has become one of the world’s most urgent priorities (Intergovernmental Panel on Climate Change (IPCC), 2022). Previous climate change assessments, including the first ECB top-down, economywide climate stress test, have shown the importance of a timely transition in order to reduce the impact of physical risks in the long term. At the same time, the 27th Conference of the Parties (COP27) in November 2022 closed with a general feeling that an orderly transition that limits the temperature increase to a maximum of 1.5°C by the end of the century is no longer feasible.
Given that the transition to a carbon neutral economy is necessary and inevitable, the paper by M. Fuchs et al. (‘The road to Paris: stress testing the transition towards a net-zero economy’, European Central Bank, ECB, 328, 2023), assesses the impact of three potential transition pathways on the real economy and the financial system within a short-to-medium term horizon (2023 to 2030). Under a first scenario, the accelerated transition, the current energy crisis would trigger a green transition starting immediately, thereby allowing our economies to reach emissions reductions by 2030 that were compatible with the +1.5ºC maximum climate target by the end of the century. Under a second scenario, the late-push transition, recent adverse macroeconomic developments would lead to a green transition starting in 2025. It would be sufficiently intense to achieve similar emissions reductions by 2030, thanks to strong and decisive action, albeit also with higher costs than under the first scenario. Under a third scenario, the delayed transition, the transition would again start with a delay of three years and would be smoother, therefore being less costly. However, emissions would be on a path only compatible with a temperature increase of around +2.5ºC by the end of the century. FED, ECB and OECD have recently advanced a number of models whose purpose is to assess the pros and cons associated to the three scenarios above. As argued by J. Sachs, SDGs are an investment agenda: it is critical that UN member states support a comprehensive reform of the global financial architecture. (J. Sachs et al., Sustainable Development Report 2023, Dublin, Dublin University Press, 2023).
The results of these exercises show that acting immediately and decisively (the accelerated transition scenario) would provide significant benefits for firms, households, and the financial system, not only by maintaining the economy on the optimal net-zero emissions path (and therefore limiting the impact of climate change), but also by rapidly reducing their energy expenses and lessening the financial risk. If the transition is further delayed, the only way to reduce emissions compatibly with net-zero targets would be to act more intensively at a later stage, with an abrupt and strong transition that would lead to a weaker economy and higher annual expected losses for the financial system over the horizon set for this exercise, and probably further down the road (the late-push transition scenario). The results also show that an orderly and smooth transition, starting with a three-year delay (the delayed transition scenario), would lead, by 2030, to risk levels comparable to those implied by an immediate and accelerated transition. However, emission reductions would clearly undershoot the policy goal of a maximum rise in temperature of 1.5°C, accelerating the impact of physical risks in the long term. (See S. Urata et al., Sustainable Development Disciplines for Humanity: Breaking Down the 5Ps: People, Planet, Prosperity, Peace and Partnerships, Springer Nature, 2023).
A specific point deserves a special attention. While the ecological transition is universally perceived as a need that can no longer be postponed, the Global South is driven back into the arms of fossil fuels in the name of debt. This is what the British organisation Debt Justice denounces in its report ‘The debt fossil fuel trap’ (London, 2023). From 2010 to 2021, the public debt of the countries of the Global South has doubled its weight on GDP, rising from 35% to 60% of their domestic product. A debt increased not only to domestic creditors, but also to foreign creditors. From 2010 to 2021 the share of public debt to foreign creditors increased by ten percentage points from 19% to 29% of the gross domestic product. The conclusion is that from 2011 to 2023 the sums disbursed by the Global South in payment of foreign debt increased by 150%, reaching unprecedented peaks. The United Nations estimates that 3.3 billion people live in countries that spend more on debt interest than on health and education. And since many of these sums have to be paid in dollars or euros because they are owed to foreign creditors, the problem for each country is not only to increase its tax revenues, but also to increase its export earnings. Some countries, by now with a good industrial apparatus, can try to push manufactured exports, but the less industrialised ones have no choice but to increase exports of natural resources including coal, gas and oil.
Roughly half of the 76 least developed countries have fossil fuels in their subsoil and are planning to extract more of them to meet their financial commitments. Moreover, among the creditors in the South there are also states and companies that, in order to protect themselves against the risk of non-payment, have provided for the possibility of being paid directly in kind through the delivery of oil or the transfer of ownership of wells held by debtor governments.
