Today, the UK government announced that it plans, from now on, to issue annual licenses for extracting more oil and gas from the North Sea. It claimed that this would help the long-term transition to Net Zero, without adding “undue burdens” on households.
This language raises some fundamental questions - what is meant by the phrases long-term, Net Zero, and undue burdens, when applied to plans to increase the supply of fossil fuels into an international market?
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“In the long run we are all dead”
(J.M. Keynes, The Tract on Monetary Reform, 1923)
That sentence, written by economist John Maynard Keynes a hundred years ago, is often quoted, but seldom understood. Believers in the economic dogma that governments must always ‘balance the books’ use the quote to claim that governments employing Keynesian policies to finance public expenditure from borrowing are happy to burden future generations with debt for the sake of short term political advantage.
Historian Niall Ferguson went further. He suggested that Keynes didn’t care about the future because he was gay and didn’t have children. Ferguson’s subsequent ‘unqualified apology’ acknowledged that people who don’t have children can care about the future. But he only partially rowed back on his original homophobia - Ferguson explained that he had forgotten that Keynes was bisexual rather than gay and that his wife Lydia had miscarried. He neglected, too, to mention that one of Keynes’ most powerful contributions to economic philosophy was titled ‘Economic Possibilities for Our Grandchildren’, and that it centred on the fundamental economic changes that would enable future generations “to live wisely, agreeably, and well.”
What Keynes actually meant by “In the long run we are all dead’ is clear from his next sentence - “Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us when after the storm is past the ocean is flat again.” He was clear that economic orthodoxy’s inability to understand market failure rendered it incapable of addressing social ills like mass unemployment. This insight led, a decade later, to Keynes’ recommendation, in his 1933 letter to President Roosevelt, that “as the prime mover in the first stage of recovery I lay overwhelming emphasis on the increase of national purchasing power resulting from government expenditure which is financed by Loans and not by taxing present incomes.”
‘Balancing the books’ is still recommended by the economic orthodoxy that Keynes critiqued, and it still hampers government attempts to address social problems. Fears that public debt is a burden are, in most circumstances, misplaced. Interest payments become burdensome only when monetary policy follows economic orthodoxy and raises interest rates in the belief that this is what is needed to keep inflation in check. Public debt, unlike private debt, does not have to be repaid. It provides a secure home for individual savings, and is the main source of income for the financial institutions that provide individuals with pensions. The orthodox prescription rejected by Keynes, that fiscal rules to avoid deficits must be followed, restricts the ability of governments to tackle the burdens that result from market failure.
Climate policy - balancing the wrong budget
We are confronted today by a market failure which is not only a present threat, but a threat which, if left unchecked, will literally kill not everyone but many people before the end of this century. If present trends in carbon emissions continue, global temperatures would likely rise by between 2.5°C and 4°C above pre-industrial levels by 2100. If the geographical distribution of the world’s population remained unchanged, it seems likely that less than 10% could survive 4°C global warming. That proportion would increase if there was mass migration from tropical to temperate regions, but current political opposition to immigration would have to change considerably for that to be a feasible option.
In this context, Keynes’ remarks that in the long run we are all dead, and that we need to develop an understanding of what is needed to calm tempestuous seasons, take on a new significance.
Most governments are, at long last, committed to reducing carbon emissions, to lessen adverse consequences of unchecked climate change. The aim for many rich countries is to achieve Net Zero carbon emissions ( anthropogenic emissions balanced by anthropogenic removals) by 2050. Net Zero by 2050 has become a political slogan, bearing an increasingly loose relationship to what would be needed to keep global temperatures within acceptable limits. What is critical is the carbon budget - the amount of greenhouse gases that can be emitted before global temperatures pass a defined threshold. Measures to keep within an acceptable carbon budget may, and probably will, require deficits on the fiscal budgets that orthodox economists are so keen to balance.
At the time of the 2015 Paris climate treaty, it was thought that if net carbon emissions were reduced steadily to zero by 2050, then there was a 50% chance that the carbon budget needed to limit the temperature increase to 1.5°C would not be exceeded. Global carbon emissions have actually increased since 2015, and the latest estimates, reflecting both this and improved understanding of the climate dimming role of aerosols, suggest that the remaining carbon budget to keep global warming within 1.5°C will be exhausted by 2029, only six years away. The Net Zero by 2050 target remains unchanged, even though it is no longer consistent with a carbon budget that limits warming to 1.5°C (or even to 2°C for that matter).
Delays in embarking on decarbonisation have probably deprived us of the chance of limiting global warming to 1.5°C. This does not mean that we have to give up - every 0.1°C that is cut from the ultimate temperature rise will reduce the resulting damage. But developments since the Paris Treaty mean that we no longer have the luxury, which the Net Zero by 2050 slogan encourages, to postpone difficult choices until the 2040s. The critical decisions have to be made now.
There are three basic pathways that can be followed:
!. Business as Usual
Rely on market forces to cut back on fossil fuel consumption, and hope that technological innovation in the future will avoid catastrophic levels of climate change and sea level rise
2. “Green’ technology
Massively expand investment in renewable energy, electric vehicles, etc, and accept the damage to nature from mining operations needed to provide the required critical minerals and metals (lithium, cobalt etc).
Or
3. Degrowth
Cease economic growth (except in low income countries), and embark on an economic strategy that cuts back on unnecessary consumption while ensuring basic living standards for all, to protect both climate stability and nature more generally.
Of these options, only the first is compatible with economic orthodoxy. The other two each need economic policies which challenge the priorities dictated by financial markets. Effective pursuit of the second pathway needs funding via borrowing and a redistribution of savings. And effective pursuit of the third pathway needs caps on income and wealth.
