A Green New Deal?

Alongside government intervention to bailout the sinking world economy, there has been a revival of calls for environmental Keynesianism: pumping in state cash to save the planet. PETE DICKENSON reports on the issues being raised and assesses whether such a deal is likely.

From Socialism Today, magazine of the Socialist Party, cwi in England and Wales.

Will the downturn save the planet?

Barack Obama made a call for an environmental ‘new deal’ a centrepiece of his presidential campaign, promising to spend $150 billion on sustainable technology. This echoed the Keynesian response to the Great Depression of the 1930s of president Franklin D Roosevelt. In Britain, calls have been made for a ‘Green New Deal’ by Brendan Barber, TUC general secretary, and Larry Elliot, economics editor of The Guardian. These reactions reflect the failure of market economics – revealed by probably the most severe financial crisis in the history of capitalism – which has raised serious doubts among sections of the bourgeoisie about their present reliance on largely free-market approaches to mitigate the effects of anthropogenic global warming.

Some argue that the policy response to the economic crisis of 2008 – direct state intervention and increased regulation – should now be applied to tackle environmental threats. Others, however, are already saying that the economic downturn makes action on climate change less urgent, since the crisis will result in lower consumption, meaning less greenhouse gases are produced. This controversy raises key questions. Firstly, is it true that emissions will fall anyway, eliminating the need for immediate action? If not, will green Keynesianism be effective in tackling climate change? And, perhaps most significantly, what will be the chances of the adoption of a Keynesian approach on a world scale that would be necessary for it to have a real impact?

Many climate change sceptics and eco-fundamentalists will welcome the economic crisis, although some more openly then others. The former are claiming that action to tackle global warming now will make the situation worse. For example, in the USA a sceptical Republican congressman from Texas, Joe Barton, led the charge saying that the proposed Senate bill to introduce a Kyoto-style carbon trading system will lead the country ‘off the economic cliff’. However, massive investment in sustainable technology could, potentially, not only transform the environment but also create millions of jobs.

On the other hand, eco-fundamentalists, many of whom define themselves as anti-capitalist, realised that the contradictions inherent in the market system made a major crisis, possibly a slump, inevitable at some point. Unlike Marxists, though, many welcomed this prospect, since they despaired of any other way to tackle climate change apart from economic collapse, which they think could result in a big reduction in greenhouse gasses. Whether they are correct in that assumption is another matter.

Professor Paul Crutzen, who won the Nobel prize for his work on the depletion of the ozone layer, was quoted by the Reuters news agency on 7 October: "It’s a cruel thing to say… but if we are looking at a slowdown in the economy, there will be less fossil fuels burning, so for the climate it could be an advantage… we will have a much slower increase of CO2 emissions in the atmosphere… people will start saving [on energy use]".

If the professor is right in predicting a cut in emissions, to what extent could they fall, and what would be the policy implications? Some eco-fundamentalists have pointed to the collapse of the Soviet Union 17 years ago, where there was a disintegration of the economy resulting in a fall in gross national product (GNP) of approximately 50%, significantly more in some of the former Soviet republics. In Russia, where figures are available, there was a fall of about 40% in GNP that resulted in a reduction of greenhouse gas emissions of about the same magnitude. Figures supplied to the UN Framework Convention on Climate Change showed that, in 1990, emissions totalled 3,046 million tonnes equivalent, falling steadily to 1,869 million tonnes in 1998. (globalis.gvu.unu.edu/indicator_detail.cfm?Country=RU&IndicatorID=196)

Market forces, Chinese policy

On the face of it, these figures seem to indicate that there is, indeed, a possibility of serious reductions in greenhouse gasses due to the economic crisis, even if it is significantly less than the extreme example of Russia. A closer look, however, reveals that it is unlikely that an economic downturn will significantly mitigate climate change effects, particularly in the medium or long term, for several reasons.

Firstly, Crutzen, in addition to predicting falling emissions due to the crisis, also made the point that the downturn could result in less being spent on research, which could make global warming worse, a fear that is already being justified. Latest figures show that global investment by firms in renewable technology has slumped, even before the current deepening of the crisis, falling 24% from the second to the third quarter of this year, from $5.8 billion to $4.4 billion (Financial Times, 11 November).

