The Economic Theory That Could Fuel A Climate Change Revolution

Gizmodo - Brian Kahn

Addressing climate change will require massive investments in everything from shoring up dams that aren’t ready for future rainstorms to wind farms and workers. It’s a huge shift that will require reorienting the economy and the way the world works.

© Photo: AP Money printer go brrrr.

It’s a reflexive response to ask how the world could ever come up with the money to do all that and not go into major debt. But that reflex is wrong, according to proponents of modern monetary theory, an emerging field of economics that shows government deficits aren’t the problem for countries that issue their own currency. Instead, it’s political will and gauging the state of economic well-being beyond metrics like deficits and GDP.

The idea behind modern monetary theory (MMT) is basically that a government can never run out of money as long as it issues its own currency. The U.S. federal government can always make good on payments because it’s the only issuer of dollars. That doesn’t give it license to make the money printer go brrr with abandon since that could lead to inflation. And it’s not that we shouldn’t tax Jeff Bezos since we don’t need tax revenue to pay for things.

But the theory—which, of course, has its vocal detractors and supporters—leads to what Stephanie Kelton, a Stony Brook University and its leading proponent, calls a more holistic view of the economy that looks not just at government deficits but available resources like people, steel, ecosystems, and other serious deficits we’re starting to run up against.

Her newly released book, The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy, lays out what the modern U.S. economy and lawmakers should be focusing on rather than deficits. The book calls for us to look for potential in “the untapped potential in our economy.”

And with respect to climate change, there is a lot of untapped potential. The longer the world burns fossil fuels, the greater the risk of climate change. Kelton, who advised Sen. Bernie Sanders’ 2020 presidential run and served as the chief economist for Senate Democrats from 2014 to 2016, calls for Congress to use its power to set federal spending as a means of eliminating that risk along with addressing other failures, including access to healthcare, education, and civic engagement. That’s what a true people’s economy (or really, a planet economy) would look like.

We’ve already seen lawmakers approve trillions of dollars in spending in response to the coronavirus, and Kelton told Earther she believes the economy has enough slack to handle quite a bit more spending without risking inflation. And with a crucial decade in front of us for climate action, that recovery money could be the seed that transforms the economy into one focused on clean energy, caring for each other, and centers justice. Earther spoke with Kelton about her book and what could come next. The interview below has been lightly edited for clarity and brevity.

Earther: What do you think the most important thing is for a layperson to really understand about modern monetary theory and our current moment?
Stephanie Kelton: I think the most important thing is, it’s meant to be empowering. It’s meant to help people see through the myth. And it’s not just one myth, it’s a web of interconnected myths that feed on one another.
The most important thing it does is clear the fog so that we can all have a more fruitful debate. It can’t be a lack of financing. That cannot be the reason that we don’t act, whether it’s to build 21st-century education or to deal with climate change or make sure every American has health care. A lack of money cannot be an excuse anymore. It’s focused on the limits that matter. What can we do to make efficient and socially useful use of the resources that we have at our disposal and respect the planet in the process?

Earther: Do we really have to completely shift our way of thinking about finances and policy to address the climate crisis?
Kelton: The real issue is about shifting the focus away from the financing to the real resources. So what do we want to do at a climate program? Should it include a job guarantee? And if so, how does that work? Should we build 11 million new homes and make them sustainable and green? Where do we get the construction workers and the architects and the engineers and the machines and all the stuff that we’re going to need to do that?
If we don’t have those things or we can’t produce them to carry out this mission, then we can’t have these things. But if we have them and we have the capacity to build and produce them, then that’s the right way to approach this.

Earther: You mention a few things in the book like a Cash-for-Clunkers program for coal plants. What else would you do to kickstart this transition to a low-carbon economy?
Kelton: I think it’s really important to be clear that I try to stay in my lane. I’m not a climate scientist. I’m not an environmental economist. What I try to do is get together with people who are experts in that space for whom the big hurdle has always been, where are we going to get the money to do [these things]?
I accept the goal of flattening the curve and getting to net-zero carbon emissions. But I’m not the person to lay out that program.