The King’s Speech
Until recently, both the main political parties in the UK accepted the Net Zero by 2050 target, and supported similar policies towards achieving it - policies basically following the second pathway, though relying heavily on speculative technological innovations to remove carbon. That consensus was undermined this year, when the Conservative government announced delays to interim carbon reduction targets for electric vehicles and home heating, and issued new licenses for North Sea oil and gas exploration.
To justify this shift, much is made of statistics showing the UK’s recorded carbon emissions to have declined faster than those of other G7 countries. Most of this decline reflects a shift from coal to gas, and the UK’s increased reliance on imported goods (whose manufacturing and transport emissions are not included in the UK’s carbon accounts). Ignoring consumption-based emissions to justify increased fossil fuel extraction ignores the fact that climate physics reacts to all carbon emissions, regardless of where they are sourced. Outsourcing half your emissions, as the UK has done, is not decarbonisation.
One of the curiosities of parliamentary democracy in the UK is that, each autumn, the Government’s legislative programme for the coming year is announced by an unelected monarch, in a ritual ceremony that dates back centuries. That monarch, King Charles, happens to believe that climate change is “our most existential challenge.” He had, though, in today’s King’s Speech, to declare that ‘his government’ would introduce a law confirming its shift away from ‘green’ technology (pathway 2 ) towards an approach a lot closer to business as usual (pathway 1).
Promised legislation to encourage more extraction of North Sea oil and gas is the clearest demonstration yet of this policy shift. A suggestion that environment assessment for oil and gas extraction should be relaxed was rejected when it became clear this would contravene international law. But there will be annual licensing rounds for new North Sea oil and gas projects. The rounds will only take place if projected oil and gas imports exceed domestic production, and if carbon emissions from gas production are lower than emissions from imported liquefied natural gas. These tests, the government claims, will ensure that new licenses are compatible with the Net Zero by 2050 target. Whether or not interpreting support for new fossil fuel extraction as progress towards Net Zero is a deliberate lie, it demonstrates how meaningless the Net Zero target has become.
“For a 50% chance of 1.5°C the wealthiest producers need to end production of oil and gas by 2034 while the poorest producers have until 2050.”
(D. Calverley & K. Anderson, Phaseout Pathways for Fossil Fuel Production within Paris-compliant Carbon Budgets, University of Manchester Research, 2022)
The phrase ‘long-term’ appeared eight times in today’s King’s speech. A genuine move away from the short-termism that has characterised much Conservative policy in the past decade would have been welcome. But relaxing climate targets jeopardises the investment security that business needs in order to innovate. And it is based on a short-term political calculation that older voters who are the Conservative Party’s main core support are less concerned than younger voters about long-term environmental damage, and may be more reluctant to adopt the technological innovations required by a ‘green’ technology pathway.
Older voters are a demographic that is shocked by recent revelations that, at the height of the Covid pandemic, the then Prime Minister wanted them to accept their fate in order to let the young get on with life. Far from building for the long-term, Sunak was making it clear that future lives could be sacrificed if this might win the votes of an age group that didn’t have long to live.
Labour’s response
Labour appears to want to stay on a “green’ technology pathway, but to avoid diverging too much from the Conservatives’ retreat from it. So although it will not license new oil and gas exploration, it will respect any licenses that are granted before the election.
Labour’s ability to deliver investment in ‘green’ technology is considerably weakened by its rigid adherence to economic orthodoxy. Even more than the Conservative government, it is committed to fiscal rules which balance the fiscal budget and squander the carbon budget. Rachel Reeves, the Shadow Chancellor, has promised a modern state that is “more active, making and shaping markets that are essential to a nation’s resilience and future prosperity”, But her modern state is one to be constrained by strong fiscal rules “from which we will not deviate.”
Asked this June on BBC radio why Labour was delaying plans to spend £28 billion per year on a ‘Green Prosperity Plan’, Reeves explained that the economic situation had changed since the promise was made, and that “Our fiscal rules are non-negotiable. Economic stability, financial stability, always has to come first and it will do with Labour.”
“During my time as an economist at the Bank of England I learnt a very simple lesson: your sums must always add up. Instability always follows when that very basic truth is ignored……I will never spend what I cannot afford. I will introduce a new set official rules. These rules will apply to every decision then by a Labour government. We will not borrow to fund day-to-day spending and we will reduce national debt as a share of the economy. I am clear that these rules are non-negotiable. There will be no exceptions.”
(Rachel Reeves, Financial Times interview, 22 Sep 2023)
A clearer statement of the economic orthodoxy that was rejected by Keynes would be hard to find. It’s an orthodoxy which, in the current situation, means insisting that the fiscal budget is balanced, no matter how that impacts the carbon budget. A falling debt/GDP ratio, coupled with an earlier promise not to raise main taxes, means having to rely on faster economic growth to deliver ‘green’ outcomes. Growth which, if achieved, can be justified only by believing the Economist magazine’s bizarre claim that we need “to loot the planet in order to save it.”
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In the build up to next year’s general election, neither of the main political parties in the UK is giving the climate crisis the attention it deserves. The Conservatives are sacrificing the future for short-term political gain. Labour want to build for the future, but are letting a dogmatic insistence on balancing the fiscal budget restrict the actions that are needed. Both main parties ignore the significance of the rapidly depleting carbon budget, and that is unforgivable.
Degrowth, the only pathway that avoids a long run outcome in which we are literally all dead, remains absent from the political agenda.