The fundamental problem with relying on markets to solve our environmental problems is extremely straightforward. No investment will be made unless market conditions – prices, profits and prospects – justify it. If there is no profit to be made – and a profit that beats the alternatives – then no investment will be made. The environmental consequences are obvious, and easily illustrated with a simple practical example.
A decade or so ago, T. Boone Pickens, the Texas oil billionaire, was planning to spend $10-20 billion on a vast wind farm in the American Midwest. But like all capitalist investments, this was really a gamble, in this case based on the assumptions that oil prices would stay high and subsidies would be on hand. Neither assumptions proved correct, and the projected 25 percent return on investment he predicted was completely implausible. So there were few takers, and no prospect of his wind farms seeing the light of the Texas Panhandle for the foreseeable future.
Pickens’ problem is absolutely the norm as far as capitalist investment in the environment goes. No profit (or enormous subsidy or tax break)? - no investment. And the environment can go hang.
Now, from the point of view of human beings remaining a conspicuous presence on this planet, it is essential that we invest in alternative energy and other solutions to our environmental problems absolutely as soon as possible. The vicissitudes of the market, however, which are driven by many factors apart from environmental impact, can never be relied on the deliver substantive solutions to serious problems.
Pickens’ dilemma was only one example of a very general problem of capitalist economics that make it extremely hard to make a rapid transition to a low-carbon economy. But a second problem is even bigger – the ‘simple’ question moving to a different ‘installed base’ for any major sector such as energy generation, food production or manufacturing. If we are going to move to a different technology, who will pay for the technology already have installed? After all, most currently installed systems – coal-fired power stations, fossil-fuel powered cars, fertiliser and plastic plants, and all the rest – has been paid for by loans from banks and other investors who will still want their money back, regardless of what new systems we plan to install in future. In many cases, the financial commitments run on for decades into the future, and cannot be significantly changed without a massive dislocation to our economy.
Largely unused but still indebted, existing high-carbon power plants and manufacturing facilities still need to be paid for. So if investment in electricity generation is replaced by investment in other, more environmentally friendly systems, one can only ask, where will this investment come from? By and large, new investment comes from income generated from old investment, so if the latter are shut down, there will be (under current economic arrangements) no source for investment in anything else. And this is only one instance of a problem that pervades any capitalist economy: investments demand returns, and if returns are not forthcoming, then either economic activity stops or undesirable indirect methods, from lobbying to subversion, start.
Nor could we expect investors to simply accept the losses caused by a sudden technological change – and in this case, sudden means ‘anything less than the several decades we need to recoup our investment on existing power stations’ – as their contribution to society’s battle with global warming. These are after all not minor factories and power plants out on the edge of the economy; to a very large extent, these vast investments are the economy. To stop paying for them would be economically catastrophic in about the same proportion that it was environmentally beneficial.
Conversely, we can scarcely turn to these same investors to ask them to pay for the new, environmentally friendly investments we need for a low-carbon environment: in the absence of continuing, reliable returns on their existing investments, where will they get the money from? We could of course subsidise them, but where are we going to get the money from? Money is after all the lifeblood of the capitalist economy, and if the owners of existing ‘investments’ find that what they really own is a vast collection of liabilities rather than assets, then making this environmentally essential switch will lead to a near-instant collapse in returns on investment, profits, employment, tax revenues, industrial capacity, credit (for everyone) and a viable economy.
Or at least, so it is while we carry on playing to capitalism’s rules. But they are not the only possible rules, of course. But that is a very different topic.