The markets clearly see no future in green technology in the short term, either, as various indices of share values in the sector have fallen from between 50-80% over the past twelve months. Market forces are now working strongly against renewables, with the fall in the price of oil undermining profitability projections and the credit crunch cutting off access to funding for new projects. In California, a leading renewables firm, Ausra, had plans to raise money to develop a promising new type of solar energy. This is called solar thermal power, that uses mirrors to concentrate the sun’s rays to heat water to use in turbines to generate electricity, which could turn out to be far cheaper than solar panels. Now, sources of finance have dried up.

The second reason not to expect the crisis to solve global warming is that production in the Soviet Union was heavily biased to highly polluting ‘smokestack’ industries, whereas in the G7 countries, which account for most of world production, output is much more oriented to services, IT and consumer goods. For this reason, any downturn will result in much smaller reductions in emissions, since these sectors are very significantly less energy intensive.

Thirdly, the scale of a downturn is extremely unlikely to approach that of the Soviet catastrophe. To get a comparison, output in the USA in the Great Depression fell by about one third – significantly less in some countries such as Britain. On a world scale, the economy in the 1930s fell by a fraction of that in the Soviet Union in the 1990s. Also, while a slump rather than a recession may still happen today, the lessons that have been learnt by the bourgeoisie since mean that a downturn probably will not happen on a similar scale to the 1930s. For example, policy interventions in downturns since the second world war have resulted in world production falling only once, in 1975/76, and then only marginally.

An uncertain factor is China, which has become the world’s biggest emitter of global warming gasses, partly by expanding energy intensive industries such as steel in the past seven years. There is some evidence now that a significant fall in production is taking place. If this is repeated across other previously rapidly expanding energy guzzling sectors in China, significant falls in greenhouse gasses could happen. However, the Chinese government has just launched a stimulus package, which has got massive accumulated resources to back it up, and which could significantly mitigate any overall fall in production in that country.

Even if a deep slump unfortunately does occur, following the suffering and devastation, at some point an upturn will take place that will reverse ultimately any falls that had taken place in greenhouse gasses, if the capitalist system is allowed to continue. Also, whatever the severity of the economic crisis, there are enough global warming gasses trapped in the atmosphere already to drive global temperature rises for decades to come. The reality is that there is no way to deal with climate change except through the transformation of the mode of production, the global application of sustainable technologies (see Planning Green Growth, by Pete Dickenson, Socialist Publications and CWI, 2003).

Green Keynesianism

Since the economic crisis will not stop global temperatures from continuing to rise, urgent action is clearly still needed. So, how effective would the proposed green ‘new deals’ be? Is Susan George, the well-known critic of globalisation, right when she claims: "Politically, ecological Keynesianism is a win-win scenario"? (New Scientist, 18 October)

Such approaches promise to overcome the ineffectiveness of free-market measures to address global warming, combined with developing new industries based on sustainable technologies that would create hundreds of thousands, even millions, of new jobs on a world scale, since they would be relatively labour intensive. A good example of this type of initiative from the New Deal in the USA in the 1930s was the construction of the Hoover dam, that created tens of thousands of jobs and produced (coincidentally) carbon free energy for millions (global warming was not a political issue at that time). In Britain, the New Economics Foundation first proposed a programme along Keynesian lines called the Green New Deal, co-authored by Larry Elliot, ten years ago. But the Keynesian government policy response to the present economic crisis has given the initiative a fresh lease of life.

The key points of the Green New Deal are a massive programme of investment in energy conservation and the development of renewable energy generation capacity as part of a ‘vast environmental reconstruction programme’. This would be delivered mainly by significant increases in fossil fuel taxes to drive energy efficiency, a windfall tax on oil companies, minimising corporate tax evasion, big cuts in interest rates, issuing government ‘green’ bonds and, on the international plane, setting a target for emissions and establishing Kyoto Two ‘with teeth’.

Apart from green bonds, there is not much new in this largely neo-Keynesian programme. Its emphasis is on interest rate cuts although, to be fair, it was written before the present crisis and the authors with hindsight may have changed their priorities to enhance the role of the state. In particular, they may now regret saying that their programme’s difference with the New Deal of the 1930s is that it will have a much bigger role for investment from private savings, pension funds, banks and insurance companies. Obama’s proposals are similar to the Green New Deal in that they call for a big increase in spending on green technology and support for a Kyoto-style carbon permit trading system, but there is not much more detail at this stage.

Elliot is clearly right when he calls for a vast environmental reconstruction programme that could both address global warming and reduce unemployment. Of course, a programme that could achieve these goals would be very welcome. However, using a ‘make the polluter pay’ tax system, which would include a beefed-up Kyoto, as a centrepiece to promote the use of renewables has two main problems.

