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Can Europe Sustain its Sustainability Actions?
My Question this Week
The EU will impose a tax on imports of selected goods whose manufacture is quite carbon-intensive – steel, aluminum, and fertilizers being some examples. They are not calling it a tax but a Carbon Border Adjustment Mechanism, whatever it be called, it’s effectively an import tax on products that use too much carbon. Be it CABM or carbon taxes, or any other measures that increase costs on such a massive scale, environmental action is here to stay, and the key question now is what kind of action do we want?
While carbon taxes and suchlike will probably reduce carbon emissions somewhat, they will also adversely impact the EUs domestic economy. And in this world of interdependent economies, they will also adversely impact economies that export to Europe. Surprisingly, few are talking about their negative impact on global economic surpluses. It is these surpluses that will eventually be used to invest in environmentally superior production.
I believe there is a better way. Focus on investing in technologies that are both low-cost and environmentally superior. As an example, while Renewable Energy is already cheaper than thermal (coal) power, we need to invest in innovations to make storage cheap enough; if that could be achieved, we would not need to bear the immediate adverse economic impacts of high energy costs. Similar examples exist in other areas where we are a few steps away from low-cost and environmentally superior production.
In other words, sustaining environmental action over the next few decades requires economic stability - low inflation and economic growth. If we can’t manage that no country will be able to sustain the deep structural changes required over the next couple of decades. And to manage that we need investment to be the driving force of environmental policy, not taxes with consequent adverse output and income impacts. On this there is no question in my mind, there is no other sustainable alternative to building sustainable economies.
My Views this Week
It can get too hot to survive in parts of India, warned the World Bank. A 1.5-degree Celcius global warming will translate to higher levels for India – in the 2 to 3-degree range, and that is an average value for the year. Don’t be surprised if we get days beyond 4-5 degrees above what we are used to. So, what do we do about it? Let us focus on how to save all those who work in the sun and have no access to cooling. We never acted when we should have on mitigating global warming, let us at least get the adaptation story right.
While the EU is at least trying, Indonesia is going in the opposite direction by loosening environmental controls. Among the controversial provisions in the heavily criticized (Criminal Code) bill is, ‘an exemption from prosecution for companies that violate environmental laws; reduced punishment and the choice to pick a fine over a jail sentence for convicted violators; and a higher burden of proof for environmental crimes.’ Protecting the environment will get in the way of economic activity, and that is precisely why it needs to be protected by the state.
About 40 percent of global carbon emissions are said to be accounted for by the built environment. And rather than focus only on reducing such emissions, architects and urban planners are thinking of ‘regenerative architecture.' The idea is what we build should be integrated with the surroundings, taking from and contributing to its immediate environment. Water harvesting and recycling, integrating green spaces and also native flora, and solar power that contributes to and also takes from the grid. Regenerative encompasses much more and is one of the most exciting developments in architecture. But just as hyper-localization has remained an idea mostly on paper, regenerative architecture faces a similar challenge. Our policy planners, financial institutions, and large corporates are unable to support these new ideas with their one size fit all approach.
The more we discount the future, the less importance we give to the future damage today’s actions cause. And Biden administration has just proposed a significant step in this space by calling for a reduction in the discount rate from 3 to 2 percent per annum. This is potentially a very large shift from past practices and will make it much more difficult to undertake projects that yield immediate benefits but cause long-term damage.