Perhaps the seriousness of Australia’s most recent heat wave didn’t register that much with Treasurer Wayne Swan. Perhaps he’s already forgotten about the carbon price. Maybe he missed out on that bit when the World Bank, the UN and the International Energy Agency, along with thousands of scientists, said the world has only a limited carbon budget if it wants to address climate change.
Perhaps, though, it’s just all too hard. In a speech Swan delivered to the “G’day USA” financial services luncheon at the Harvard Club in New York, a 4,333 word-monologue focusing on Australia’s economy, its challenges and opportunities, Swan managed to virtually ignore what he has previously described as one of the most fundamental reforms ever taken of the Australian economy, and what he has described as the key to the economic and job opportunities of the future.
In fact, carbon pricing or climate change didn’t get a mention until he’s already uttered another 4,000 words on other stuff. And there is just a single 22-word sentence devoted to the topic. No mention at all of clean energy, or even resource restraints. In the minds of Australia’s political elite, there appears to be no such thing.
Perhaps Greens leader Christine Milne is right – the two mainstream political parties will do their damnedest to ignore climate change and clean energy altogether in their election campaigns – the Coalition because it hasn’t got a credible policy, and Labor because it figures it’s already ticked that box and doesn’t want to alienate the right wing of its party any further.
And it’s not as though Australia’s media will put them on the spot. Swan spoke for another 1,000 words to the assembled media in a Q&A session after the speech. He was posed 14 questions, inevitably about the budget surplus/deficit and the mining tax, and one about Lance Armstrong. The disgraced cyclist was important enough to warrant 32 words.
Australia’s mainstream parties aren’t alone in that – the US presidential campaign debates did not contain a single mention of climate change, and it wasn’t even an issue until Hurricane Sandy blew away a lot of skepticism in the final week of the campaign. Obama does have the opportunity to correct that in the inauguration speech for his second term in Washington overnight.
But what are the consequences of the world’s political elite continuing to ignore what now appears to be obvious – its massive resource constraints and environmental damage? And what are the consequences if the people who manage our assets and our savings continue to do the same?
Late last week, the Anglia Ruskin University in Cambridge, delivered a landmark report on this very question. It looked at the resource constraints that loom for the world economy and concluded that if nothing changes,“the assets of pension schemes will effectively be wiped out and pensions will be reduced to negligible levels.”
The report, commissioned by members of the Institute and Faculty of Actuaries, warned that the entire defined benefits pensions industry could be wiped out within 30 years if the global economy did not change course, and take into account – seriously – issues such as climate change, and resource constraints on land, food, water, fossil fuels and metals.
“The evidence for resource constraints is strong but many actors in the global economy are not considering it in their decision making processes,” it said.
It modeled four potential response from governments, and two different scenarios relating to the success or otherwise of how these responses are implemented.
In the worst case scenario, that of an absence of effort, the level of defined contribution pensions could be cut in half – and even healthy schemes could become insolvent within 35 years – solely as a result of the limitations to growth imposed by resource constraints, and the failure to produce an adequate response.
“If future economic growth is limited by resource constraints, or realistically by other factors such as debt overhang or reduced productivity, this puts into question the viability of current savings vehicles’ structure, regulation and even purpose.”
It says that actuaries are ideally placed to play a key role identifying, measuring, and modelling the systemic risks that these threats could represent. But it is not the first organisation to warn of such impacts. Mercer and KMPM have said investments are at risk, and the Investor group on Climate Change and its international partners have made similar warnings.
And even though these challenges have been recognised for nearly half a century, all the way back to the Club of Rome, there has been little tangible impact. ”Currently, actuarial models are effectively discounting to zero the probability of economic growth being limited by resource constraints,” the report notes.
“The aim of this research is not to declare that we are all doomed!,” the report says. “Rather the research questions the risks that resource constraints hold for policy makers and financial institutions when considering the future and what impact this has on the products, services and decisions that we make today. There is a particular emphasis on the questions that we should be raising now in order that we might divert the worst case scenarios in favour of better outcomes for all. “
Pretending the problem doesn’t exist is not a solution.