First, it is unlikely to deliver change on the scale needed – an 80% reduction in emissions – since the market will not respond to price signals in the critical area of power generation. This is because, under present near monopoly market conditions, if the carbon energy generators face big tax hikes they will pass them on to the consumer, who has virtually no prospect of having a ‘green’ power generator to ‘choose’ to move to in order to avoid paying higher bills. Therefore, very little environmental gain will be achieved. Some sectors are more price sensitive, such as the public/private mix in transportation. Even here, however, consumer ‘choice’ is often bogus, such as in country areas where there are effectively no public transport services and an increase in taxes on petrol just has the effect of impoverishing commuters, again with little environmental gain.

This highlights a more general drawback with carbon taxes in that they hit the poorest hardest because they spend a relatively big percentage of their income on fossil fuels for heating and car use. Subsidies are fairer and more effective in encouraging public transport use, as shown by Ken Livingstone’s initiative under the Greater London Council (GLC) in the 1980s, when he slashed fares on public transport in his Fares Fair campaign. Of course, subsidies are no panacea either if implemented in a capitalist context, as Ken found to his cost when Margaret Thatcher abolished the GLC.

Also, the Green New Deal does not explain how it would achieve its aim of generating a large number of new green jobs in this country. If government money is channelled to new sustainable technologies most of it would go abroad, to the USA, Denmark and Germany, since this is where the expertise lies. This would not result in many new jobs in Britain and would also produce a net drag on the economy when the equipment is imported. It could take ten years to make the UK a leader in this technology, since it would mean starting from a low base following de-industrialisation under the Tories and New Labour.

Moreover, creating such ‘national champions’ would be impossible on a market basis, without protecting the fledgling green sector with import controls or subsidies, something not contemplated by the New Green Deal. (It does recognise, though, that globalisation is a problem by calling for the re-imposition of capital controls.) This raises a broader issue, which is that building ‘national champions’, in green technology or anything else, particularly in conditions of economic crisis, requires some form of protectionist, beggar-thy-neighbour policy. This would clearly militate against the need for the international co-operation that is a prerequisite for effective action on global warming. Also, protectionism, as has been explained many times by Marxists in the past, deepens the crisis by accelerating the downward spiral of the global economy.

Leaving aside the specifically environmental aspects of the Green New Deal, does Keynesianism really have the answers to the economic crisis? In particular, can it overcome the instability and boom-and-bust tendency of capitalism? In the USA in the 1930s, a huge spending stimulus produced only a short-lived boost to the economy, although it probably prevented it sinking into oblivion. Before the end of the decade, however, another downturn was developing, from an already low base. It was only the international rearmament that preceded the second world war, from which US companies enormously benefited, that revived the economy.

When Japan entered a deflationary spiral after the huge crash in 1990, the government resorted to an unprecedented injection of capital in order to recapitalise the banks and try to restart the economy. This had only a limited impact, however, eventually pulling the economy into sustained growth only in the past few years – even though for most of this time Japan’s large export sector benefitted from worldwide growth, a factor that will be absent in the present downturn. As a result, the national debt eventually reached nearly twice gross domestic product (GDP), a huge sum that will have to be repaid by workers and farmers, in addition to the costs of the current crisis. More generally, since Keynesianism does not fundamentally challenge the rule of capitalism, the tendency of competitive markets to degrade the environment will remain.

Loopholes & backtracking

The arguments above suggest the limited effectiveness of the proposed ‘green new deals’ in successfully addressing the urgent threat posed by climate change, particularly since they rely on dubious ‘make the polluter pay’ market mechanisms. Nevertheless, what are the chances of even these limited programmes being implemented in conditions of economic crisis?

The initial reaction of corporations and their political mouthpieces is not encouraging. Significantly, Senator John Warner, a lead sponsor of the bill in the US to introduce a Kyoto-style, ‘cap-and-trade’ permit system, has said that the state of the economy could delay when reductions of carbon dioxide could start. Even Democratic Party supporters of climate action in the Congress are now saying that the permits in the trading system, rather than being auctioned off, should be given away free, thus removing any pretence that the polluter will pay and, with it, abandoning the whole rationale of the system.

