The Global Challenges That Dwarf Climate Change: Can We Get the Priorities Right?
- May 30, 2021 3:25 am GMT
This article is not meant to downplay the dangers of climate change. As a researcher working on CO2 capture and clean energy systems, I certainly have no intention of doing that.
Instead, my intended message is one of caution against climate action that exacerbates far greater problems — a likely result of marketing climate change as our greatest threat that must be addressed at any cost.
If we’re smart, we can use climate change as added motivation to address the biggest global issues. This is possible, but it requires quite the cultural leap. At the end of this article, I share some ideas on this topic.
But first, let’s unpack the thesis behind this article.
Climate action appears to be (finally) gathering some real momentum. In fact, it has become fashionable to set targets for net-zero emissions by 2050 or shortly thereafter. Even the IEA has finally capitulated and created its obligatory "net-zero by 2050" scenario. Tangible policy pledges continue to fall far short of these dramatic emissions-reduction pathways, though.
Another interesting development is the boom in clean energy investment triggered by rising climate ambition and the unprecedented Covid-19 economic stimulus policies around the world. As shown below, clean energy stocks tripled at the end of last year. Every clean energy company seems to be priced as a winner in a future green world, creating some striking parallels to the dot-com bubble.
Whenever the markets overreact in this way, I tend to revert to the fundamentals. In this case, the fundamentals of our great 21st century sustainability challenge: Give every world citizen a fair shot at building a decent life without destroying the ecological carrying capacity of our planet.
In my book, the bare minimum requirement for giving every citizen a fair shot at a decent life means getting everyone across the $10 per day threshold (please take a moment to contrast this number with the fight for a $15 per hour minimum wage in the US). As shown below, we’re making progress in this respect, but a shocking two-thirds of the world remain below this very modest threshold.
Preserving our planet's ecological carrying capacity includes climate change mitigation, but there are many other pressing issues as well, several of which are already at high risk. Mother Nature is probably generating more value for our economy via free ecosystem services than all our efforts combined, and we have already degraded these free services to a significant extent.
Hard and Soft Science Solutions
In our technology-obsessed world, we have developed an almost religious belief that we can solve every problem through the hard sciences. In the process, the soft sciences (psychology, sociology, politics, etc.) are failing to keep up with our rapidly evolving technological landscape, resulting in a broad range of serious side effects.
When it comes to addressing the 21st century sustainability challenge, the soft sciences must take the lead. Here is the breakdown:
- Politics (soft): Fairly distribute the prosperity (and the damages) created by technological advancement
- Psychology and education (soft): Achieve healthy and fulfilling lives in a world that is alien to our evolved instincts
- Technology (hard): Develop and deploy cost-effective and reliable clean and sustainable technologies
- Economics (hard) and politics (soft): Identify and implement a rapid and just transition to a sustainable society
We're still doing terribly on point #1, illustrated by a global Gini coefficient of 0.66. This is comparable to my country of birth, South Africa, where a 30-minute drive can take you from shanty towns without even basic sanitation to palatial estates in fortress-like security complexes. Thankfully, the global Gini coefficient is declining, but this is mainly due to the old-school coal-fired industrial revolution in South-East Asia combined with the stagnation in the West. Meanwhile, within-country inequality keeps rising. Social and environmental damages from mining, manufacturing, and waste disposal in high-tech value chains are also mainly concentrated in poorer nations, while rich nations reap most of the benefits.
Regarding point #2, the world seems to be getting more stressed, obese, and unfit by the day. People have a tough time finding fulfillment in today’s world, despite its amazing material abundance. This comes down to the concept of Life Efficiency I wrote about earlier. Simply put, we remain highly inefficient at converting all our economic effort and environmental destruction into lasting health and happiness for ourselves and those around us.
As usual, the hard sciences are doing an admirable job with point #3, but the bottleneck once again comes from soft sciences in point #4. We have known about climate change and the simple political solution (a predictably rising carbon tax) for decades, but the implementation has been terribly inefficient. The complex mess of technology-forcing policies has allowed greenhouse gas emissions to grow for far too long and left us with a narrow set of politician-selected winners (mainly wind, solar, and battery-electric vehicles) that face a broad range of scale-up challenges.
