If you imagine climate change as a flu that the world is coming down with, then you could probably say that the physical symptoms are only just starting to be felt. Current climate change-amplified floods, cyclones, coral bleaching and record heat waves are but a slight tickle at the back of Earth’s throat.
And whilst the worst of the symptoms are still decades away, the problem is real, will become increasingly pervasive, and will come to dominate mainstream economic and financial market discourse in coming years and decades.
Indeed, the World Economic Forum (WEF), in recently releasing its 11th Global Risk Report, ranked “failure of climate change mitigation and adaptation” as the world’s most potentially impactful, and the third most likely risk.
And yet, climate change-related risk analysis remains (after all these years) largely disconnected from mainstream discourse on the prosperity of the economy. Equally, interventions to fight the symptoms of ‘Climate Flu’ still touch on a raw nerve for so many today.
And so it’s worth revisiting the question; why such a persistent resistance to these interventions?
One obvious explanation is that as Climate Flu remains relatively asymptomatic it also remains convenient to ignore the progressive onset of its symptoms, even deny its very existence. And this bias towards denialism is reinforced by the fact that Climate Flu has become an incredibly inconvenient problem to deal with.
Specifically, Climate Flu brings into sharp focus how paralysed the global economy currently is, and its utter incapacity to absorb the impacts of – let alone manage its way out of – yet another emerging crisis.
The global economy has been sick in bed for years now, with a number of ‘turn for the worse’ episodes since the last GFC. In response, governments and central bankers have been allocating all of their time, and financial resources, to getting the patient out of bed.
Blame the medication, but after several bed-ridden years the patient is not getting any better.
And so when experts from the climate change world come along and talk about a new impending crisis (Climate Flu), policy makers (sitting by the economy’s bedside) are inclined to respond “That’s nice dear. Come back another time. Surely you can see that we’re busy here?”
This global economic malaise also explains why the corporate sector is struggling to proactively manage growing climate risks. Even while so many corporates are looking green around the gills because of the sick real economy, investors – for want of better yield elsewhere – are continuing to pour wealth into equity markets.
This in turn is further raising share prices, and is only serving to heighten pressure on fluey corporates to deliver good short-term dividends. This short-term pressure to perform and pay dividends in an increasingly challenging global economic environment has left corporates unable to respond effectively to slower-growing and complicated threats like Climate Flu, to their detriment.
Climate Flu is inconvenient to governments, corporates and the investor community for two key reasons. Firstly, because of the unwillingness or incapacity to focus on what is perceived as a longer-term threat to economic growth given there are so many short-term crises to be preoccupied with. The second reason (related to the first) is that the required interventions often come with short-term risks and side-effects to an already fragile economy.
If by ‘intervention’ we were referring to administering an ‘elixir for growth’ to our global economy then there would be calls to administer the drug immediately. Unfortunately though, most of the economic interventions on offer to combat Climate Flu (i.e. ambitious emissions trading schemes, carbon taxes, tariffs etc) come with the following back of packet warning to the economy “Caution! May induce drowsiness”.
That’s why in Australia the previous Labor government administered a range of other stimulant drugs alongside its ‘carbon tax’ (such as direct financial compensation to liable entities and consumers) in order to counteract the effects of drowsiness.
Shortly after, the Abbott Government repealed the carbon tax, considering it a “handbrake on the economy”. It vowed to replace it with the so-called wonder drug ‘Direct Action’. Then minister for the Environment, Greg Hunt stated in a Lateline interview:
“direct action on climate change… you can achieve without a carbon tax; without an emissions trading scheme. We want to pursue an incentives-based program rather than a punitive program”.
It was, of course, too good to be true. As Australia’s Clean Energy Regulator confirmed earlier this year, emissions in our economy are rising under Direct Action; that’s despite the Government allocating $2.55 billion of public revenue to incentivising emissions reductions. Abbott’s expensive incentives-only medication, whilst not inducing drowsiness over our economy, was equally totally ineffective at reducing emissions.
The reality for any government hoping to effectively fight the symptoms of Climate Flu (without crashing the economy) is that interventions must be administered as a comprehensive, complex and carefully balanced cocktail of drugs. The cocktail must include both sedatives to put the old emissions-intensive economy to sleep, and stimulants to awaken the new low-emissions economy. The stimulants should include finance, limited compensation and other incentives mechanisms so that the economic transition can take place efficiently, and in the most equitable way for affected communities.
In 2017 the Government will undertake a formal review of its Direct Action policy framework. Given the current failings, it will be tasked with ‘having another go’ and reengineering a more complex cocktail of drugs that this time will actually reduce emissions whilst also safeguarding the health of the economy. This formidable task will be complicated even further by the current fiscal situation, and the Government’s commitment to finding savings to reduce public debt.
Given the current predicament, one might conclude that the task is beyond the Government. And yet if the Government genuinely wants to fight Climate Flu and at the same time stimulate the economy and reduce debt, then it should be thrilled to hear of some promising results from a little-known herbal drug.
It’s been around for donkey’s years but rarely grows in Australia. Don’t ask me what it’s marketed as, but its binomial name is bipartisan politicus.
Bipartisan politicus apparently acts to simultaneously reduce debt and stimulate the economy by attacking waste and dysfunction created in toxic political environments (think Australia’s energy market). It also prevents ‘pop-up’ government schemes and programs from being designed and implemented – only then to be binned, thereby saving the Government countless more millions.
The herb also acts to stimulate the economy over the longer-term by creating a stable investment environment for businesses. With sophisticated Government support, these much needed investments can then be channelled into supporting the growth of a dynamic, innovative, and globally-competitive low emissions economy.
Whoever said that herbal remedies couldn’t help fight a flu? it’s worth a shot anyway…
Evan Stamatiou is Director of Carbon Risk Management.