Better policymaking will stop short-termism from holding back net zero
Part IV of NZI’s Putting a Price on Pollution Series looks at short-term pressures that are complicating the green transition
Short-termism – the preference to support short-term gains over long-term gains – exerts a major influence over policymakers.
While the scientific evidence of the long-term negative impact of climate change and biodiversity loss is overwhelmingly conclusive and backed up not just by NGOs but multilateral organisations - such as the UN and the World Economic Forum - policymakers struggle to implement policies that penalise pollutant industries and incentivise the wholesale transformation of economies.
In an 80% fossil-fuel based world whose heavy industries and cheap monoculture food systems systemically harm climate and biodiversity, it is easy to understand the short-term pressures faced by politicians.
As with any paradigm shift, the transition to a sustainable economy, if mismanaged, risks creating job losses and inflating prices for basic goods and services.
In practice, that means more radical anti-pollution measures, such as carbon taxes or setting clear transition pathways (for both biodiversity and climate), can end up getting watered down or postponed.
Last week’s instalment, for example, looked at how both EU member-states and market participants pushed for a carve out for the financial sector in the Corporate Sustainability Due Diligence Directive (CSDDD).
Interestingly, one of the arguments used by the major finance associations was applying the full scope of CSDDD to financial services would “adversely impact companies’ access to financial services, increase costs and potentially disrupt markets where it is not possible to comply with the requirements”.
The extent to which the transition to a sustainable economy will “increase costs and disrupt markets” as part of its modus operandi is an on-going debate. If the sustainability problem is essentially a business-as-usual problem, then surely pain – at least in the short term – is to be expected.
Perhaps the real question is how much political appetite there is for short-term pain and what countermeasures and supplementary policies can do to mitigate it.
Also read in this series
Global firms call for transition pathways and carbon tax
Alejandro Litovsky, CEO at Earth Security, said that the struggles with fisheries in his native Argentina are emblematic of the short-termism conundrum.
Every year, in the 1990s, the scientific community published reports that clearly demonstrated the risks of over-fishing in Argentine waters and called for dramatic prohibitions.
But the Argentine state, encouraged by a vast and profitable fishing industry, declined to heed these reports, preferring to protect the short-termist objectives.
Then, in 1999, the entire fishery had to be closed, and there was widespread unemployment and civil unrest. All the fish had gone.
“The 'tragedy of the commons' that we saw with the Argentine fisheries in the 1990s is happening today but at a global scale across multiple sectors and economies,” Litovsky said.
“We have seen the signs and know the consequences of failure, but because of jobs, the industry and investments, vested interests tend to override politics.”
To mitigate the short-term pain and enable a long-term development, Litovsky argued that regulatory management tools need to be employed alongside market incentives that prop up fledging sustainable industries.
While parts II and III of this series focused on how lobbying activities fuel political inertia, it is important to note this is only half the picture. The other half comes from the politicians themselves and the electorates to which they are accountable.
In other words, it’s not just big money that’s holding the transition back, but the citizens who enjoy varying degrees of comforts from the status quo.
Politicians, which work with four-/five-year election cycles, and businesses, which are accountable to quarterly reports, simply aren’t programmed to deal with long term risks such as climate change and biodiversity loss.
Surveys that assess how many people are actually willing to pay for the transition tend to come back with a low percentage.
A recent EU survey found that that the majority of Europeans – almost nine in ten respondents (88%) – agree that the green transition should not leave anyone behind, while 93% of respondents think that the current level of energy prices for people in their country is a serious problem.
Macron and the “gilets jaunes” movement is a good example of the kind of political fallout that results from uncoordinated policymaking. The protestors weren’t necessarily opposed to the carbon tax; their anger was directed at the unfairness of it.
It was strongly felt – and these views are echoed by climate justice groups – that the poorer, vulnerable sections of society shouldn’t have to pay for the transition.
Also read in this series
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French politics asides, the energy crisis has clearly shown that making oil and gas more expensive really does have a knock-on effect on the global economy that is still 80% fossil fuel-based.
Since the crisis began, there has even been widespread public support for fossil fuel subsidies – making pollution cheaper – to take the edge off soaring prices. In 2022, governments spent more than €1 trillion on fossil fuel subsidies, the highest figure ever recorded.