We should be wary of tech billionaires promising techno-fixes to all the world's problems. The next wave is all about automation and artificial intelligence, but you do not need to think too long to foresee many serious side effects (not even considering the "unknown unknows"). The world needs a soft science revolution much more than it needs more technology. I just hope we can get the priorities right.
This hard scientist will contribute in the only way he knows how: cost quantification.
Setting the Benchmark: The Cost of Climate Change
Estimates of the social costs of carbon vary widely, but mean values tend to fall around $50 per ton of CO2. As shown below, the discount rate is a key uncertainty in such assessments. In a way, the discount rate accounts for the fact that we can burn carbon today to strengthen the economy and reduce (and eventually reverse) the impact of climate change in the future.
There are many avenues. We can grow our economy to reduce the relative magnitude of climate change costs, we can fortify our economies against a more volatile climate, we can invest in negative-emission technologies, and most crucially, we can uplift billions of developing world citizens to decent living standards to greatly reduce their climate vulnerability. The better we perform in these projects, the more we can discount future climate costs, making climate change seem much less daunting.
Although it clashes with our great belief in our technological prowess, a conservatively low discount rate of 3% is commonly assumed. This leads to a social cost of CO2 around $50/ton or $1.75-2.65 trillion globally, depending on whether we consider CO2 or all greenhouse gases. In other words, climate change costs us roughly 2% of GDP.
Make no mistake, climate change is a big (and still worryingly uncertain) problem. But we should not lose perspective – something all too common among those born into rich societies already constructed on the back of hundreds of billions of tons of CO2.
Some Perspective: The Cost of Inequality
As mentioned earlier, the vastly unequal distribution of material prosperity around the world is the clearest sign of how far the soft sciences still lag behind. Here, we have two main challenges:
The first is socio-political in the form of vast global inequality of opportunity. In my view, this is the single greatest injustice in our world. Pure luck at the lottery of birth is the dominant determinant of whether anyone will live in poverty or prosperity. That's just terribly wrong. Even so, very few of us who won the lottery of birth take any meaningful action to rectify this incredible injustice.
The second is psychological in the form of personal responsibility and delayed gratification. Among those who were born into decent living conditions, this is the leading cause of inequality. Those who can delay gratification gain access to the incredible power of compounding, whereas those who habitually succumb to consumerist temptations do not. The injustice involved here is much smaller than for the first point, but it does increase when considering intergenerational effects.
To estimate the cost of global inequality, I calculated the increase in average global health and happiness that can be achieved by redistributing income equally. With the data plotted below, it turns out that the average word citizen can expect 32 happy life years (product of subjective wellbeing and life expectancy). However, if income were to be equally distributed, this number increases to 38.
What does this mean? Well, since everything we do – be it trying to grow the economy or combat climate change – is to increase our happiness and longevity, we can now check how much economic output we need to match the effect of income equality on happy life years. From the data, every doubling in income leads to about 6 additional happy life years. Thus, the 6-year boost from income equality is worth about 100% of GDP.
Obviously, perfect equality is not feasible. Communism taught us that. However, societies with about half the current global Gini coefficient tend to perform very well. In addition, reduced inequality boosts growth – an obvious finding considering that high inequality excludes a large portion of the population from productively participating in the economy and damages the social fabric, leading to destructive conflicts, crimes, and other anti-social behavior.
Clearly, global poverty and general inequality present a much greater problem than 2% of GDP lost to climate change. In fact, the very worst humanitarian effects of a changing climate are directly related to poverty and inequality, meaning that a rapid reduction in global inequality would greatly reduce the cost of climate change.
All this points to a simple conclusion: We should take the greatest of care that climate action does not exacerbate the much larger problem of global poverty and inequality.
Getting Our Priorities Straight
The ongoing pandemic provides a good illustration of how sensitive poverty is to economic performance. As shown below, we will be back to where we were in 2015 by the end of 2021 when it comes to eliminating extreme poverty (the tragically low baseline of $1.9/day). We should remind ourselves that the pandemic caused a contraction in CO2 emissions roughly equivalent to what we need to sustain to reach net zero by 2050 and that we are in for a big CO2 rebound this year.