In Europe, The Guardian has seen documents that show the EU will use the economic crisis as an excuse to renege on climate change commitments. The EU will allow countries to avoid having to cut their own emissions by letting them purchase a large proportion of ‘carbon credits’ from overseas. This means that one of the most notorious loopholes in the present Kyoto system, where firms can sponsor bogus climate improvement programmes in poor countries and get exemptions to continue polluting as a result, will continue. Also, if the planned international agreement is reached next year, the EU commitment to reduce emissions by 30%, rather than the present 20% target, will be dropped, according to the leaked documents. This will mean that the UK could build a new generation of coal-fired power stations without exceeding its legally binding climate targets.

Ed Milliband, the UK climate change minister, has said that "now is not the time to row back on our ambitions in tackling climate change". (The Guardian, 9 October) At the same time, the British government is lobbying for aviation to be excluded from an EU plan to boost renewable energy. Robin Webster from Friends of the Earth said: "The UK government is acting disgracefully. It must stop attempting to sabotage European renewable energy plans and trying to wriggle out of its promise to deliver 15% of our power from green sources by 2020". (FoE press release, 26 September) It is not the first time that it has been reported in Socialism Today that New Labour has faced two ways at once when trying to address an irresolvable conflict between the short-term interests of the capitalist system and the imperative to reverse climate change.

These attempts to dilute commitments to strengthen climate policies have developed quickly since the onset of the crisis in September. They underline that individual countries will not take meaningful unilateral action to tackle climate change that involves higher carbon taxes. Partly, this is because that would reduce the competitiveness of their own firms internationally, particularly in crucial sectors like vehicle manufacture, which is facing collapse. Partly, it is because they understand that action by one country would have a limited effect in reducing emissions – a global solution is needed for a global problem.

What chance of an international deal?

So, if unilateral action is not going to happen, what are the chances of an international deal being agreed to cut greenhouse gas emissions, based on a replacement of the existing Kyoto treaty with another cap-and-trade system? Despite the inherent limitations of these approaches, will a beefed-up treaty to really make the polluter pay be agreed by the deadline that has been set, the UN-sponsored climate summit in Copenhagen, December 2009? Some sort of deal will probably emerge as too much political credibility is at stake, particularly Obama’s, for there not to be. There will be agreement to make huge cuts, probably 80% in emissions, but only by 2050, sufficiently far away to be ignored. But, if the treaty is largely cosmetic (in the tradition set by Kyoto), no cut in greenhouse gasses will result at all.

Kyoto has been a fiasco from beginning to end, flawed by the refusal of the main polluters in the industrialised countries to take it seriously, since the multi-national companies that really call the shots refused to take even the small hit on their profits that would have resulted. This was particularly true of the USA which was the biggest polluter when Kyoto was negotiated and, therefore, had the most to lose. The US administration refused to take part, fatally undermining its credibility. The countries that did sign up also ended up hardly feeling any pain, since they exploited the loopholes built into the treaty, which nullified its environmental effect entirely. The two main loopholes were that governments issued so many carbon-emission permits that they became worthless, giving firms a free ride. As mentioned earlier, the sponsoring by firms of bogus climate improvement schemes in poor countries gave them an exemption from having to cut emissions.

Will the capitalists take a first step to seriously tackle climate change by closing the loopholes in Kyoto? At the moment, Obama is insisting that the permits to pollute should be sold and not given away, but pressure is mounting from Democrats in Congress to abandon this position. In the EU, there are indications that the exemption system will continue.

Why do the capitalists find it so hard to agree on action on global warming that is clearly in their own long-term collective interests since, as the Stern report into the economics of climate change pointed out, the costs of immediate mitigation are far less than the long–term costs? Since the end of the 19th century, capitalism has become a world system based not only on a massive expansion in the trade of goods, but also the export of capital on a huge scale, carried out by competing multi-national corporations. Despite these manifestations of globalisation, the nation state simultaneously has grown in importance as the defender, by force if necessary, of the monopolies that lie under its jurisdiction, as competition for profit between firms based in different countries has intensified.

This is the contradiction, undiminished today, that led to the wars and horrors of the 20th century, a contradiction enormously intensified by the current crisis, that stands against the international agreement that is necessary to reverse global warming. The 500 multi-national companies that dominate the world economy resist fiercely anything that could threaten their profits in the short term, even to a small extent, and look to their ‘home’ countries to assist them. This is particularly true of US corporations because the US accounts for 22% of all greenhouse gas output and its firms would stand to lose more than its key rivals, with the exception of China, from any effective action to reduce global warming that made the polluter pay.

