A Green New Deal
The global economy is facing a ‘triple crunch’: a combination of a credit-fuelled financial crisis, accelerating climate change and soaring energy prices underpinned by encroaching peak oil. It is increasingly clear that these three overlapping events threaten to develop into a perfect storm, the like of which has not been seen since the Great Depression, with potentially devastating consequences.
July 20, 2008 // Written by:
The global economy is facing a ‘triple crunch’. It is a combination of a credit-fuelled financial crisis, accelerating climate change and soaring energy prices underpinned by an encroaching peak in oil production. These three overlapping events threaten to develop into a perfect storm, the like of which has not been seen since the Great Depression. To help prevent this from happening we are proposing a Green New Deal.
This entails re-regulating finance and taxation plus a huge transformational programme aimed at substantially reducing the use of fossil fuels and in the process tackling the unemployment and decline in demand caused by the credit crunch. It involves policies and novel funding mechanisms that will reduce emissions contributing to climate change and allow us to cope better with the coming energy shortages caused by peak oil.
The triple crunch of financial meltdown, climate change and ‘peak oil’ has its origins firmly rooted in the current model of globalisation. Financial deregulation has facilitated the creation of almost limitless credit. With this credit boom have come irresponsible and often fraudulent patterns of lending, creating inflated bubbles in assets such as property, and powering environmentally unsustainable consumption.
This approach hit the buffers of insolvency and unrepayable debts on what we think of as ‘debtonation day’, 9 August 2007, when the banks suddenly fully understood the scale of debts on the balance sheets of other banks, and stopped lending to each other.
In the same year, natural disasters struck body blows to entire national economies, and rising prices began to alert the world to the potential scarcity of oil. At both ends of the climatic spectrum, Australia saw a prolonged drought decimate its domestic grain production, and Mexico saw floods wipe out the agricultural production of an entire large state. In the oil markets, growing numbers of whistleblowers pointed to the probability of an early peak in production, and a possible subsequent collapse of production. The International Energy Agency (IEA) said an oil crunch is likely in 2012.
Drawing our inspiration from Franklin D. Roosevelt’s courageous programme launched in the wake of the Great Crash of 1929, we believe that a positive course of action can pull the world back from economic and environmental meltdown. The Green New Deal that we are proposing consists of two main strands. First, it outlines a structural transformation of the regulation of national and international financial systems, and major changes to taxation systems. And, second, it calls for a sustained programme to invest in and deploy energy conservation and renewable energies, coupled with effective demand management.
In this way we believe we can begin to stabilise the current triple-crunch crisis. We can also lay the foundations for the emergence of a set of resilient lowcarbon economies, rich in jobs and based on independent sources of energy supply. This will create a more stable economic environment in which there is a lot more local production and distribution, and enhanced national security.
In the first half of this report we examine the financial, economic and environmental landscapes that are the backdrop to this triple crisis. In the second half, we propose a series of policies that can be used to tackle the problems we have identified.
The Green New Deal
We call our programme a Green New Deal – one that combines stabilisation in the short term with longer-term restructuring of the financial, taxation and energy systems. The Green New Deal is international in outlook, but requires action at local, national, regional and global levels.
Focusing first on the specific needs of the UK, an interlocking programme of action needs to involve:
- Executing a bold new vision for a low-carbon energy system that will include making ‘every building a power station’. Involving tens of millions of properties, their energy efficiency will be maximised, as will the use of renewables to generate electricity. This will require a £50 billion-plus per year crash programme to be implemented as widely and rapidly as possible. We are calling for a programme of investment and a call to action as urgent and far-reaching as the US New Deal in the 1930s and the mobilisation for war in 1939.
- Creating and training a ‘carbon army’ of workers to provide the human resources for a vast environmental reconstruction programme. We want to see hundreds of thousands of these new high- and lower-skilled jobs created in the UK. It will be part of a wider shift from an economy narrowly focused on financial services and shopping to one that is an engine of environmental transformation. The UK has so far largely missed out on the boom in ‘green collar’ jobs, with Germany already employing 250,000 in renewable energy alone.
- Ensuring more realistic fossil fuel prices that include the cost to the environment, and are high enough to tackle climate change effectively by creating the economic incentive to drive efficiency and bring alternative fuels to market. This will provide funding for the Green New Deal and safety nets to those vulnerable to higher prices via rapidly rising carbon taxes and revenue from carbon trading. We advocate establishing an Oil Legacy Fund, paid for by a windfall tax on the profits of oil and gas companies. The monies raised would help deal with the effects of climate change and smooth the transition to a low-carbon economy.
