Sunday, October 5, 2008

'Bailing out' the Environment

The last couple of weeks have made history in the management of global financial markets. The threat of a looming global financial crisis has led to the swift implementation of brave ideas by governments and regulators. The response may reveal how the world could avert the looming crises of climate change and resource depletion by backing the clean technology (‘cleantech’) sector.

The United States Federal Government rushed through emergency legislation that will inject up to US$700 billion into the banking system to remove the problem of ‘toxic debt’ from the US financial markets. This debt will apparently include sub-prime mortgages, credit card and other debts that could cause large financial institutions to come under increasing pressure. The financial crisis has already led to the nationalisation of three of the larger US financial institutions and the Government’s response is an attempt to stabilise other companies before they too need to be nationalised. In addition to this ‘bail out’, regulations have been implemented to restrict short selling practices, preventing hedge funds profiteering from, and thereby driving, the collapse of companies. Several markets around the world have emulated this response in varying degrees, with Australia taking the most extreme position.

AT the same time Gordon Brown, the UK Prime Minister, has been calling for an international system of regulation to oversee the global financial system, admitting that it is impossible to effectively regulate the world’s markets on a national basis alone.

Commentary, other than from hedge funds, appears to be generally supportive of the initiatives taken in the US and elsewhere. They are commended as being necessary and courageous moves to shore up the global economy and to reduce the risk of the world descending into financial depression. Confidence in the decisions made has stemmed from deep knowledge of causal factors in economics and the likely responses.

The world of course faces another potential catastrophe that could have an impact far worse than a financial meltdown: continuing global climate change and resource depletion.

Of course, the precise consequences of both financial depression and climate change are uncertain, but the risk of catastrophic outcomes of both is very real. Indeed, the issues involved in both problems are in many ways similar. There are companies that will fail due to pursuing toxic, legacy activities beyond the bounds of a sustainable system; there are groups profiteering from activities detrimental to the health of the overall system; there is a need for government investment combined with regulation; there is a drive towards global regulation; and, if done well, there are immense opportunities to increase both global wealth and well being.

Imagine what would be achieved by a response to the global ecological environment on a par with what we’ve seen for the financial environment. Consider a Bernanke/Paulson type team, with knowledge and confidence in the economic and environmental consequences of their recommendations, persuading a President in one of the richest countries of the world that there is a looming global crisis and that, as one of the worst offenders, there is a responsibility to secure the global system through an investment of several hundreds of billions of dollars.

Not only would such an approach ‘bail out’ the world from a possible catastrophe, but it would also drive a new global industry with the potential to improve the quality of life for all the world’s inhabitants: not merely through increasing wealth, although that is an important aspect, but also by changing the way wealth is created by breaking the ties with emissions and resource depletion.

The adoption of cleantech will happen regardless of such an intervention, but it will be a far less painful experience if the courage and belief demonstrated by recent actions in Washington were to be replicated in the response to global climate change.



This article was originally published in Environmental Management News and on ABC Online. To read the bizarre collection of comments on the latter site follow the link - http://www.abc.net.au/news/stories/2008/10/03/2381148.htm