The ozone precedent

Could this US intransigence change in the future under president Obama as, without American participation, any international agreement would be virtually worthless? There is a precedent for the USA to participate in international action to tackle environmental pollution. In the 1980s, under UN auspices with the Montreal protocol, it reached agreement to cut out the use of CFC chemicals in aerosols sprays, which were causing the breakdown of the ozone layer in the upper atmosphere. Could this be a model for future action on climate change, as many environmentalists think?

Before reaching this conclusion, there are some crucial differences that have to be considered. Firstly, the scale of the problem is entirely different. The cost of eliminating a single chemical from a production process, when substitutes were already available, was insignificant compared to replacing, ultimately, the world’s entire energy generating capacity.

Second, the cost of removing CFCs affected all the industrialised capitalist countries on a roughly even basis, when GDP per capita is considered. Even so, the USA dragged its feet for years before ratifying the Montreal agreement, and only did so after one of its chemical corporations, DuPont Inc, made a technical breakthrough that enabled it to dominate the CFC substitute market.

In the case of greenhouse gas emissions, the USA is the biggest polluter after China in absolute terms, as with CFCs. In contrast to them, however, it accounts for 22% of emissions with only 5% of the world’s population – ie its per capita consumption is nearly five times the world average, and nearly twice the EU emissions per head. This means that if the polluter pays proportionately, as the other industrialised countries insist, the USA will be in by far the worst position, making it very difficult for Obama to use the example of CFCs to support his case. Crucially, it is extremely unlikely that concessions on the vastly greater scale required now will be made in the present conditions of profound economic crisis.

Systemic flaws

Another major factor that could undermine ‘Kyoto Two’ will be the role of China, now the world’s biggest producer of greenhouse gases. The aim of the industrialised countries is to involve China in the process in a general way, as a signal of future intent, but not for it to participate in the trading scheme. This is recognition that the Chinese bureaucracy would not be prepared to make concessions. It will also conveniently free firms owned by foreign capitalists in the country from any obligations under the treaty. Considering that emissions have rocketed up in China, virtually unchecked by any enforcement of environmental laws, then ‘Kyoto Two’ will be compromised from an additional direction.

Despite the very poor prospects for meaningful agreement to tackle global warming there is, theoretically, one outcome that could result in significant reductions in greenhouse gasses in the coming period. Like the elephant in the drawing room, some environmental activists are increasingly choosing not to mention nuclear power – rather than condemning it outright – but it is still there. Others, such as George Monbiot, are openly supportive (see Socialism Today No.121, September 2008).

Until the recession began, the intention of the bourgeoisie was to press ahead with this option as a way of meeting its commitments on climate change at the least possible cost to the capitalists, thereby disregarding the appalling risks inherent in producing energy from this source and the dangers of storing toxic waste. A nuclear outcome still cannot be ruled out, but the depth of the crisis means that the money to finance the switchover may not now be forthcoming. However, if the nuclear power route is followed then it will not represent a sustainable solution, it will just be partly replacing one profound threat to the environment by another.

In conclusion, the prospects for a meaningful and effective Green New Deal in conditions of capitalist crisis look extremely poor. Capitalist governments adopting a Keynesian response to the economic crisis will have other priorities, shaped by the needs of the big corporations to survive a severe downturn. In particular, the car industry internationally is facing its biggest crisis since the Great Depression and will probably be propped up first, because of the immediate impact a collapse in this sector would have on the wider economy.

Capitalism’s failure to reduce the intensity of environmental resource use to the level needed for environmental sustainability is in significant part due to structurally embedded conflicts of interest between the major powers. It is these that have prevented meaningful action to tackle climate change, a contradiction that the current economic crisis will deepen. More generally, while capitalist relations persist there will be a tendency to appropriate and degrade the environment, something that regulation applied in a market context is unable to overcome due to competitive pressures. The ability of the big corporations to evade and undermine regulation when it cuts against what they see as their vital interests is graphically demonstrated by the failure of the Kyoto treaty. These flaws explain the failure of capitalism to solve the grave ecological threats we face and point to the need for the alternative: democratic socialist planning.

What is needed is a socialist green deal, which would require the dismantling of the capitalist system on an international scale – based as it is on the relentless, short-term, destructive pursuit of profit – and its replacement by a democratically planned socialist economy. In such a society, the genuine international co-operation that is necessary to tackle global warming will be possible for the first time, something that is ultimately impossible under the capitalist profit system.

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