Idiocy. Apologies, but that’s the word that captures the moment. Fiscal cliff and the debt ceiling, our twin emergencies and news pundit obsessions, are distracting most Americans from the other, far more financially destructive crisis: global climate change. Nonstop media coverage of what is really little more than political posturing and jockeying for power is cloaking a basic reality: that the US$700 billion tax hike and budget cut consequences of failing to reach partisan agreement by December 31st are trivial compared to the dollar costs of climate inaction. Leaving aside the basic existential threat posed by warming, it is suspected that climate change will cost up to or even exceed five percent (5%!) of global GDP per year starting, well, pretty much right now. Recovery from superstorm Sandy alone is expected to cost $50 billion. Adding up the costs of the now thousands of annual extreme, record-breaking weather events, one can easily see how such a significant portion of our collective productivity will be used up (see top reinsurer Munich Re's recent assessment of these risks here). Five percent of global GDP is about $3,500 billion, per year. The World Bank, while not attempting to calculate the costs, warned last month that, as the Guardian put it, "climate change could devastate the global economy." As warming-related culprits, the Bank cites mainly fresh water scarcity, agricultural destruction, sea level rise and worsening global health problems.
So not addressing climate is crushingly expensive. But so too would be mitigation, right? No. On the contrary, investment in a low carbon economy can not only help us minimize the still avoidable costs of warming, but also can be extremely economically stimulative. Why? Because innovation -- increasing economic productivity and output -- always wins. And right now, many of the most economically efficient and productive innovations could also -- almost incidentally -- be labeled as green tech. Warming is only one of many reasons world economies are now moving towards newer, better technologies. Making energy, for example, without ever paying a penny for fuel is clearly superior to the two-centuries old technology of burning fossils, even if one disregards climate aspects. In agriculture, in-ground irrigation is measurably far more cost efficient than wasteful, high-evaporation, above-ground irrigation. Innovation always wins, and usually creates jobs and incomes. As Bill Clinton recently said, "Once people know the facts, nobody's against this, but there are still too few...Americans who understand what a huge impact this could have on their future, who understand that there are already more people working in clean energy than in traditional energy. There are still too few people who intensely believe that the consequences of climate change can be calamitous, and that there are wildly profitable ways to avoid climate change. This is a great time to be alive. We just have to make sure that more people understand it and that more people participate in it." [Italics added] Reuters recently echoed Clinton's remarks in the article "Why You Need a Climate Change Portfolio" saying, "entire industries are adapting to the impact global warming is having on energy and food production, infrastructure and transportation." PricewaterhouseCoopers’ contribution to the discussion is to assert that with respect to warming, "the only way to avoid pessimistic scenarios will be radical transformations in ways the global economy functions," meaning radical opportunities for investment return and job creation.
In Washington, though, there is widespread belief that we must choose between a healthy economy and embracing the efficient next economy. President Obama laid down the essence of this false choice in his first post-election presser: "I think the American people right now have been so focused, and will continue to be focused on our economy and jobs and growth, that if the message is somehow we're going to ignore jobs and growth simply to address climate change, I don't think anybody is going to go for that. I won't go for that." I can't imagine the president isn't aware that, according to a recent Yale University survey, "a large majority of Americans (77%) say global warming should be a 'very high' (18%), 'high' (25%), or 'medium' priority (34%) for the president and Congress." I can only speculate that Obama believes discussing climate, even though it has broad support, will damage his effort at bipartisanship and so he chooses to ignore it. But that's a dangerous and cynical political calculation given the stakes. My favorite refutation of Washington's fake dichotomy has been, "it's not jobs vs. climate. It's about a disaster economy vs. an adaptive one."
Obama and Boehner talk and talk about whether or not closing loopholes constitutes tax increases and about which, if any, Americans will get small increases to their nominal tax rate. Not discussed: the climate cliff. (Image: policymic.com)
Of the two emergencies that politicians will currently "go for," the fiscal cliff is more relevant to society than the debt ceiling, involving as it does legitimate budgetary discussions including, presumably, energy, climate and other related expenditures and/or cuts (as David Roberts (@drgrist) recently tweeted, "What percentage of Americans realize that deficit talk is almost entirely about panicking them into accepting cuts in social spending?"). At the least, a small carbon tax should be up for discussion as a potential source of new revenue, but as it is, that’s not even on the table.
As for the other topic, please keep in mind that debate about whether or not to raise the debt ceiling is nothing more than deciding whether or not to pay for the budgets congress and the executive branch have already agreed to and passed in previous sessions. Failing to raise the debt ceiling to meet our established obligations is like someone running up a credit card then deciding not to pay the bill because it's not "fiscally responsible." We could default on the credit card, but then our creditworthiness is downgraded, the interest we have to pay goes up, and we’re in a worse financial death spiral. The debt ceiling debate amounts to little more than base, petty politics at their worst, and as such (apart from political benefits accrued by a few) it's a waste of time. And it is occurring at the same time we're being warned that "CO2 emissions rises mean dangerous climate change is now almost certain," meaning the world economy is headed towards a genuine cliff.
Yet meanwhile, Boehner, Reid, Obama, Geithner et al., remain consumed by sniping at one another over a mostly false debate. And they’re probably going to do it all over again -- or rather keep it going -- in February, when the debt ceiling comes back up for another increase. Idiocy.
Garvin Jabusch is cofounder and chief investment officer of Green Alpha ® Advisors, and is co-manager of the Green Alpha ® Next Economy Index, or GANEX and the Sierra Club Green Alpha Portfolio. He also authors the blog "Green Alpha's Next Economy."