- Developing a wide-ranging package of other financial innovations and incentives to assemble the tens of billions of pounds that need to be spent. The focus should be on smart investments that not only finance the development of new, efficient energy infrastructure but also help reduce demand for energy, particularly among low-income groups, for example by improving home insulation. The science and technology needed to power an energy-and-transport revolution are already in place. But at present the funds to propel the latest advances into full-scale development are not.
- Re-regulating the domestic financial system to ensure that the creation of money at low rates of interest is consistent with democratic aims, financial stability, social justice and environmental sustainability. Our initial proposals for financial renewal are inspired by those implemented in the 1930s. They involve the reduction of the Bank of England’s interest rate to help those borrowing to build a new energy and transport infrastructure, with changes in debt-management policy to enable reductions in interest rates across all government borrowing instruments. In parallel, to prevent inflation, we want to see much tighter controls on lending and on the generation of credit.
- Breaking up the discredited financial institutions that have needed so much public money to prop them up in the latest credit crunch. We are calling for the forced demerger of large banking and finance groups. Retail banking should be split from both corporate finance (merchant banking) and from securities dealing. The demerged units should then be split into smaller banks. Mega banks make mega mistakes that affect us all. Instead of institutions that are ‘too big to fail’, we need institutions that are small enough to fail without creating problems for depositors and the wider public.
- Re-regulating and restricting the international finance sector to transform national economies and the global economy. Finance will have to be returned to its role as servant, not master, of the global economy, to dealing prudently with people’s savings and providing regular capital for productive and sustainable investment. Regulation of finance, and the restoration of policy autonomy to democratic government, implies the re-introduction of capital controls. These are vital if central banks and governments are to fix and determine one of the most important levers of the economy – interest rates
- Subjecting all derivative products and other exotic instruments to official inspection. Only those approved should be permitted to be traded. Anyone trying to circumvent the rules by going offshore or on to the internet should face the simple and effective sanction of ‘negative enforcement’ – their contracts would be made unenforceable in law. Ultimately our aim is an orderly downsizing of the financial sector in relation to the rest of the economy.
- Minimising corporate tax evasion by clamping down on tax havens and corporate financial reporting. Tax should be deducted at source (i.e. from the country from which payment is made) for all income paid to financial institutions in tax havens. International accounting rules should be changed to eliminate transfer mispricing by requiring corporations to report on a country by-country basis. These measures will provide much-needed sources of public finance at a time when economic contraction is reducing conventional tax receipts.
We also urge the UK to take action at the international level to help build the orderly, well-regulated and supportive policy and financial environment that is required to restore economic stability and nurture environmental sustainability. Our Government’s objectives should include:
- Allowing all nations far greater autonomy over domestic monetary policy (interest rates and money supply) and fiscal policy (government spending and taxation).
- Setting a formal international target for atmospheric greenhouse gas concentrations that keeps future temperature rises as far below 2°C as possible.
- Delivering a fair and equitable international climate agreement to succeed the Kyoto Protocol in 2012.
- Giving poorer countries the opportunity to escape poverty without fuelling global warming by helping to finance massive investment in climate-change adaptation and renewable energy.
- Supporting the free and unconstrained transfer of new energy technologies to developing countries.
In the words of France’s President Sarkozy, ‘we have to put a stop to this financial system which is out of its mind and which has lost sight of its purpose.’ The Green New Deal will rekindle this vital sense of purpose, restoring public trust and refocusing the use of capital on public priorities and sustainability. In this way it can also help deliver a wide range of social benefits that can greatly improve quality of life in the future.
There is also an immediate imperative to restore some faith that society can survive the dreadful threats it now faces as a result of the triple crunch. Beyond that, we believe the Green New Deal can deliver a crucial national plan for a low-energy future and its provision on the ground. The absence of any such plan at present leaves the country very vulnerable. There is no risk analysis of the peak-oil threat, and there is no contingency plan for what would happen if oil and/or gas supplies collapsed rapidly. Our plan would include oversight and coordination for generating the funding from government, the energy industry and a range of private savings vehicles for investment in a vital multi-decade programme for the transition to a low-energy future. In short, it is a route map for the journey from energy and economic insecurity to one of energy and environmental security.
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