“Introducing measures that inflate prices is very difficult for politicians to do, especially in the current climate of inflation, high energy prices, and high food prices,” said Karen Ellis, chief economist at the WWF.
“But this is a short-term approach, because in the longer term, we will pay the price for failure.”
Co-ordinated policy making
If pricing the negative externality of pollution into economies has the potential to disrupt markets, inflate prices, and create job losses, then the solution is co-ordinated policymaking across multiple levels of governments that ensures the transition leaves no-one behind.
This means radical changes to environmental policy must be accompanied by changes to labour policy, unemployment benefits, retraining programmes, incentives for fledging sustainable industries, and other areas.
As the gilets jaunes movement clearly shows, uncoordinated policymaking has the potential to backfire and reduce the public support for change.
While the principle may sound simple enough, the reality is more complicated, and varies from jurisdiction to jurisdiction.
“The green transition isn’t necessarily tit-for-tat,” said Litovsky. “When the coal mine shuts down, it’s unlikely that the coal miner can simply retrain as say, a solar panel maintenance expert, for such jobs require a specific range of technical skills that may take years to master.
"In the meantime, how will he or she feed the family? Thinking of retraining as a kind of universal panacea for the pain of job losses isn’t necessarily the right model.”
As anyone from the North of England or Rust Belt America knows, shutting down “unproductive” industries, such as coal mining, and expecting the market to step in and produce an alternative doesn’t work. While financial services may have thrived under Margaret Thatcher in the 1980s, ex-mining communities faced decades of deprivation.
There are still high levels of anger, especially towards the political elites, in such communities.
In his inauguration address in January 2017, Donald Trump, who made the plight of the Rust Belt a central feature of his 2016 campaign, lamented the “rusted-out factories scattered like tombstones across the landscape of our nation”.
His election campaign successfully flipped Pennsylvania, Ohio and Michigan (all Rust Belt states) from Democrat to Republican. He understood the humiliation of being left behind and made prodigious use of it.
To support people that will be left behind, Litovsky said one of the more interesting “supplementary” policies consisted of using a carbon tax to fund a universal basic income (UBI) for all citizens.
“If you can use some of that transition money to fund a universal basic income then electorally that could resolve the political dilemma,” he said.
“It’s a question of taxing the harmful practices and creating a flow that goes back to vulnerable segments so that they can retrain in sustainable industries. It’s this kind of joined-up thinking that’s needed. At the moment, we’re too siloed in our responses. We need to work hard to find those win-win solutions.”
Also read in this series
Seven reasons why policymakers aren’t accelerating the green transition
Finland, which trialled the world’s most robust universal basic income study in 2017 and 2018, concluded that the programme doesn’t discourage people from working.
In the study, the government gave 2000 unemployed people aged between 25 and 58 monthly payments of €560 with no strings attached.
When releasing the findings, Minna Ylikännö of the Social Insurance Institution of Finland, said UBI could help alleviate stress at an uncertain time and “bring people security in very insecure situations when they don’t know whether they’re going to have an income”.
Patrick Simion, chief of staff at BNP Paribas Asset Management, which has been pushing for governments to implement carbon taxes and clear transition pathways, stressed the “social consequences” of transition measures.
Ultimately, he said, it is up to the individual states to find the appropriate “redistribution” mechanisms.
In addition to UBI, Litovsky said there were many other examples of joined-up thinking that could help ease the transition.
For example, Earth Security has been working with mayors of climate-change affected coastal regions of the Philippines to connect them with corporates to secure financing arrangements for nature-based solutions to climate adaptation.
Often there is a disconnect between the civil and the corporate world. Such initiatives attempt to bridge the gap.
Subsidy packages, such as the US’s Inflation Reduction Act and the EU’s Net Zero Industry Act, can also catalyse investment and job growth in green technologies.
Having the courage to deliver on joined-up thinking and coordinated policymaking requires a strong and visionary political leadership that so far has not been forthcoming, various sources noted.
So far, the emphasis has been on “softer measures”, such as incentives, disclosures and anti-greenwashing rules, rather than, say, combining status-quo-breaking carbon taxes and transition pathways (penalising measures) with social support schemes such as UBI (mitigating policies).
Short-termism is arguably the single biggest factor that inhibits more radical thinking.