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Why Can't Capitalism Go Green?

By Pete Dickinson

15 December, 2015

Photo Credit: knightstemplarinternational.com

It is more than a quarter of a century since the ruling classes of the world began serious discussions on global warming, in preparation for the 1992 UN-sponsored ‘Earth Summit’ in Rio. Yet no meaningful steps have been taken to tackle the problem, even though the majority of the capitalist establishment has come to understand that something needs to be done. The Paris summit looks very unlikely to break from this pattern. So how can the lack of action be explained?

Two examples in particular highlight the underlying issues preventing agreement. Firstly, the failure of the permit trading system that was supposed to be the mechanism to deliver cuts in the greenhouse gases that cause global warming. Secondly, the fate of state subsidies for renewable energy such as solar and wind power.

From the outset, permit trading was seen as a market friendly way to reduce greenhouse gases. After years of argument, agreement was reached in 1997 in Kyoto, Japan, to introduce a carbon permit trading system that included legally enforceable limits on carbon dioxide emissions, a major greenhouse gas. Each country had its own allowed level of emissions in the treaty. Within countries, firms had their own target that could only be exceeded if a permit to pollute was purchased. The cost of the permit was supposed to be set at a sufficiently high level to deter corporations from going over their quota.

From the start, pressure from countries with relatively high emissions forced the drafters of the treaty to introduce a whole series of loopholes. So the targets set were very modest, only a few percentage points reduction in emissions, totally inadequate even then to address the problem. Also, ‘offsetting’ arrangements were allowed, in which firms could sponsor green projects in poor nations in return for permit exemptions. This option resulted in a whole series of outrageous scams.

Even more serious was the ability of governments to issue as many permits as they wished. It was estimated that the price of a permit would have to be at least $35 per tonne of carbon to have a deterrent effect on companies. In practice, the permit price hardly ever got out of single figures and, in the end, after the economic crisis of 2007/08, the permits became virtually worthless as governments issued as many as firms asked them to.

The failure of the Kyoto treaty is a very significant example of capitalism’s inability to address the danger of global warming, but probably not surprising, even to the capitalists. The aim was to encourage the US, the world’s biggest polluter at the time, to take part – by making the permit system as pain free as possible initially. The death blow to Kyoto was the refusal of the US government to participate, putting the interests of US capitalism first.

Even if the Kyoto treaty had been successfully implemented, it is still very doubtful it would have had the necessary impact. Although not a carbon tax in the traditional sense, in a monopolised economy the permit trading system would have resulted in firms passing on the costs of permits to consumers. It would then have encountered the same problem as an eco-tax: to what extent and how quickly would a rise in energy prices lead to greener behaviour by consumers?

Most consumers do not have the option of choosing a green energy supplier and are locked into present polluting technology. Even if the price of a permit were to go up very significantly, leading to a big rise in energy prices, there would be little reduction in greenhouse gases, certainly not in relation to the size of the cut and the timescale necessary, which is a fall of 40% in emissions by 2020. Although more price sensitive than the energy sector, the same logic applies to public transport. A rise in fuel price would not lead to a quick switch to an energy efficient system, because it would take too long to restructure public transport on green lines.

For socialists, a related and very important issue in this context is that of fair distribution. A carbon tax, which is what the permit trading system would have amounted to, is regressive since the poor spend a greater percentage of their income on energy. If the price of a permit was to be high enough to have a chance of impacting on the environment, it would exacerbate the already uneven distribution. Also, if such a high permit price was contemplated, it would hit the profits of big business and lead to huge opposition from the multinationals.

Renewables rise and fall

More may have been expected from the subsidies for renewable technologies that were introduced on a larger scale in the first decade of the century, since they represented a more direct form of state intervention. In fact, subsidies did have a small but significant effect, with renewables taking 8.5% of the world energy generating market by 2013 (United Nations Environment Programme [UNEP] Global Trends in Energy Investment, 2014). Also, 43% of new generating capacity in 2013 was renewable, on the face of it an encouraging statistic, which led some green commentators to say that the (capitalist) world had finally woken up to the global warming problem.