It's of paramount importance that climate policies do not harm developing world growth. If renewables present a compelling investment case when receiving open market prices and financing costs, perfect. Off-grid renewables that can competitively uplift impoverished communities are even more perfect. Whatever technology will reliably supply cost-effective energy for rapidly improving lives in the developing world must do. There are so many other investment priorities (decent housing, schools, hospitals, roads, etc.) in the developing world that energy should consume only a bare minimum.
In fact, if the soft (political) sciences were up to par, rich nations would be falling over each other to build and operate clean energy in the developing world. First and foremost, this would be by far the most socially beneficial way for developed world infrastructure spending to combat climate change: lower costs per kW and often higher quality renewable resources combined with direct poverty alleviation. Second, it would be the most cost-effective way for rich countries to settle their enormous historical emissions debt. Third, it will make everyone feel better about the gross injustice of climate change, promoting global cohesion and stability.
Sadly, rich nations are far too busy making net-zero pledges promising highly inefficient CO2 cuts by building out renewables in low-quality sites, shuttering perfectly functional industries well before the end of their lifetimes, and banning increasingly efficient internal combustion engine vehicles. For this inefficiency, we're patting ourselves on the back while shaming the developing world for building more coal plants.
In addition, rich nations seem to be far too busy dealing with rising domestic inequality to worry about the majority of world citizens who live on less than $10/day. The cheap money that's so crucial to the competitiveness of capital-intensive clean energy has given those at the top even more leverage and massively inflated asset prices. The result: a growing gap between the rich and the rest.
Other Costs that Dwarf Climate Change
Aside from the massive issue of inequality discussed above, the lagging soft sciences have also failed to stem our propensity for self-destructive behaviour. As an example, I recently did a rough assessment of the global cost of empty calories and arrived at a cool $6.4 trillion. Yes, you read that right; refined sugar, saturated fats, and excess salt could be costing us triple the climate change burden in the form of soaring medical costs, lost productivity, and mental illness. The rate at which this wave of hyper-palatable, ultra-processed food is spreading to the developing world is particularly worrying.
Our addiction to empty media, sedentary car-centred lifestyles, and various other self-destructive habits (smoking, alcohol, etc.) could each contribute a similar amount. In total, all these consumerist temptations purpose-built to misuse our primitive desire for instant pleasure and comfort could well be costing us an order of magnitude more than climate change.
An Unusual Reason for Optimism
This all seems quite frustrating – depressing even. But actually, it's a tremendous source of optimism! The fact that we can keep the peace and make progress despite these huge inefficiencies shows what a large fraction of our potential remains untapped. If the soft sciences only manage to catch up, wonderful things can happen!
We need only a small fraction of the losses from all these inefficiencies to overcome the great 21st century sustainability challenge. Like climate change, the solution is simple: internalize the most damaging externalities. Here are a few ideas:
- Use climate change as a driver behind reducing global inequality of opportunity by binding rich nations to settle their carbon debts via clean energy production in developing nations.
- Tailor redistributive taxation to gradually approach an evidence-based optimal Gini coefficient (around 0.3). We can start by increasing wealth taxes on the ultra-rich and replacing idolizing lists of the wealthiest with idolizing lists of the biggest taxpayers.
- Replace all technology-forcing clean energy policies with a predictable carbon tax (with border adjustments) in each country, proportional to GDP per capita.
- Apply evidence-based sin-taxes to unhealthy food, media, and other consumer items to correctly reflect their true costs on social welfare systems and overall productivity. Once we experience the efficiency of a carbon tax, this step should become considerably easier.
- Make practical strategies for improving Life Efficiency a central educational priority. If rich folks can unlock the immense potential of efficient living, it would open up a wealth of previously squandered resources to tackle the world's biggest problems.
These are just some of the ways in which we can upgrade our social, political, and cultural norms to eradicate the world's worst injustices and thrive in our technologically advanced era.
It's time for the soft sciences to step up.
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