Despite multiple declarations by governments and institutions in the North that they no longer want to finance fossil fuel extraction, many continue to provide loans to open new production sites in the South. According to Debt Justice, between 2020 and 2022, the multilateral banking system, of which the World Bank is the leader, granted a total of USD 10 billion in loans for fossil fuel extraction. History will tell whether it was a bargain for the Global South to go into debt to increase fossil fuel production. But right now we can say that it is a bad deal from an environmental point of view because the increased carbon dioxide emissions that will result will worsen an already bad picture.
Without the rediscovery of genuine, unspoken solidarity, the situation will get worse and worse. For everyone. The conclusion is that in order to free the Global South from its deadly embrace with fossil fuels, and at the same time enable it to meet the challenges imposed by climate change, it is necessary to cancel its debt and support it with outright sums. This may sound like good heartedness. In reality, it is only justice joint to wisdom.
4. In defence of a World Environment Organisation.
After COP28, it is clearer than ever the top-down pledges and policies are not enough. What we need in an institutional transformation from the ground up. Indeed, the lack of adequate international environmental governance (IEG) is a result of a fundamental injustice in the current state of global governance: tremendous power and resources have been concentrated in international finance and trade without a corresponding legal and institutional authority for the environment, social concerns and human rights. The increasing power and influence of major international finance and trade institutions such as the World Bank and World Trade Organization (WTO) that took place over the course of the 1990s contrasts sharply with a weakening of the, already-lesser, UN environment and development programmes (UNEP, UNDP).
The existence of powerful international trade and financial regimes without comparable legal and institutional structures for social and environmental standards allows the World Trade Organisation (WTO) to act as the de facto arbiter on environmental issues. However, the WTO is an institution that not only lacks a core competency on environmental issues and policy, but views the environment as a commodity to be exploited rather than a resource requiring management and conservation. The result is that environmental social and human rights issues, treaties and commitments are trumped by finance and trade interests. Rather, it should be the case that these considerations get prioritised ahead of finance and trade. (W. Pace, V. Clarke, ‘The case for a World Environment Organisation’, The Federalist Debate, 1, 2003), The governance of a Common Good cannot but be a common governance, in the sense of Elinor Ostrom.
Exactly for this reason, I believe one response for international environmental governance is to create a World Environment Organisation (WEO) and to strengthen and upgrade the UN’s social and development organisations so that these institutions can act as a counterbalance to the powerful finance and trade institutions. A WEO would be a designated and empowered advocate for the environment that could serve to ensure effective policy and decision-making and provide an adequate response to environmental management. That is precisely the aim of what has been called mission-oriented innovation policy. Of course, a World Environment Organisation alone will not solve the problems of international environmental governance and global governance. There also needs to be fundamental reform of the WTO and of the IMF. However, establishing a WEO would be one step towards a more balanced, effective and accountable system of global governance.
5. A final remark
A changing planetary reality poses immense challengers and risks. Yet, a shift towards a just future for all on a thriving planet is possible, provided we get rid of the most powerful obstacle on the way to a new climate regime, i.e. the inability to imagine a different economic system or even just a new balance between market and society, and between humanity and the environment. Considering change impossible is the best way to perpetuate the existing. The difficulty in setting up an effective response to climate change is linked to the difficulty of imagining another economic order in which the economy constitutes a function of society – and not vice versa – in which humans are aware of the effects caused by the counteraction of non-humans and in which the fight against consumerism should not be interpreted through the lens of poverty.
I do not wish to hide the difficulties lurking in the practical implementation of a project targeted at nothing less than a “paradigm shift” in economic theory and a new model of economic development. As in all human endeavours, it would be naif to imagine that certain changes do not create conflict. The differences of vision and the interests at stake are enormous. It is no accident that a kind of widespread anguish about the future is running throughout society today. Some people and certain pressure groups are exploiting this anguish as a political tool, deriving from it, depending upon the circumstances, either a market-centered Machiavellianism or a State-centered Machiavellism. It is precisely against this neo-Machiavellian culture and its underlying ethical relativism that Christians and non-Christians are called to put up a fight.