The biggest challenge humanity will face in this century is without a doubt the climate crisis. Disaster is almost inevitable. Anthropogenic greenhouse gas (GHG) emissions have already increased global temperatures by at least 1°C since the industrial revolution, and current trends suggest they could rise – in an extreme case – by up to 6°C by 2100. In the years to come, the world will will face a succession of increasingly intense and frequent environmental calamities, which have already been present: forest fires, hurricanes, scorching heat, incremental sea level rise, and so on. The bad news doesn’t stop there – the time frame for action to reduce GHG emissions and limit global warming to 1.5°C, or even 2°C, by the end of the century, as established by the Paris Agreement , is closing.
Minimizing the effects of the climate crisis requires drastic and immediate changes in production and consumption patterns. These changes involve long-term investments in new productive sectors, innovations and political and economic transformations. Hundreds of billions of dollars will have to be allocated to develop new technologies in clean energy, greater transport efficiency, sustainable agriculture, and green transformations in production, consumption and social reproduction. In particular, the sustainable green transition needs a technological breakthrough to meet the planet’s energy demand. The transition therefore requires a collective effort that has as its central objective the mission of transforming a highly polluting and environmentally destructive society into a sustainable society in environmental terms, in a very short period of time.
The challenges are enormous and the coordination of this transformation demands State action that does not match the current financialized neoliberal accumulation system – the imposed requirements are incompatible with the neoliberal inclination towards economic coordination through so-called “market” mechanisms – which , in practice, implies the supremacy of financial institutions over centralized coordination by the State.
Current environmental challenges are closely related to five sources of stress in the global economy:
First, and in the background, there is an irresolvable contradiction between the relentless pursuit of individual profits under neoliberal financialized capitalism, through extraction, production, exchange, speculation and plunder, and the social consequences of the activities that generate those profits. This is not simply a “technical” issue of absorptive capacity or carbon budgets. The underlying problem is that maintaining the “business as usual” requires natural resources that exceed the planet’s ability to regenerate.
Second, there is a disjuncture between the long-term awareness of the environmental limits to this growth model and the evident inability of governments and intergovernmental organizations to do much to address climate change. More than a quarter of a century since the United Nations Framework Convention on Climate Change (UNFCCC) came into force, little has been tried and even less has been achieved. Emissions from some developed countries have declined in recent years, but these results, especially in the US and UK, are mainly due to de-industrialization and the transfer of their industrial production (and emissions) to the Global South. It would be misleading for developed countries to claim credit for these GHG reductions because they are, by definition, transfers that do not reflect improvements in technologies, do not challenge current living standards, and do nothing to address climate disaster.
Third, the contradiction between the emissions accumulated by the major developed countries, on the basis of which they grew in the past, and the rapid increase in emissions in the underdeveloped countries. Underdeveloped countries today claim the right to development, with existing technologies, and argue that the remainder of the carbon budget should be made available mainly to them, as there is a strong relationship between the growth of emissions and the reduction of poverty.
Fourth, the incongruous structure of the global economy, in which many countries are dependent on the production and export of fossil fuels, yet current extraction and processing are unsustainable because they conflict with climate stability. This difficulty is compounded by the fact that some oil-dependent economies have few exportable alternatives while, at the same time, large industries have been built around fossil fuels, and leading companies and respective states are unwilling to accept the losses or costs. needed to finance the transition to a new global energy mix.
Ultimately, financialization led to dysfunctional outcomes, including short-term and speculative accumulation strategies; macroeconomic volatility; low rates of investment, productivity growth, savings, GDP growth and job creation; vulnerability to crises and growing inequalities in income, wealth, power and social provision. Under financialization, dominant economic interests operate in markets linked to a logic of pro-cyclical investment and rapid profit extraction, which tends to reinforce existing economic structures, maintain dependence on oil and increase GHG emissions.
Therefore, financialized neoliberalism is incompatible with coordinated industrial policies, high-cost and long-term maturation initiatives, structural transformations in economic activity, the emergence of new engines of accumulation, adaptation and mitigation of climate change and (necessarily, to reduce consumption of energy and bring legitimacy to the necessary economic policy changes) redistribution of income, wealth and power.
In other words, the system itself resists changes towards sustainability. So far, most countries have taken only symbolic measures to reduce GHG emissions, while industries and the financial system tend to adopt measures based on environmental asset pricing and financial and market supervision models. As the logic behind this perspective is to maintain the high profitability of the “Business as Usual”, avoiding a systemic crisis, adaptation processes have little practical effect. In other words, the main objective is not to tackle the climate crisis, but to maintain the profitability of the system through a financialized neoliberal order that itself has radically deepened the climate crisis.
The best way to diversify the economy, build alternative modes of growth, coordinate global actions and improve the distribution of income, wealth and power is to combine “green” industrial policies with democratic macroeconomic, social and financial policies. For this, the State must act intentionally, directing the market, taking risks, and imposing new forms of economic behavior compatible with climate stability and, as a condition for this, removing the pillars of the neoliberal order in general, and of financialization in particular. . The sustainable green transition needs transformation of the production system. It is up to the State to change the structure and functioning of markets and private sector investments.
These processes of diversification, structural change and mitigation are more manageable in developed countries than in underdeveloped ones. Faced with the right to development by underdeveloped countries and the “climate debt” (historical responsibility for emissions), it is up to developed countries to bear the most significant part of the cost of mitigation, not least because they control the greatest financial and technological resources. Thus, the mitigation of the climate crisis needs to include a process of transfer of resources and technology between the two groups of countries.
Additionally, the sustainable green transition requires high levels of investment from both the public and private sectors. A financial system guided by the mission of financing this process requires financial institutions, especially development banks, to escape the financialized short-term logic. It is up to them, agents with mandates aimed at development, to play an active role in this process. This will require strong and capitalized institutions that work in coordination with state planning, within a broad plan for a sustainable green transition.
Facing the climate crisis will be difficult not only for technical reasons or even because of ideological prejudices. The main constraint is the financialized neoliberal structure of the global economy, which is based on the relentless abuse of nature. The deep roots of the climate crisis show that effective policies to combat it will be costly, complex and resilient, given that such policies must transform the very process of economic reproduction.
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