Earther: What do you see as your lane?
Kelton: If money is one thing that stands in our way or the perception, a lack of financing is a primary barrier, then let’s at least remove one obstacle. And that’s where I think I can be useful. Obviously, there are other points of resistance like the fossil fuel industry and political and other considerations.
My concern is that I don’t see yet the kind of big, ambitious program here. The concern is that nations are going to let the window close, and it’s going to be harder and harder to address climate change, and it’s going to be more and more costly. And when I say costly, I don’t just mean GDP. I mean life. Human life. Not addressing climate change is going to lead to a lot of suffering that is avoidable.

“We would be foolish to let the opportunity slip through our fingers.”

Earther: In addition to talking about the people’s economy, you talk about the caring economy. What does that look like in the context of the climate crisis?
Kelton: For me, it starts with a recognition that we should be caring for people, caring for our communities, and caring for our planet. So if I look at a city like Flint, Michigan, I see not caring for people in that community and hundreds of communities like it across this country where you can’t turn on the faucet and safely drink what comes out of the tap.
I don’t know who doesn’t feel better about living in a world where people are treated in a way that makes us feel proud to call ourselves Americans, where communities are cleaned up and homes are habitable and people are cared for when they’re sick, and we’re not destroying our climate and filling our oceans with plastic and waste. I don’t wanna get goofy, but it’s about all of life’s creatures as well.

Earther: I don’t think that’s goofy. I would also like to see that. To change course just a bit, in the book you mention the Greek debt crisis a few times because it doesn’t issue its own currency. What about countries or states that don’t issue their own currency? Could that eventually impede their ability to financing the things they need to do on climate?
Kelton: Maybe. It depends what they want to do. Take California, which has led the nation for decades on climate. They have a vehicle emissions standard, which forces auto manufacturers—if they want access to the largest state in the country—to build cars that can be sold and driven in California.
Regulations can have a material impact on the extent to which we continue to pollute the planet. But when it comes to large-scale investment of the kind that are imagined in the Green New Deal, it can’t be 50 states trying to coordinate. For that, you need a currency-issuing power.
The European Central Bank is that power, it’s not that you don’t have one in the Euro Zone. It’s just that that power rests with the monetary authority, and the fiscal authorities don’t have the capacity to do what our Congress can do.

Earther: What else do we need to be thinking of aside from who can issue money or set policy?
Kelton: If you want to do some small-ball, half-a-trillion-dollars program, we could do that tomorrow and run it to Congress without a so-called pay for, and we wouldn’t get an inflation problem. We could do a couple trillion [in response to the coronavirus], I strongly suspect.
But at some point, the bigger you want to go, the more those inflation offsets like taxes become important. Let’s take the Sanders climate plan and say let’s do that, and let’s do it fast because time is of the essence. Let’s try to spend all 16 trillion-plus in the next couple of years.
The real contribution of MMT is first recognizing that a government can spend without taxing or borrowing. That the time for offsets is when that spending would otherwise carry the risk of accelerating inflation. You have to know your economic landscape. You have to know how much slack there is in the economy to safely absorb that spending before the offsets become necessary.

Earther: Given the risks of the climate crisis, it’s always a good idea to address it. It seems like you’re saying is that we will get the most bang for our buck by investing now.

Kelton: This is an enormous opportunity that has opened up around us right now where we can re-employ people. Industries are changing. There is an opportunity to have a burst of new, innovative investments and burgeoning of new industry around green everything. Not just electricity, but housing and transportation, a whole range of things. We would be foolish to let the opportunity slip through our fingers.

