Financial Times argues that addressing climate change can support economic growth

Decision-makers pay attention when the Financial Times comes out with specific positions. This week, the FT came out with a strong statement on the impact on the economy from addressing climate change. Understandably, it stresses that some sectors will be adversely affected and lobbying will no doubt play an important role in the final decisions. And, in its essence, they argue that saving the environment does not mean killing the economy. If that argument can be better understood, we will have made much progress.

Saving the climate need not destroy the economy

Climate politics makes for strange bedfellows. Among opponents of action to combat global warming, those who support it are often known as “watermelons”, because they conceal their true socialist agenda beneath their green skins.

Some in the environmental movement, many of whom took the streets in protests around the world on Sunday, agree with that view. They see climate change as justification for abandoning market economics in favour of some generally ill-defined alternative. Naomi Klein, a veteran campaigner against globalisation, describes global warming as a historic opportunity to create a “more just economy”, with less “mindless consumption”. Other environmentalists go further, arguing that the only way to keep the earth habitable is to stop economic growth altogether.

As a strategy for addressing the genuine and urgent threat of climate change, this radical agenda is bad politics, and bad economics. It is bad politics because it stands no chance of winning widespread popular support. If the prospect of catastrophe was certain and imminent, people might be prepared to make great sacrifices to avert it. But the potentially cataclysmic effects are decades away, and the unavoidable uncertainties in climate modelling make it impossible to be sure when particular consequences will strike, if at all. Radical environmentalists want people to give up freedom and prosperity now to avoid distant disaster, which may not happen anyway. Good luck with that.

Fortunately, this dilemma is imaginary. The report last week from the Global Commission on the Economy and Climate, led by Felipe Calderón, former president of Mexico, made a convincing case that “we can achieve both better growth and a better climate”. The plunging cost of renewable energy and abundant opportunities in other areas such as energy efficiency make it possible to lay the foundations of an economy with lower greenhouse gas emissions for a minimal additional outlay, the commission believes. The world is expected to spend about $6tn per year on buildings, energy, transport and water systems over the next 15 years. The commission calculated that making that investment in infrastructure with lower emissions would cost only an additional $270bn per year, an increase of just 4.5 per cent. Moreover, some measures to address climate risk, including improved energy efficiency and support for innovation, are likely to strengthen growth, not weaken it, as well as providing other benefits such as reductions in local air pollution.

It is possible to quibble with some of the commission’s analysis. The plan relies heavily on ending deforestation and limiting urban sprawl, which might be difficult to enforce. Still, the fundamental point is right, and supported by other studies: the extra cost is affordable, and it should be paid. Climate change, like a financial crisis or an industrial accident, is a high-impact risk with an uncertain probability, and as in those cases it would be negligent not to take precautions to prevent it.

While the overall cost of doing so may be low, the impact on particular sectors, such as coal, will still be significant. The greatest obstacle to sensible climate policies is the lobbying power of established interests, which resist change by conflating their own prosperity with that of the economy as a whole. Mr Calderón’s commission has provided a rigorous explanation of why those arguments should be rejected.

“Capitalism versus the climate” is a false opposition; saving the environment does not mean killing the economy. Neither supporters nor opponents of climate action should be able to define the debate on those terms.