Green Capitalism — Don’t believe the hype!

First published at Reports from the Economic Front.

We are running out of time to avoid climate disaster. As signatories to the 2015 Paris Agreement, a legally binding international treaty on climate change, more than 190 governments have committed to take action to limit the rise in average global temperatures to “well below” 2°C above preindustrial levels while pursuing efforts to limit the increase to a safer 1.5°C. The stakes are high: failure means a very high risk of catastrophic climate change, with feedback mechanisms triggering unbearable heat waves, massive migration, mega fires, droughts and desertification of lands, and the flooding of low-lying cities.

The UN secretary general Antonio Guterres has declared that it is “Code Red for Humanity.” And yet, according to a 2022 UN Environmental Program report that incorporates updated national pledges to limit greenhouse gas emissions, “Policies currently in place point to a 2.8°C temperature rise by the end of the century. Implementation of the current pledges will only reduce this to a 2.4-2.6°C temperature rise by the end of the century.”

So what gives? In short, most governments remain unwilling to change existing systems of production and patterns of consumption. The US government, for example, continues to act as if it believes that environmentally sustainable growth, or green growth, can be achieved through the use of targeted incentives and subsidies. In other words, that corporations will, in response to state-influenced market signals, produce the new technologies and products needed to reduce future emissions and even pull existing emissions out of the atmosphere in the nick of time, all while allowing economic growth to continue.

Unfortunately for us, this is a losing strategy: it leaves in place an economic system that benefits the wealthy at the expense of the many. And there is every reason to doubt that market forces, with or without government incentives and subsidies, will lead profit-seeking corporations to undertake the changes needed to avert an ever-worsening climate crisis. In fact, the opposite is more likely. Corporations have shown themselves more than capable of restructuring markets in ways that open up new avenues for private profit making, often at the expense of the climate. If we want a sustainable and equitable economic system, we are going to have to overcome capitalist imperatives and develop the organizations and institutions that will allow us to directly build it.

The dangers are all too real

A 2021 report by the Intergovernmental Panel on Climate Change (IPCC) included five different climate scenarios, each based on different social, economic, political and technological changes between now and 2100. Only one — the “taking the green road” scenario — which assumes a dramatic shift away from the pursuit of economic growth to support for public investments that boost general well-being and lower inequality — will meet the conditions agreed to in the Paris Agreement. Under this scenario, the 1.5°C boundary will still be crossed in 2040, with the temperature rising to 1.6°C above preindustrial levels, before eventually falling, after decades, to a 1.4°C increase near the end of the century.

But time is a wasting if we are going to be able to follow this path. According to the report, global emissions will need to fall by 45 percent from 2010 levels by 2030 and reach net zero by 2050, only 28 years from now. An update of the IPCC’s work by Kevin Anderson, a leading climate scientist, suggests that because of the continuing growth in global emissions, the net zero date must now be reached by 2040. Moreover, as Anderson also points out:

global average rates ignore the core concept of equity, central to all UN climate negotiations, which gives “developing country parties” a little longer to decarbonize. Include equity and most “developed” nations need to reach zero CO2 emissions between 2030 and 2035, with developing nations following suit up to a decade later. Any delay will shrink these timelines still further.

The projected outcomes for the other major scenarios should strike fear in all of our hearts. For example, the “middle of the road” scenario, which assumes that socio-economic factors follow historical trends, leads to a rise in temperatures of 2.7°C by the end of the century. And then there is the “fossil fuel-driven development” scenario with its temperature increase of acatastrophic 4.4°C by 2100.

And what makes avoiding a catastrophic climate crisis even more challenging is that all these scenarios are based on data that undercount emissions in two important ways. First, the IPCC relies on national reporting to determine greenhouse gas emissions. In line with Paris Agreement guidelines, these totals do not include emissions from international aviation, maritime transport, or military activities. Thus, global emission totals are significantly understated in IPCC calculations. Second, national reporting is of net emissions. The net refers to the fact that generated emissions can be balanced or offset by actions to reduce carbon emissions, primarily through the use of carbon offsets. However, there are no international standards for assessing the quality of nationally declared offset arrangements, and there are good reasons to believe that their benefits are greatly overstated.

Smoke and mirrors

Few corporations now outright deny climate change or the dangers of global warming. However, rather than change their ways, they have developed new products, initiatives, and claims that are designed to convince the rest of us that capitalism is more than capable of meeting the climate challenge. As the climate researcher Adrienne Buller puts it, what we are seeing is:

a proliferation of non-solutions advocated by policymakers and business interests with varying degrees of earnestness and good intention, under the umbrella of “green capitalism”. These are proposals sold as urgent, pragmatic tools for cutting emissions or reversing ecosystem loss, but which in fact deliver neither.

