How Big is your Green Stimulus?

Moving on from my earlier post about the green paradox of thrift I have been paying some attention to the discussions about green stimulus. The idea is for the government to either borrow or leverage indirectly private-sector money to be invested in sectors considered 'green'. Since how we define green industry or even the green economy is contested this has been a process subject to considerable lobbying and tendentious argument.

The world leader in terms of green stimulus is Korea, which according to a report from the UN’s Environment Programme update on the Global Green New Deal has sent 79% of its investment money in the direction of green sectors, compared with 34% for China, 18% for France, 13% for Germany and 12% for the USA. Korea plans to invest the equivalent of US$83.6 billion by 2013 including US$44 billion on building energy security and US$22 billion building up its green production sectors. In absolute terms, China’s green stimulus of US$ 218 billion is the largest of the G20 countries: China is investing massively in its railways (48%) and in energy efficient buildings (35%). The investment in Green Keynesianism from the UK is too small to feature in these comparisons.

           

French energy journalist Yves de Saint Jacob describes how France's traditional commitment to a state industrial policy has been redirected towards apparently green sectors. In sympathy with the tone of this paper he raises the question: 'Is economic revival compatible with sustainable development, or, to turn the problem on its head, perhaps a little cynically, is recession the only effective means of reducing CO2 emissions?' before describing the really significant investments made since Sarkozy's election in 2012. France is investing massively in its rail network and its canals with public finance of €8bn. and the hope of leveraging in more from the private sector. The aim is to emerge from the recession with significant improvements to non-road transport including a new tunnel between Turin and Lyon and a new Seine-Nord canal linking Europe's northern ports to Mediterranean markets. In addition there are significant investments across the country's already impressive TGV network and significant investments in so-called green production sectors: €500m. is being spent on incentives to encourage the development of greener cars, while consumers are being offered €1000 when they trade in their older car (at least ten years old) if they buy a lower-emission replacement. In the construction sector €850 is being spent on refurbishment to improve energy efficiency.

Amongst pro-environmental economists and lobbyists the call has been for a Green New Deal, this time explicitly echoing the largest Keynesian response to the Depression: Roosevelt's New Deal programme of infrastructure investment and job creation. This call began in the UK with the report from the Green New Deal Group that grew out of Colin Hines’s work with the New Economics Foundation. Rather than the flagship-style policies of Sarkozy and Obama, this group focused instead on the urgent need to ensure safe and warm homes for elderly people with energy prices rising rapidly. It was a form of human-scale development approach to Green Keynesianism that would have warmed the cockles of Schumacher's heart as much as the living-rooms of elderly pensioners. From an economic perspective it proposed a triple win: health for the vulnerable, jobs for the workless, and stimulus for the economy. It was almost totally ignored, with the government instead proposing its Green Investment Bank, another example of using public money to leverage private money but socialising the risks and making no attempt to ensure socially beneficial allocation.

The Green European Foundation has funded a thorough comparison of the progress of such Green New Deals across the members of the EU. The research, conducted by the Wuppertal Institute, confirms the widely differing sizes of stimulus packages as well as the proportions directed towards green transitional investment. In both cases the UK is well towards the bottom of the rankings. In Figure 5 the UK is shown to be one of only two countries whose green economy actually shrank between 1999 and 2004 (the other being Greece). While Finland’s eco-industry grew by 54% during this period that of the UK shrank by 18%. This is clear evidence of the misallocation of resources that results from an over-emphasis on finance. The country's reliance on the financial sector to gain foreign exchange also explains the UK’s apparently positive performance in terms of the efficiency of its GDP in energy terms. If your wealth is earned through invisibles such as insurance and financial products and your production has been off-shored this can mask an underlying failure to invest in green transition which can threaten long term energy security and economic viability.

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Cold Comfort

Age UK have offered their regular and timely alert about the cost to the country of our inadequate housing stock, but this year they have tailored their message for the age of austeria. Is it more likely to achieve the desired response from policy-makers when couched in terms of saving money to the NHS? Do we really care so little about life that merely listing the numbers of thousands who die because of the cold is no longer enough?

The figures, although seemingly rather dubious, are none the less impressive: illnesses caused by cold homes cost the NHS £1.36bn. per year. The cold puts pressure on most bodily systems but stress on the heart and lungs leads to strokes, heart attacks and respiratory diseases all thriving in the cold months. There are at least 27,000 deaths that need not have happened if we had a properly insulated housing stock.

This situation is not new - the English, after all, invented the draft and being cold inside your home is a particularly British habit, as those who have travelled in central or northern Europe can attest. So why is it not tackled? First, is the problem of its lack of glamour. It is so much more thrilling for a politician to be seen by a model of the next airport or the vast Severn Barrage. Surely there is also something cultural hanging over from the cold dormitories in which so many of our politicians spent their childhoods. Perhaps they still believe that it was chilblains and cold baths that made the empire great.

