The Long Read: Can Capitalism Play A Role in Fixing the Climate?

Capitalism is “very much part of the solution” to the climate crisis, Bank of England governor Mark Carney said in an interview yesterday. Perhaps he's right, says Gwen Jones in this Renew Long Read.

For a long time, those leading the charge against climate change have branded capitalism – responsible for the oil economy and prioritisation of instant growth over sustainability – as the planet’s greatest adversary. The Green Party, and their contemporaries Extinction Rebellion, have rallied against free markets as working in opposition to their cause.

And many experts agree. The line? Capitalism and environmentalism are mutually exclusive, and the effective mitigation of climate change will necessitate the end of capitalism in favour of a more sustainable economic system.

In response to Carney’s Channel 4 appearance, an Extinction Rebellion spokesperson told the Guardian, “We are destroying our planet, and business as usual is not going to save us. We must question any system that has led us to this path of mass extinction and look to more sustainable economic models that are not based on resource depletion and increasing emissions.”

But Carney is confident in his convictions. According to the economist, who has previously worked for Goldman Sachs, the opportunities associated with tackling climate change are growing rapidly - and so are the costs of failing to do so. In a system predicated on the exploitation of opportunity and an aversion to risk, capital will move naturally in the direction of sustainability. In his strident defence of capitalism as a solution to the climate crisis, Carney argues that companies who continue to ignore the issue “will go bankrupt without question.”

Is he right? Like many things in life, the answer is not cut and dry. Capitalism won’t solve the planet’s problems, at least if it’s acting alone.

Being a climate capitalist

Taking this leap from traditional to sustainable business practices requires sizeable investment, and, for the meantime anyway, the majority of green energy sources are still more expensive than their conventional counterparts. This hurts a company’s bottom line and means that prices may have to rise in order to maintain profits.

In a competitive market, this has some important implications; businesses are forced to make a choice, between refining practices at their own expense or sticking to their traditional process (even if this means running the risk of worsening climate change). In an ideal world, all polluting corporations decide to cut their emissions simultaneously in the name of the climate. This comes at a cost to each business, but gives no business a comparative advantage over any other, meaning all maintain their share of the market.

However, no business can be sure of what the others will do. It’s a dog-eat-dog world after all, and they have no reason to trust each other. If Business A decides to cut its emissions but Business B does not, Business B can take advantage of lower operating costs and price A out of the market. The same is also true the other way around.

Carney is right – the economic costs of ignoring climate change are rising, and the costs relative to opportunities to mitigate it opportunities of mitigation are shrinking, fast. But money talks, and until we reach a point where the costs outweigh the benefits in the short to medium term, no business will be willing to blink first.  

The solution most likely lies with a radical rethink of the role the state plays in creating markets and driving innovation. In the liberal economic tradition, the state is portrayed as a clumsy, bureaucratic obstruction to the actions of the dynamic free market. This is as damaging as it is misguided. The state, with its plentiful resources and capacity to take risks (that private actors often cannot and will not take), is able to defy common barriers to innovation.

Historically, governments have played a critical role in funding some of the most influential developments in tech to date. The internet, GPS, voice recognition, biotech and countless pharmaceutical breakthroughs have come out of US government agencies DARPA and NIH respectively. The Green Revolution is next – ARPA-E, the US government body responsible for energy production and innovation – is already having an impact.

Market manipulation

Market forces are notoriously unreliable when it comes to advancing the good of society. Markets don’t have morals, but states are unique in their ability to create new markets and shape existing ones towards a socially productive end. Financial viability is key to private action – the state can incentivise innovation in desirable areas through grants and subsidies, the likes of which benefitted Apple in the early stages of its development. Governments should also be prepared to take a lead in certain areas, investing in high risk, high return strategies to secure this new role within the economy.

This is not to undermine the value of private actors in driving innovation and wealth creation. But markets are not infallible and failure is commonplace. Up until now, the advancing climate crisis driven by the quest for growth has been an excruciating example of this. The right conditions must be set before the private sphere can drive us forward in a direction we actually want to be travelling in.


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