Human greed

Over the past century, the prevailing paradigm shaping the architecture of the economic system has been neoclassical economics, and over the past few decades, this has transformed for many countries (e.g. the United States and the United Kingdom being key leaders) into a particular form—neoliberalism (Saad-Filho and Johnston 2005). Underlying these are certain key elements, under the banner of capitalism, broadly organized into two general areas: production and consumption. Historically, these elements have functioned on a microlevel in villages and communities, evolving into forms such as bartering (i.e. offering goods or services in exchange for those needed by the other person). The widespread adoption of money and currencies, elements central to the capitalist system, reshaped the model around production and consumption because people were no longer exchanging goods and services based on ‘use-value’ (i.e. the material uses of the object and the human needs it fulfills) but ‘exchange value’ (i.e. two commodities are exchanged on the ‘open market’ by being compared to a third item that acts as a ‘universal equivalent’—money). In other words, one of the outcomes of capitalism is that it puts primacy on exchange value, and the drive to accumulate it, and subordinates use-values, i.e. human needs. Fundamentally, the most crucial element is the private ownership of the means of production and its operation for profit. This results in private firms controlling the means of production, not those producing it, and being owners of the enterprise (the ‘capitalists’). Another element that is important for a ‘free market’ is well-defined property rights.

However, there are activities related to the means of production whose property rights are not well-defined, collectively called externalities in the economics parlance, which are costs involved in production but which are not borne by the firms doing the production, but instead third parties (typically without their consent). In the context of this chapter, the most relevant (negative) externality is carbon emissions (and related to this, pollution from burning of fossil fuels more generally). Historically, economics has tended to do a poor job of factoring in these negative externalities within their models or analysis, and some firms chalked them up (crudely) as ‘the cost of doing business’. Yet, climate change and its ensuing impacts in the coming decades makes such a perspective outdated, out of touch with reality, and arguably, irresponsible. In short, externalities matter and fossil-fuel related emissions (carbon, methane, nitric oxides, sulphur, etc.) are some of the most egregious. When you consider that more than 70 percent of global emissions come from just 100 companies, those at the helm, the CEOs, have a disproportionate influence on such negative externalities as they plan the activities of their companies. Indeed, there is an argument to be made that billionaires, through their position as leaders of these companies are complicit in causing and exacerbating climate change (Darby 2018).

For the past century, fossil fuel companies have been getting away with not being responsible for the negative externalities their activities created. The experience of adopting market-based mechanisms to encourage responsibility and to address such externalities do not encourage much faith in free-market principles saving us from climate catastrophe. Recent analysis has shown even the most aggressive carbon tariff's (or ‘taxes’), i.e. $100 USD per ton of CO, will have limited impacts on the fossil fuel industry (Barron 2018). Besides such conclusions, we can also see proof of the inadequacy of market-based instruments to facilitate decarbonization by considering that increasing adoption of carbon tariffs across countries has had modest impact on carbon emissions. Moreover, energy companies have little incentive to shift from a business as usual scenario because to do so is expensive, at least in the short term, which is the time window by which most corporations are assessed: profit and revenue per quarter, growth per year, CEO’s yearly bonuses. Even on a longer time horizon of decades, fossil fuel companies’ complacency is emboldened by trends that show fossil fuel demand and use will only increase due to demand rapidly urbanizing Global South, as demand tapers or reduces in advanced economies (IEA 2020). For example, world energy consumption is expected to rise by 50% between 2018 and 2050, with almost all of this growth expected in non-OECD countries, and with Asia accounting for most of the increase in energy use (EIA 2019).

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