But there are also important economic reasons. Huge infrastructure projects such as high-speed railways generate the sorts of balance-sheets where large sums can be siphoned off through various consultancy roles and offer lucrative contracts to the sorts of corporations that have the government's ear. The persistent work of improving the quality of our homes offers jobs in the local community for people who have only their vote to offer. The Green Party has been arguing for the local solution for years, proposing £2bn. to £4bn. per year investment to insulate four million homes per year at the last election. This is not glamorous and receives little media attention, short of failed attempts to rubbish the figures.

The failure to invest in energy insulation is demonstrative of our failure to tackle the issue of climate change as a whole within an economy focused on profit and individualism. The deaths of old people this winter are the price we pay for having such an economic system, as is the legacy of ill health for many children who grow up in cold homes. During my visit to Berlin recently the most obvious indication that I was in former east rather than former west Berlin were the huge district heating systems linking properly insulated buildings to sources of state-generated power. It is one of the lessons of a planned rather than market system that when the state makes providing you with a warm home its business, standards of energy efficiency are likely to be much higher. While few of us would welcome a centralised planning system, the failure to tackle effectively either cold homes or energy efficiency suggests that this is another area where the market is failing - and with lethal consequences.
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Modelling a New Economy

Yesterday I received copies of my new book, The Bioregional Economy. This is always an exciting moment, and also a nerve-wracking one. In the book I make a strong proposal for rethinking the economy to achieve maximum human well-being within the frame of the 90% reductions of carbon emissions that the Tyndall Centre says we need to avoid the worst of climate change. This means some really radical changes to how we work, the level at which decisions are made, and how resources are owned and controlled. I do not shy away from any of these difficult decisions.

I was presenting the proposal to the Geography Department at Glasgow University last week. Afterwards a Greek colleague came up and told me that the proposal is obvious. While this isn't the sort of thing you like to hear when you have spent time writing a book about a radically new proposal, I know what he meant. It turns of that Theo Kromydas co-wrote the Wikipedia entry on Epicurus, and so I am taking this as evidence that, as all good ideas must, I have backing from an ancient Greek philosopher. The book's subtitle is 'Land, Liberty and the Pursuit of Happiness', and it seems that this might have been written by Epicurus, whose philosophy was based on the understanding that humans, like all animals, seek pleasure.

According to Kromydas, Epicurus has a sophisticated view of pleasure, which included ethical behaviour. Bodily pleasure that causes intellectual or moral distress is not the sort of pleasure we should be seeking. His definition of happiness is a mind free from disturbance and a body free from pain, a state he referred to as 'ataraxia'. One of the points I make most strongly in my book is that, while fossil-fuelled capitalism has produced a bewildering array of material products, it has not brought us peaceful minds and hence cannot claim to have achieved happiness even in the Western countries.

I will be launching the book in the Convent Parlour at Roehampton University on 12 December at 5pm. Since my lucky number is 12 I could not have a more auspicious day. If you can help me publicise the book either by organising a local meeting or writing a review for a publication or online outlet please get in touch. My esteemed corporate publisher is also offering a fairly hefty discount on the book until 14 December, so an opportunity to do some Christmas shopping.
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Carbon Floored

However many cheers we decide to cheer in response to Australia's introduction of a carbon tax , it is an encouraging sign that a country dominated by mining and energy interests and one of the highest carbon polluters is introducing an unpopular policy. What about the UK? Should we be arguing for a carbon tax here? Interestingly, it appears that this discussion is already underway, although in strong contrast to the situation in Australia, it is happening between the government and business, with little or no public debate at all. It is also happening without any mention of the word tax, and yet it is hard to find any other interpretation of the consultation document about a 'carbon price floor' published this March.

The first graphic illustrates the need for such a 'price floor'. It shows the price at which carbon was trading (bear with me on this nonsense) during the first phase of the EU's carbon trading scheme. The collapse in the price in 2007 resulted from the over-issue of a permits as a result of industry lobbying. There were more permits than companies needing to emit CO2, hence no scarcity, hence no price and the market failed.

The second graphic illustrates the government's proposal to use the Climate Change Levy to create a predictable upward trend in the 'price' of carbon to give a clear signal to industries reliant on fossil fuels that they had better increase their efficiency and/or shift their source of energy. This is a purely indicative graphic, with no suggested price, although later the document suggests 'Three illustrative carbon price scenarios for the UK power sector: £20, £30 and £40/tCO2 in 2020 rising to £70/tCO2 in 2030.'

This is one of the major problems with carbon pricing as a solution to climate change: we have no idea what the price should be. Real solutions to the problem of excessive emissions begin with a scientifically determined cap, and then find some way of sharing out the emissions the cap implies. Trading leaves the field wide open for industrial emitters to lobby to increase the number of permits available, and hence fix the market price. We can see from the first graphic that the current carbon price in the EU system appears to be stabilising at around €15 per tonne. As one of my students recently pointed out, given that our individual carbon quotas are around one tonne per year, and our actual emissions are 2.5 times that, he could easily afford to pollute to his heart's content, even on a student income.
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Inspiration from the Emerald City

This short hiatus in posts can be explained by my recent very enjoyable trip to Freiburg, a Germany city close to the French and Swiss borders and the Black Forest. I was invited to speak to this year's Forum on Enviromental Governance, an event organised by the students of the University MSc in Environmental Governance.

