Sunday, 18 May 2014

Climate change is not just about cutting back

Recently I read the book Climate Change Begins at Home by David Reay. It makes for an entertaining read and persuasively argues that every family can substantially cut its greenhouse gas emissions. I particularly liked how the book puts the focus of tackling climate change on individual behaviour. Way too much climate change debate is about governments making agreements, even though such agreements are basically worthless. Governments can do little: it's individuals that pollute, and it's individuals that need to pollute less!
        The arguments Reay put forward in his book did, however, seem a bit naïve when it came to economics. He made the case, which one often sees, that cutting back on emissions is a win-win scenario. If a family uses the car less, uses the air conditioning less, goes for a local holiday rather than flying half way around the world, buys less plastic gadgets, and so on, then they benefit the environment and save money. At the level of the family this argument is sound. The problem comes when we apply it at the level of society.
         To see the point, suppose that a family reduces its production of greenhouse gas by 50%. In doing so it spends 50% less. For example, it buys less petrol, less electricity, less plastic gadgets, less airplane tickets, etc. In isolation the family should be happy. But, if every family in the country cuts spending by 50% then something has to give. GDP would halve overnight! Or, in more practical terms, many are going to find that they are out of job - we do not need so many people refining oil, selling petrol, producing electricity, flying aeroplanes, etc.
         Tackling climate change requires more, therefore, than families cutting back on greenhouse emissions. It will require far bigger fundamental changes in the economy. This will primarily mean a shift away from the materialistic world we appear to have converged on. In particular, basic logic suggests we are going to need a 50% cut in income to go with the 50% cut in spending! This need not come at the cost of happiness, because all we need to do is cut out unnecessary things that were not needed anyway. And we know that more income does not buy more happiness. But, whatever the framing, a cut in income of 50% is not going to be very popular.
         So, tackling climate change will require a fundamental change in the economy. Does that change the individual incentives to cut back on greenhouse gas emissions? No. Popular discussion of climate change essentially seems to suggest the 50% cut in income has to proceed the 50% cut in spending. And, therefore, individuals (and governments) are reluctant to sign up to tackling climate change. But, this gets things the wrong way around! The 50% cut in spending will proceed the 50% cut in income. It is better, therefore, to be ahead of the game and reduce spending now. This way you save money in the short term and are prepared for any shift in the economy that may subsequently follow. 
   

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