Links

• The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy
• Modern Monetary Theory - Wikipedia
• Modern Monetary Theory Beginner's Guide - Bloomberg
• Explainer: what is modern monetary theory? - The Conversation
• Climate change – Bill Mitchell – Modern Monetary Theory
• Major UN Report Shows Why the Coronavirus Recovery Has to be Green
• BP CEO Calls Plan to Lay Off 10,000 Workers the 'Right Thing'

Threat From Climate Change To Financial Stability Bigger Than Covid-19

Financial Times - Matthew Vincent

Report urges capital requirement rules for banks lending to fossil fuel groups to be tightened

Protesters block the road in front of the Bank of England last year during a climate change protest. © PA

Climate change poses a bigger threat to financial stability than the coronavirus pandemic and the rules on bank lending to fossil fuel groups must be tightened to address it, a new report has warned.

In his latest research for the Finance Watch advocacy body, Thierry Philipponnat — a board member at the French financial regulator, and one of the EU’s technical experts on sustainable finance — has recommended increasing the risk weightings banks must apply to their oil, gas and coal exposures.

This would make them treat fossil fuel lending in the same way as other risky investments, increasing their capital requirements to insulate them against possible losses. Banks would therefore have more protection against the risk of carbon assets becoming “stranded” if demand falls — or the risk of costly climate disruption if it does not.

According to Mr Philipponnat, only this regulatory approach can end the “climate-finance doom loop”, in which fossil fuel finance enables climate change, and climate change threatens financial stability, through disruptive natural events.

Finance Watch estimates that climate-related risks to the financial system are greater than those posed by pandemics, such as coronavirus.

“The actions we are proposing today are far less radical or costly than those taken in response to the Covid-19 crisis but they target a far bigger threat,” said its secretary-general Benoît Lallemand. “They address a disruption risk of another order of magnitude.”

Under the report’s proposals, the risk weighting for bank exposures to existing fossil fuel reserves would be increased from 100 per cent to 150 per cent, making banks treat them the same as risky venture capital and private equity lending, for capital purposes. And the risk weighting for bank exposures to new fossil fuel reserves would be increased from 100 per cent to 1,250 per cent, making equity finance the only option, and one that better reflects the future threats.

In recent years, climate change campaigners have been calling on banks to reassess their financing of fossil fuels to help meet the goal of the intergovernmental Paris Agreement: limiting the global temperature rise to 1.5C over the pre-industrial average.

However, last year, an analysis by Rainforest Action Network found that 33 banks provided $654bn to 1,800 fossil fuel companies, equivalent to 70 per cent of the capital expenditure of the entire industry. It said JPMorgan Chase was the world’s biggest “fossil banker”, providing $195bn over three years, followed by Wells Fargo, Citi and Bank of America.

In Europe, Barclays has been the biggest backer of oil, gas and coal companies, according to the responsible investment charity Share Action, providing more than $85bn of finance since the Paris Agreement was signed in 2015. HSBC and Standard Chartered have also been named by Dutch charity BankTrack as among the biggest lenders to coal projects.

Banks said they have been responding to the climate challenge, although tackling it through changes to global regulation may prove difficult.

Huw van Steenis, chair of UBS’s sustainable finance committee, noted the point he made in his “Future of Finance” review for the Bank of England: “Many banks highlight that they are primarily regulated through risk-weighted assets, which are based on historical information and expert analysis. They do not always take account of longer-horizon forward-looking information such as climate change. And while adjusting the risk weights . . . might merit discussion, it would not be easy to operationalise, given the globally agreed approach to setting capital requirements.”

Still some investors are pressing regulators to do more. In March this year, Christopher Hohn, founder of the $28bn hedge fund group TCI, called on regulators to increase the risk weighting on this lending.

“Regulators cannot allow banks to hide coal loans and the totally unrealistic risk weightings being used,” he said. “Using a 250 per cent risk weighting would make new and existing coal loans uneconomic.”

Finance Watch is calling on the European Commission to impose its higher risk weightings now, and hopes the Basel Committee and the Financial Stability Board will promote a similar approach globally.

“Given the short time available, there is a need for decisive and immediate regulatory action, using prudential tools already available,” Mr Philipponnat said.