To see if this could be true, it is necessary to break down the investment data by country, and to look at the trends in spending and what is driving them. The results then must be compared to the overall level of investment needed to keep the global temperature rise below 2°C (compared to pre-industrial levels), a point above which there could be runaway temperature rises, according to climate science. Finally, and most importantly, the timescale required to achieve this outcome has to be considered.

On a world scale, investment in renewables peaked at $257 billion in 2011, but has fallen 23% since. Austerity in Europe was a major cause of this, with spending down 56% in Germany and 75% in Italy (Bloomberg New Energy Finance, 2014). The environmental prospects are in fact much worse than the 23% decrease would indicate due to special factors in the Japanese energy market, following the Fukushima nuclear disaster in 2011. The UNEP report also showed that the unit costs of solar cells had fallen, and consequently their deployment had increased, significantly contributing to the apparently impressive figure of 43% of all new power capacity being renewable. But looking at the picture in more detail shows that this outcome was largely accidental and is very unlikely to be repeated.

The increase in solar manufacturing capacity was linked to several issues. State support and subsidies, whether relatively open, as in Europe, or hidden, as in China, played a very big role in driving solar cell adoption. The slump after the 2007/08 economic crisis, followed by austerity, also forced down solar cell prices as demand for energy fell. Overcapacity in the massive solar industry in China reinforced this trend. At the same time, the oil price stayed at a historically high level, propped up by geopolitical instability and the policy of the OPEC cartel. These factors made solar temporarily more attractive.
Now, those favourable conditions have turned into their opposite. The price of oil has fallen from a peak of $140 a barrel to $50, linked to the economic slowdown in China, and subsidies are being slashed in Europe due to austerity. In Britain, the new right-wing Conservative government is pursuing a scorched-earth austerity policy – literally, in the case of the environment. Virtually all of the small advances in environmental law of the last 25 years are due to be repealed. Onshore wind farm subsidies have been cancelled and support for solar slashed. All remaining environmental subsidies, although tiny, are being ‘reviewed’ – in line to be axed. Although the cost of subsidies is minor, the priority for the government is to hammer the poor and the environment so that tax breaks can be given to the big corporations, so helping to prop up their profits.

There is no sign of a significant global economic upturn that may begin to recreate the conditions that would support renewables. Austerity is factored in for many more years by European governments and there is currently no sign that the Chinese leadership will change course and turn on the spending taps again.

Even if favourable market conditions for renewables were to re-emerge, this would not change the negative prospects for the environment. The Stern report, commissioned in 2006 by the last Labour government but never implemented, said that investment in renewables worth 1% of total world economic output for 40 years was necessary to tackle global warming. Even in the peak year of 2011, investment never approached this level. It is inconceivable that sufficiently favourable market conditions could persist, without a break for 40 years, to make Stern’s requirement a reality.

Nation states in a globalised world

The key point that emerges from the history of renewable subsidies and permit trading is the total failure of the two most serious attempts by governments to fix global warming. Lying behind this is their inability to reach international agreement and their total refusal to take measures that could hit the profits, directly or indirectly, of the multinational corporations they represent. Historically, it was not always the case that bourgeois politicians refused to take action to curb the polluting excesses of their capitalists. Also, as the Stern report clearly demonstrated, the long-term costs of inaction on global warming far exceed the costs of mitigation. So what is holding back the present day representatives of the ruling classes?

For example, why can’t our present day rulers copy their predecessors in the 19th century who took action, including criminal sanctions, against firms polluting the environment? Answering this question goes a long way to explaining the present impasse. A century and a half ago it was much easier for the capitalist class to tackle environmental pollution because the problem was largely restricted within national boundaries. Also, the clashes between countries on trade, and the profits involved, are far greater today than they were when Britain was the dominant world power and did not feel so threatened by foreign rivals. Since the beginning of the 20th century, capitalism has become a world system defined initially by a huge rise in the trade of goods and then by the export of capital on a massive scale. This was followed, due to protectionist pressures, by the export of production, as multinational companies set up operations throughout the world.

