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Business paper

The greatest risk

by Hans Dembowski


Andean glaciers are shrinking due to global warming.

Andean glaciers are shrinking due to global warming.

The Financial Times is Europe’s leading business paper. It often spells out things very precisely. Several weeks ago, Martin Wolf, the FT’s chief economics commentator, dealt with climate change in two columns (15 May and 22 May). His words deserve attention.

Wolf’s diagnosis is that “all the discussions on climate change have turned out to be empty words” and that “collectively, humanity has yawned and decided to let dangers mount”. The following lines about climate change and macroeconomic policies are worth quoting at length:

“The greenhouse effect is basic science (…). Humanity is conducting a huge, uncontrolled and almost certainly irreversible experiment with the only home we have. Moreover, if one judges by the basic science and the vast majority of qualified scientists, risk of calamitous change is large.

“What makes the inaction more remarkable is that we have heard so much hysteria about the dire consequences of piling up a big burden of public debt on our children and grandchildren. But all that is being bequeathed is financial claims of some people on other people. If worst comes to worst, a default will occur. Some people will be unhappy. But life will go on. Bequeathing a planet in climate chaos is a rather bigger concern. There is nowhere else for people to go and no way to reset the planet’s climate system. If we are to take a prudential view of public finances, we should surely take a prudential view of something irreversible and much costlier.”

Wolf indicates several reasons for inaction, including: 

  • the great relevance of fossil fuels for contemporary economies,
  • opposition to government interference in markets in principle,
  • the sudden urgency of the financial crisis that broke in 2008 and distracted policymakers from other issues,
  • the hope that there will eventually be some technological solution to global warming,
  • the complexity of agreeing on globally effective and enforceable climate regulations,
  • people’s indifference to the fate of future generations and
  • a similar indifference of rich nations to the fate of poorer nations.

Wolf does not want to settle for this state of affairs however. In the second column, he lists what policies would help: carbon taxes, nuclear power, tougher emissions standards, global trading rules to favour lower-carbon energies, finance for renewables and energy efficiency, government investments in research and development, investments in adaptation to climate change and assessing all options of geo-engineering. His dire conclusion, however, is:

“The attempt to shift our choices away from the ones now driving ever-rising emissions has failed. It will, for now continue to fail. (…) Only the threat of more imminent disaster is likely to change this, and by then, it may well be to late.”

To appreciate Wolf’s message, one need not to agree with all the points he makes. Most Germans, including our government, think it is absurd to try to stem the immediate risks of climate change by running risks of the Fukushima kind and burdening future generations with storing toxic nuclear for millennia. Moreover, the feasibility of geo-engineering is not understood so far, and its potential risks even less. Therefore Wolf only speaks out in favour of considering the option. Such consideration, however, is no effective policy.

It matters, however, that the FT’s chief economist is quite relaxed about government spending on sensible climate measures. Nobody disputes that keeping inflation in check is important, but at the moment, that danger is theoretical. Consumer prices are not rising fast in the rich world. And no, humanity cannot afford to postpone investments in clean-energy infrastructure any longer. Even the fiercest monetary hawk should see that there can be no price-stability in a world steeped in climate chaos. Failing harvests have been making global food prices more volatile in the past years. Does anyone really believe that strict limits on government spending can do anything about that? Haven’t we seen enough storms, draughts and floods yet?

The FT’s chief economist has summed up the sense of both urgency and despair that is normally expressed by environmental activists. It is obvious that the matter is becoming more pressing, and that while some action is being taken, much more needs to be done. And fast.