Links

• Environmentalists on back foot as Germany’s newest coal plant opens
• Practical steps to ensure a green recovery
• This recovery will be greener than the last one
• China’s carbon trading scheme struggles to take off
• Going for green: Beijing’s 2022 Winter Olympics
• Swarms of locusts threaten Indian livelihoods and food production
• Siberia fuel spill threatens Moscow’s Arctic ambitions

Unequal Impact: The Deep Links Between Racism And Climate Change

Yale Environment 360 - Beth Gardiner

Activist Elizabeth Yeampierre has long focused on the connections between racial injustice and the environment and climate change. In the wake of George Floyd’s killing and the outsized impact of Covid-19 on communities of color, she hopes people may finally be listening. 

A residential street alongside a major oil refinery in Port Arthur, Texas, a city that is more than two-thirds African American and Latino. AP Photo/David Goldman

The killing of George Floyd by Minneapolis police and the disproportionate impact of Covid-19 on African Americans, Latinos, and Native Americans have cast stark new light on the racism that remains deeply embedded in U.S. society.

It is as present in matters of the environment as in other aspects of life: Both historical and present-day injustices have left people of color exposed to far greater environmental health hazards than whites.

Elizabeth Yeampierre has been an important voice on these issues for more than two decades. As co-chair of the Climate Justice Alliance, she leads a coalition of more than 70 organizations focused on addressing racial and economic inequities together with climate change.
 In an interview with Yale Environment 360, Yeampierre draws a direct line from slavery and the rapacious exploitation of natural resources to current issues of environmental justice. “I think about people who got the worst food, the worst health care, the worst treatment, and then when freed, were given lands that were eventually surrounded by things like petrochemical industries,” says Yeampierre.

Elizabeth Yeampierre

Yeampierre sees the fights against climate change and racial injustice as deeply intertwined, noting that the transition to a low-carbon future is connected to “workers’ rights, land use, [and] how people are treated,” and she criticizes the mainstream environmental movement, which she says was “built by people who cared about conservation, who cared about wildlife, who cared about trees and open space… but didn’t care about black people.”

Yale Environment 360: You’ve spoken about the big-picture idea that climate change and racial injustice share the same roots and have to be addressed together, and that there is no climate action that is not also about racial justice. Can you describe the links you see connecting these two issues?
Elizabeth Yeampierre: Climate change is the result of a legacy of extraction, of colonialism, of slavery. A lot of times when people talk about environmental justice they go back to the 1970s or ‘60s. But I think about the slave quarters. I think about people who got the worst food, the worst health care, the worst treatment, and then when freed, were given lands that were eventually surrounded by things like petrochemical industries. The idea of killing black people or indigenous people, all of that has a long, long history that is centered on capitalism and the extraction of our land and our labor in this country.
For us, as part of the climate justice movement, to separate those things is impossible. The truth is that the climate justice movement, people of color, indigenous people, have always worked multi-dimensionally because we have to be able to fight on so many different planes.
When I first came into this work, I was fighting police brutality at the Puerto Rican Legal Defense Fund. We were fighting for racial justice. We were in our 20s and this is how we started. It was only a few years after that I realized that if we couldn’t breathe, we couldn’t fight for justice and that’s how I got into the environmental justice movement. For us, there is no distinction between one and the other.
In our communities, people are suffering from asthma and upper respiratory disease, and we’ve been fighting for the right to breathe for generations. It’s ironic that those are the signs you’re seeing in these protests — “I can’t breathe.” When the police are using chokeholds, literally people who suffer from a history of asthma and respiratory disease, their breath is taken away. When Eric Garner died [in 2014 from a New York City police officer’s chokehold], and we heard he had asthma, the first thing we said in my house was, “This is an environmental justice issue.”
The communities that are most impacted by Covid, or by pollution, it’s not surprising that they’re the ones that are going to be most impacted by extreme weather events. And it’s not surprising that they’re the ones that are targeted for racial violence. It’s all the same communities, all over the United States. And you can’t treat one part of the problem without the other, because it’s so systemic.