Freiburg styles itself as the 'greenest city in the world' and was voted Germany's greenest city last year. Many of the design features - such as co-housing developments and local food markets - were familiar to me from Stroud. The difference was in terms of scale, and also of the commitment to inclusive ecological communities (such as the famous Solarsiedlung, or 'solar village') and the excellent public transport systems you expect in Germany.


I had assumed that these developments would have grown up with the active support of the local authority, but it seems that even in Germany eco-activists have to lead the way. The famous Vauban development, where eco-homes powered by the sun have replaced a US army base, was privately funded and faced problems with planning permission at every stage.

During my visit I stayed at the Hotel Victoria, which claims to be the world's greenest. It uses no fossil fuels, relying on solar panels, four small wind turbines, and wood pellets from the local forest resource. The level of luxury in the hotel (and the expense) did make me question the concept of 'prosperity without growth'. I am fairly sure that the level of comfort enjoyed in the hotel is not possible for all the world's citizens.

Which brings me to the content of the conference itself. Like many who come to a first consideration of 'the green economy', the students had focused on technical and design aspects. The two first speakers were Ernst Ulrich von Weiszacker, he of Factor-4 and now Factor-5 fame. His claims that energy efficiency could solve the ecological-economic crunch were undermined by Ulrich Hoffman, head of sustainable development at UNCTAD, who quoted Tim Jackson's figure that a 128% increase in efficiency would be necessary to ensure a Western lifestyle to all the world's people, if we assume current population growth trends.


My own contribution was to raise the social, political and cultural questions around a green economy. The students were very interested in the Transition Towns, although they left little space to consider how we are to make changes to our consumption expectations if we are to make a deep green economy a reality. Overall it was a realy inspiring visit. The city itself is a wonderful model, but so is the university and its openness to genuine learning. The 19 MIG students, from 26 countries, will be sustainability leaders and we would benefit greatly in the UK from similar courses.
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Any Economy So Long as it is Colourful

Henry Ford coined the adage that best describes the ethic of the mass production-mass production era of the 20th century: ‘Any customer can have a car painted any colour that he wants so long as it is black.’ I think we usefully adapt this pithy phrase to help us vision the economy of the future. In this case it can be as colourful as human creativity can encompass but it has one fundamental limit: the energy limit. To put an exact number of the reduction in energy that we are looking for is a speculative process, but we need to reduce our current demand by something between 70 and 90 per cent.

This number is based on estimates in the Zero Carbon Britain report about what we need to do to achieve global equity by 2050. The exact figure requires assumptions about how energy intensive it is to construct and maintain renewable energy generation facilities; the likelihood of technology advances increasing energy efficiency vs. rebound effects; the contribution to carbon sequestration made by changing land use; and many other factors that cannot be convincingly quantified.

Although many reports about social responses to climate change can feel fairly prescriptive in fact what we are looking for is creative and imaginative responses. You can have any economy you want so long as it is a low-energy economy. My work as a green economist is about visioning the most rewarding and satisfying economy we could create for the global human community while keeping within these planetary limits. Anybody is perfectly at liberty to create another vision, and in fact since Nature’s way is one of diversity we are likely to have a variety of different local economies within and between the present nation-states of the world to replace the stultifying uniformity of the globalised monoculture. Designing future economies, and devising the political pathway to follow to arrive at them, offers both a challenge and an opportunity.
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Don't Get Caught on the Rebound

It is generally assumed that efficiency of resource use will lead to a lower level of environmental impact, most commonly in the case of energy efficiency which is suggested as a major policy response to the problem of climate change. However, this is an assumption that fails to take into account the human factor and the range of possible responses that people might make to higher efficiency levels. An example of an unexpected response is the ‘rebound effect’, which means that when energy efficiency is increased, the response may be to use more of the good or service that is now produced more efficiently.


For example, is a home is better insulated, the people who live there may choose to enjoy warmer surroundings, rather than using their central heating less, thus some of the efficiency will not translate into energy savings. These rebound effects are illustrated in the figure, which shows the intricate relationship between product design, improvements in design processes, economic structure and social responses that are all involved in productive activity. Reducing the energy required to produce any particular good will lead to a fall in its price, which may then stimulate further demand, increasing the sales of that product.

This system of growth in the productive economy can be conceived as a reinforcing feedback cycle, with technological advance being one of the factors that drives economic growth (and hence resource and energy demand), rather than reducing demand and promoting conservation of energy and resources.

Rebound effects point to the difficulty of devising policies to tackle environmental problems. They also indicate that the major changes that need to occur as we move towards a lower-carbon economy will be in terms of a social and cultural paradigm shift rather than a technological change. So having citizens who appreciate the depth of the environmental crisis and are engaged in changing their lifestyle to contribute to its solution is more important than paying scientists to devise gadgets or even to redesign production systems.

You can find out much more about these effects in a useful book called Energy Efffiency and Sustainable Consumption. Tweet