One example is the development of the sustainable finance industry with its designated environmental, social, and governance (ESG) rated funds. The claim is that by allowing investors to direct their money to firms pursuing progressive policies, these funds will help promote the efficient evolution of the economy in an environmentally desirable direction. ESG funds have indeed grown quite large; one estimate is that they top $35 trillion.

Unfortunately, studies have also made clear that these funds do little to encourage “green” investing. In fact, research reveals that there is little difference in the corporate composition of ESG and non-ESG index funds. The main reason is that the firms that develop the rating systems that asset managers use to create their funds are unregulated and generally use criteria that ignore or discount behaviors that would put the firms being rated in a bad light. Thus a Bloomberg article on the shenanigans of the rating industry was titled The ESG Mirage. The article’s subhead says it all: “MSCI, the largest ESG rating company, doesn’t even try to measure the impact of a corporation on the world. It’s all about whether the world might mess with the bottom line.”

Of course, this fact has done nothing to sour leading asset management companies, in particular Blackrock, Vanguard, and State Street, from continuing to promote their ESG funds. And why should it? These firms get to charge extra high fees for investors who want to use those funds and the ratings companies pocket a bundle for their work.

Strikingly, the future of these funds is increasingly in doubt. Right-wing political forces have begun to target them. As CNN reports:

ESG has become a dirty word on Fox News and among Republicans in Congress. What’s followed is a growing conservative backlash against corporate, social and environmental initiatives. About half of US states are enacting provisions to block efforts to invest in state-run investment accounts with an ESG lens. 

The carbon offset industry offers another example of green capitalism’s false promise. In brief, companies unwilling to change their business model can still tout their environmental commitment to a net zero future by buying carbon offsets, basically a purchased unit of promised emission reductions usually provided by a company specializing in the business. The most common carbon offset projects involve reforestation, building renewable energy, carbon-storing agricultural practices, and waste and landfill management.

However, as with the sustainable financial industry experience, there is little evidence that the carbon offset market is doing anything for the climate. For example, according to a recent study by the Guardian newspaperof the top 50 emission offset projects (those that have sold the most carbon credits in the global market), 39 of them or 78 percent, were “likely junk or worthless due to one or more fundamental failing that undermines its promised emission cuts.” Another 8, or 16 percent, were judged problematic, “with evidence suggesting they may have at least one fundamental failing and are potentially junk.” That leaves only 6 percent that appear to be fulfilling their promise.

The Guardian describes several of the projects they found worthless. Here is one:

a giant forest conservation project in Zimbabwe was reported to have had so many exaggerated and inflated claims – and probably shifted emissions elsewhere – that it was described as “having more financial holes than Swiss cheese”. Bloomberg reported rating experts who said the project’s emissions cuts were overestimated by five to 30-fold.

The Guardian also cited the example of “the world’s largest carbon capture and storage plant” which is located in Wyoming. It has enjoyed generous taxpayer subsidies, but rather than reduce emissions, the study finds that: “the vast majority of the captured CO2 has been released into the atmosphere or sold to other fossil fuel companies to help extract hard-to-reach oil, according to the Institute for Energy Economics and Financial Analysis.”

Moreover, some of the biggest users of carbon credits are now deciding to abandon the effort. For example, Bloomberg news reported that the newly elected chief executive of the oil giant Shell announced at a June 2023 investor meeting that the company was ending the world’s biggest corporate plan to develop carbon offsets to help it achieve its promise to reach net zero emissions by 2050. The plan involved, among other things, investing in projects that would sequester carbon with trees, grasses or other natural resources. Instead, according to executive, the company will concentrate on its main profit drivers, oil and gas.

Of course, green capitalism is not limited to these initiatives. In fact, some analysts point to the ways in which changing market dynamics have encouraged a number of important new developments, for example a boom in solar and wind production, the rapid growth in use of electric vehicles, the development of new plant-based foods, and the adoption of new, more environmentally friendly standards for residential and commercial buildings and home appliances. No doubt aided by these developments some high-income countries have actually succeeded in reducing their CO2 emissions while maintaining economic growth. This “absolute decoupling” is said to demonstrate that market forces can promote the economic adjustments needed to minimize the likelihood of climate chaos.

Unfortunately, studies do not support this claim. As the scholars Jefim Vogel and Jason Hickel point out:

The main problem here is that the assumed rates of decoupling are not supported in the empirical literature—they are well outside even the most heroic documented achievements. Furthermore, empirical studies reveal that in a growth-oriented economy, gains from efficiency improvements tend to be leveraged to expand processes of production and consumption, which tends to erode absolute reductions in energy or material use. In short, efficiency improvements are important, but in an economy organized around growth and accumulation they do not deliver the results we need. The problem therefore is not primarily our technology, but rather the objectives of the economy.

Vogel and Hickel carried out their own study to determine whether recent decoupling achievements were sufficient to meet Paris climate goals. They identified 11 countries (a group that did not include the United States) that had achieved absolute decoupling over an extended period, from 2013 to 2019, and compared their likely future emission reduction rates to determine whether they would be sufficient to enable those countries to remain within their “fair-share” (or population-proportionate share) of the remaining global carbon budget consistent with limiting global warming to 1.5°C or 1.7°C.