With Hurricanes Maria and Katrina, the loss of lives came “out of a legacy of neglect and racism.”

e360: Can you more explicitly draw the connection between climate change and the history of slavery and colonialism?
Yeampierre: With the arrival of slavery comes a repurposing of the land, chopping down of trees, disrupting water systems and other ecological systems that comes with supporting the effort to build a capitalist society and to provide resources for the privileged, using the bodies of black people to facilitate that.
The same thing in terms of the disruption and the stealing of indigenous land. There was a taking of land, not just for expansion, but to search for gold, to take down mountains and extract fossil fuels out of mountains. All of that is connected, and I don’t know how people don’t see the connection between the extraction and how black and indigenous people suffered as a result of that and continue to suffer, because all of those decisions were made along that historical continuum, all those decisions also came with Jim Crow. They came with literally doing everything necessary to control and squash black people from having any kind of power.
You need to understand the economics. If you understand that, then you know that climate change is the child of all that destruction, of all of that extraction, of all of those decisions that were made and how those ended up, not just in terms of our freedom and taking away freedom from black people, but hurting us along the way.
It’s all related. You can’t say that with Hurricane Maria in Puerto Rico and Hurricane Katrina in New Orleans the loss of lives was simply because there was an extreme weather event. The loss of life comes out of a legacy of neglect and racism. And that’s evident even in the rebuilding. It’s really interesting to see what happens to the land after people have been displaced, how land speculation and land grabs and investments are made in communities that, when there were black people living there, had endured not having the things people need to have livable good lives.
These things, to me, are connected. It’s comfortable for people to separate them, because remember that the environmental movement, the conservation movement, a lot of those institutions were built by people who cared about conservation, who cared about wildlife, who cared about trees and open space and wanted those privileges while also living in the city, but didn’t care about black people. There is a long history of racism in those movements.

Demonstrators march in Sunset Park, Brooklyn last September in support of community-led climate justice initiatives. Erik McGregor/LightRocket via Getty Images

e360: So how do you have a fight for climate action that is intertwined with a fight for racial justice? What are the steps, the policies, that we should be thinking about looking forward?
Yeampierre: With the Green New Deal, for example, we said that it wasn’t a Green New Deal unless it was centered on frontline solutions and on ensuring that frontline leadership would be able to move resources to their communities to deal with things like infrastructure and food security. When that happens, we’ll be able to move the dial much more efficiently.
In New York, for example, we passed the Climate Leadership and Community Protection Act, which is aggressive legislation that looks at how you move resources to frontline communities and how you invest in those communities.
Nationally, we need to be looking at stopping pipelines — reducing carbon but also reducing other pollutants. We need to start focusing on regenerative economies, creating community cooperatives and different kinds of economic systems that make it possible for people to thrive economically while at the same time taking us off the grid.
In every community there are different things people are doing, everything from putting solar in public housing to community-owned solar cooperatives. This is not the ‘60s or the ‘70s or the ‘80s where we follow one iconic leader. This is a time where we need to have numerous people really taking on the charge of directing something that’s big and complex.

e360: Can you talk a little bit about the idea of a just transition to a low-carbon future and how that dovetails with anti-racism efforts?
Yeampierre: A just transition is a process that moves us away from a fossil fuel economy to local livable economies, to regenerative economies. Those are different economies of scale that include not just renewable energy but healthy food and all of the things that people need in order to thrive. The word justice here is important because for a long time people would talk about sustainability, that you could have sustainability without justice, and the climate movement focused on reducing carbon but didn’t really care about other pollutants.

“Climate activists talk about moving at a big, grand scale, and we talk about moving at a local scale.”