Despite this globalisation of capital, the nation state became important, as the defender, by force if necessary, of the corporations that lay under its jurisdiction. As competition for profit between firms became more intense, the importance of the state grew further. The contradiction between the needs of individual capitalists to push down national barriers in the search for profit and their reliance on their own state to defend their interests still exists in full force.

The 147 corporations that control 40% of the world’s wealth and dominate the global economy – from research by the Swiss Federal Institute of Technology, October 2011 – resist anything that restricts their profits, even to a small extent, and rely on their home country to help them. In doing this, they have repeatedly shown that they are focused only on short-term advantage. In the blindness generated by intense competition, they disregard longer-term problems that even threaten their own existence, such as environmental degradation.

Cold war capitalist cooperation

Apologists for the capitalist system will object that this analysis of imperialism ignores the potential for cooperation that exists and exaggerates the antagonisms between the major powers. They may admit that, yes, ‘mistakes’ were made before 1945, but the lessons of that second world war catastrophe have been learned, and that the post-war period was characterised by significant examples of cooperation between the imperialist powers, such as the creation of the United Nations, the European Union, and the World Trade Organisation. They might also point to the example of the Montreal Protocol on Substances that Deplete the Ozone Layer (1987) as an example of an international agreement to control a dangerous environmental threat. So expecting an agreement on global warming is not hopeless, they might say.

Leaving the discussion about Montreal to later, it is true that the continual re-division of the world market by force of arms involving the big powers, predicted by Lenin, the co-leader of the 1917 Russian revolution, that marked the period before the second world war, seemed to be superseded by a new historical reality after 1945. The balance of international relations was profoundly altered after the war when the victors emerged as the US and the non-capitalist Soviet Union. The national capitalist classes then had to cooperate, through clenched teeth, in order to present a united front in the cold war against the USSR, whose non-capitalist social system, although a caricature of real socialism, was nevertheless a real threat to the main imperialist powers.

Creating a united front was helped by two factors. The first was the domination of the US over the other big capitalist nations, so it could, to an extent, dictate the political agenda. The second was the post-war economic upswing that helped mask the underlying conflicts of interest between the powers. The European states were also prepared to concede some degree of sovereignty to the EU, to try to challenge the economic hegemony of the US.

Now, the special factors that forced the capitalists to cooperate, albeit to a limited extent, are rapidly disappearing. Key turning points were the collapse of the Soviet Union in 1991 and the great recession of 2008, which marked the decisive end of the so-called economic ‘golden age’ of 1950-75. Confrontation between the main powers, short of war, is increasingly dominating the agenda. The multilateral institutions created after 1945 are collapsing or moribund. The EU is facing disintegration at some point and the WTO has been abandoned, to be replaced by bilateral stitch-ups such as the Transatlantic Trade and Investment Partnership (TTIP). The UN is totally impotent to impose peace or order. The failure of attempts to address climate change was a harbinger of the move away from post-war cooperation. Although the costs of taking action were relatively small, the rising tensions between the main powers prevented agreement.

Global ozone agreement

That leaves the question of the Montreal protocol as an example of international environmental cooperation. In the 1980s it became clear that chemicals, called CFCs (chlorofluorocarbons), released from aerosol cans, were causing the breakdown of the ozone layer in the atmosphere. This was causing a greatly increased incidence of skin cancers. There was an agreement at Montreal, under UN auspices, that significantly cut CFC levels by 77% between 1988 and 1994. Could this success be repeated for global warming?

There are some crucial differences between the two issues. Firstly, the scale is completely different, because the cost of removing a single chemical from the production process, when substitutes were readily available, was insignificant compared to ultimately replacing all the planet’s power generating capacity. Secondly, the cost of removing the CFCs affected all the industrialised countries on a very roughly equal basis, when GDP per capita is considered. It is significant, though, that the US delayed for years before ratifying the Montreal agreement, and only did so when a US chemical corporation, DuPont Inc, made a technical breakthrough, letting it dominate the CFC substitute market.

Compare the cost of repairing the ozone layer to global warming. In the latter case, the US is one of the biggest culprits, accounting for approximately 20% of emissions, with only 5% of the world’s population. Its per capita share is four times the world average and nearly twice the EU emissions per head. Therefore, if the polluter is made to pay proportionately, as the US’s rivals insist, then the US will be the main loser in the case of action on global warming, unlike the ozone layer. This has made international agreement impossible, a situation made more intractable by China’s emergence as the biggest emitter of greenhouse gases.