They found little support for the claims of “absolute decoupling” proponents. Even the 11 countries that had achieved the greatest decoupling fell far short of what was required. As they summarize:

At the achieved rates, these [11] countries would on average take more than 220 years to reduce their emissions by 95%, emitting 27 times their remaining 1.5°C fair-shares in the process. To meet their 1·5°C fair-shares alongside continued economic growth, decoupling rates would on average need to increase by a factor of ten by 2025.

In most cases, even the decoupling rates required for reconciling continued economic growth with national fair-shares for a 50% chance of 1·7°C (reflecting the lower-end ambition of the Paris Agreement) remain out of reach.

In sum, business as usual is a recipe for disaster.

What is to be done in the United States

The struggle for change in the US, given its standing as the largest historical emitter of CO2, is absolutely essential to any solution to the climate crisis. Beyond working to discredit the myth of green growth, we must deepen our collective efforts to build majority support for a radical transformation of the US economy, one that can both achieve a significant reduction in energy and resource use and enhance majority well-being.

The starting point for such a transformation must be our energy system: the US economy needs to transition as quickly as possible from fossil fuels to sources of clean energy like solar and wind. However, given the need to reduce overall emissions and resource exploitation, this cannot be a one-to-one replacement of energy sources. As the scholar Michael Löwy makes clear:

One obvious reason for this is that most renewable energies, such as wind and solar, (a) need raw materials that do not exist an on an unlimited scale and (b) are intermittent, depending on climate conditions (wind, sun). They cannot, therefore, entirely replace fossil energy. A substantial reduction of energy consumption is therefore inevitable. But the issue has a more general character: the production of most goods is based on the extraction of raw materials, many of which (a) are becomingly increasingly limited and/or (b) create serious ecological problems in the process of extraction. All these elements point to the need for degrowth.

Achieving an overall reduction in energy use will therefore require taking steps to curtail the provision of ecologically destructive and socially less necessary goods and services, including single-family mansions, giant sport utility vehicles, private jets, luxury cruises, fast fashion, industrially produced meat and dairy, single use/disposable products, and the like. Many of these goods and services are those consumed by upper income households. According to one study based on input-output analysis, “In 2019, fully 40% of total U.S. emissions were associated with income flows to the highest earning 10% of households.”

We can achieve further energy and emission reductions, and contribute to a more peaceful world, by dramatically reducing our military budget and global infrastructure for the projection of power. Although the US military does not publicly disclose its fuel use and the US does not include military emissions in its national emission calculations, scholars have done their own estimates. A study by British researchers determined that the US military, just from its fuel use, was the 47th largest emitter of greenhouse gases in the world, roughly equal “to total — not just fuel — emissions by Romania.” Neta Crawford, Co-Director of Brown University’s Costs of War Project, concluded that “the Department of Defense is the world’s largest institutional user of petroleum and correspondingly, the single largest producer of greenhouse gases in the world.”

Thanks to the policies highlighted above, the newly expanded clean energy sector should be able to support a dramatic expansion in the provision of a number of socially beneficial goods and services, ensuring that our new economy will also deliver a more secure and higher quality of life for the great majority. In particular, that expansion should be anchored by the establishment of a well-funded national health care system, universal education system, accessible and affordable program of public housing, and expanded system of public transportation, as well as support for universal digital connectivity and regenerative agricultural practices.

The job creation from these initiatives will be substantial. For example, the operation of a national health care system requires the building of new clinics and hospitals, the manufacturing of appropriate medical instruments and specialty vehicles, the development of new software for record keeping and health care research, and the construction and staffing of educational institutions for the training of new health care professionals. Similarly, an accessible and affordable program of public housing will require the construction of new buildings and energy efficient appliances, the retrofitting of existing buildings, the expansion of apprenticeship programs to train construction workers, the design and upkeep of parks and community centers, and the training of urban planners to ensure integration of housing with green spaces and transportation options. And to ensure that the benefits of these new initiatives are also experienced at the workplace, we must develop and implement new labor policies, ones that will support strong democratic unions, living wages, full employment, and a shorter work-week.

Market dynamics will not support this transformation. Rather, its achievement will depend on our ability to overcome corporate resistance and develop the capacity to democratically plan and direct economic activity. Helpfully, we have the conversion experience of World War II to draw upon. Then, the U.S. government was forced to rapidly develop a series of mobilization agencies, investment and resource allocation boards, and policies, often in the face of corporate opposition, which it used to successfully convert the economy from civilian to military production. Although that conversion experience cannot and should not serve as a model for the transformation we need, it does offer useful lessons that can inform our own efforts. Most importantly, that experience should give us the confidence that a rapid system-wide transformation is possible to achieve, and in a timely manner.