A just transition looks at the process of how we get there, and so it looks at not just the outcomes, which is something that the environmentalists look at, but it looks at the process — workers’ rights, land use, how people are treated, whether the process of creating materials that take us to a carbon-neutral environment is toxic and whether it affects the host community where it’s being built. It looks at all those different kinds of things.
I can give you one example in New York City. We have been advocates of bringing in offshore wind. One of the things that we learned is that in order for that to happen, the pieces have to come from Europe and be assembled in New York and they would be coming in these huge container ships. Now these ships operate by diesel, and so what happens is they park themselves on the waterfront of an environmental justice community and the climate solution becomes an environmental justice problem.
The climate solution is we reduce carbon, but the environmental justice problem is we dump tons of nitrogen oxides and sulfur oxides and PM2.5 [particles] into the lungs of the host community.
We need the climate solution, but then we need to talk about how we electrify the industrial waterfront and how these ships can plug in so they’re not burning diesel. While we’re doing that, we also need to look at how we create the market instead of following the market — wind turbines that are built in the United States so we don’t have to bring the parts in from Europe.
These are the kinds of things that we think about when we’re thinking about a just transition. A climate activist will be like, “Okay, we need offshore wind” — right, that’s it. But a climate justice activist will be like, “Okay, let’s look at it a little closer and let’s figure out what the process looks like and how we can engage in remediation to make sure we are not only reducing carbon but we’re also reducing co-pollutants, and let’s make sure that the people that are hired are hired locally.” So there are all of these other pieces that are involved in a just transition. Climate activists talk about moving at a big, grand scale, and we talk about moving at a local scale, and then replicating those efforts.

e360: Racial justice would presumably have to be at the heart of that.
Yeampierre: It has to be at the center. For example, in Sunset Park [Brooklyn, where Yeampierre runs the Latino community group UPROSE], we just launched the first community-owned solar cooperative in the state. Okay, we want renewable energy. We need to be able to prioritize the people that are going to be most impacted. Low-income communities. People of color. It has to matter to white folks because when our communities succeed and get what they need, everyone benefits from that.

“These [environmental groups] have to get out of their silos and out of their dated thinking.”

With the cooperative, the community actually owns the utility, owns the energy source. People will be able to access renewable energy, at a reduced cost, be hired locally to build it — and have ownership. So it’s really exciting. We’re hoping this model will birth more projects like this.
Now, we’re is reaching out to small businesses. They’re struggling because of how Covid-19 has affected the economy. When we started this project, we were thinking it would provide resilience to disruptions of the grid and other systems from extreme weather events. We hadn’t anticipated the disruption would be something like Covid. But these models become a real benefit in moments like this where you don’t know where your next paycheck is coming from. You have access to energy that is both renewable — which means it has a health benefit — and also benefits your pocketbook.

e360: With the pandemic and its racially disparate impact, and then the killing of George Floyd and the protests that have followed, we’re at this moment where these longstanding racial disparities and racism are on vivid display. What would you hope the climate movement and the environmental justice movement take away from this moment and apply going forward?
Yeampierre: I think that this is a moment for them to start thinking internally and thinking about some of the challenges that they’re having. I think it’s a moment for introspection and a moment to start thinking about how they contribute to a system that makes a police officer think it’s okay to put his knee on somebody’s neck and kill them, or a woman to call the police on an African-American man who was bird-watching in the park.
These institutions [environmental groups] have to get out of their silos and out of their dated thinking, and really need to look to organizations like the Climate Justice Alliance and Movement Generation and all of the organizations that we work with. There are so many people who have been working with each other now for years and have literally put out tons of information that there’s no need to reinvent the wheel. It’s all there.
There has to be a fundamental change in the culture of these institutions. If they were thinking strategically, they would be saying, “Hey, let me see. I’m in New York. Who’s doing this and how can we support them?” We’ve had groups of white young people who have contacted us and have said to us, “How can we support you? How can we best use our resources and our skills to support the work that you’re doing?” And, we’ve been like, “You know what? That is the right question. Let’s do this together.”

Links

• Connecting the dots between environmental injustice and the coronavirus.
• Energy Equity: Bringing solar power to low-income communities
• Why low-income households needs to be part of the clean energy revolution
• A Major Oil Pipeline Project Strikes Deep at the Heart of Africa
• When Social Distancing Ends, Will We Rethink the World We Want?
• How Renewable Energy Could Emerge on Top After the Pandemic