China had always insisted that it was not responsible historically for global warming and would not pay for it. The Chinese regime’s refusal to take part in a follow up to Kyoto gave the US Congress an excuse to follow suit, and killed off the idea. As a result, what is on the agenda at Paris are just proposals for voluntary cuts in emissions with deadlines for implementation also voluntary.

Looking for some technological fix

The officials running the Paris summit will try to gloss up the significance of this meaningless talking shop, with claims of breakthroughs ringing out, but nothing will cover up the bankruptcy of the ruling classes of the world on this question. Recognising this, some of them are now falling back on a desperate last-resort argument: that capitalism’s ‘genius’ for innovation will succeed in pulling a technological rabbit out of the hat to fix the problem.

Orthodox right-wing economists see innovation, driven by market competition, having the effect of raising the general level of productivity so that energy use falls for a given level of consumption. It is true that, until the 2008 crisis, productivity was rising at about 2% per year in industrialised countries, leading to a fall in the amount of natural resources needed for a given level of consumption. However, there is no evidence that this led to a fall in pollution. Also, since the 2008 crisis, productivity in the UK has nosedived and shows no sign yet of regaining its former level.

Even if we accept, for the sake of argument, that this theory of the ultra-free-market neoliberals was true, it would take many decades to have a sufficient impact to cut pollution to the level needed, by which time it would be too late to prevent total environmental disaster. For the free-market theory to work, and with emissions reductions set to address the needed global warming targets, there would have to be innovation-led productivity gains to allow for rapid, huge cuts in natural resource consumption at the same time as accommodating economic growth. There is no prospect of this happening under capitalism.

Seeing the bankruptcy of free-market ideas, some sections of the bourgeois are now looking at more interventionist approaches in environmental economics. These ideas are sometimes linked to so-called win-win theories, the core of which is that firms are unaware of the possibilities that new technologies can give to both tackle environmental problems and to make profits. It is the job of governments, the theory goes, to foster institutions and introduce regulations, containing elements of carrot and stick, to encourage the bosses to pick this ‘low hanging fruit’.

The problem with this approach is that it will ultimately run up against the logic of capitalism. The bourgeoisie is looking for the holy grail of an innovation that will provide renewable energy cheaper than oil and coal, but the market system has been unable to produce the technological breakthroughs that are needed.

No more half-measures

Governments and firms are reluctant to invest because of the high costs involved and the implications for profits. If in 1995 the US government had put in the same relative resources and urgency into nuclear fusion, which is a potential source of superabundant renewable energy, as it did into the Manhattan Project for a nuclear bomb during the second world war, there is a reasonable chance it would have succeeded by now. The bomb project absorbed 10% of the entire US power consumption. This commitment was made because all the belligerent powers were fighting for their survival. It is inconceivable that an equivalent effort will be made today because the capitalists do not see fixing global warming as having the same urgency, far from it.

In the final analysis, the lure of a quick profit is still the reason for investment in new technology, whether by firms or by governments acting on their behalf. In the context of the present intense rivalry between the imperialist powers, short-term returns are demanded on any investment, and this rules out taking projects like nuclear fusion seriously. When in opposition, Tony Blair and Gordon Brown were supporters of an interventionist approach, but soon dropped it when they found it went against the grain of the profit system, even to a small extent. Jeremy Corbyn and John McDonnell undoubtedly take interventionism more seriously, and any proposed measures that really have an impact on global warming, such as subsidies, would of course be welcome. The greater the level of intervention, the more likely it is to succeed.

But the logic of imperialist capitalism is inescapable, particularly when addressing an issue like climate change, where the time for half-measures has long since passed. It will be impossible for a future left government to take the urgent action needed while remaining inside the framework of an antagonistic, predatory economic system. That is why the campaign against global warming and environmental degradation must go hand in hand with the struggle for socialism. Transforming the social and economic base of society is the only way forward, carried out on an international basis, since global warming is no respecter of national borders.



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