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Coal fired power stations will be among those to benefit from the freezing of the 'carbon floor price'. Photo: Emilian Robert Vicol via Flickr.com.
Coal fired power stations will be among those to benefit from the freezing of the 'carbon floor price'. Photo: Emilian Robert Vicol via Flickr.com.
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The IPCC and Osbornomics - a dangerous disconnect

Molly Scott Cato

2nd April 2014

The IPCC's latest report makes a stark contrast with Osborne's recent budget, writes Molly Scott Cato. It was all about sacrificing our future for short term benefit - when as the IPCC makes clear, what we need is the precise opposite.

The planet is in crisis, climate change is the greatest challenge we face, and an energy revolution should be the most important objective of policy.

The IPCC report on human animal and ecosystem impacts, launched this week, underlines the fact that climate change is a threat to all global communities and that we need a response based on solidarity rather than competitiveness.

Chancellor George Osborne's recent budget takes an entirely opposite approach.

Osborne's freezing of the carbon price floor, effectively a gift of around £7 billion to energy-intensive industries, reversed at a stroke the existing trajectory towards a lower-carbon industrial future.

It was justified on the basis that a higher price of carbon was making British industry uncompetitive.

Time to burst the 'carbon bubble'

This is disingenuous and the true explanation is much more likely to be related to the excessive valuation of fossil fuel assets owned by Osborne's powerful 'friends in the City'. 

Carbon disinvestment campaigns have left such wealthy investors fearing that their dirty carbon bubble may be about to burst leading to significant financial losses. And the higher the carbon price, the less those fossil assets are worth.

With the reversal of the rise in energy prices these incentives have now changed - making investment in low carbon electricity less attractive and propping up the value of dirty fossil fuel assets.

Prioritising the short-term

The way Osborne sold the new policy was symptomatic of the small stature of our current clutch of politicians, who are failing to rise to the great challenges of our time and instead appealing to our most selfish motivations.

Hence, concerns about rising fuel bills are used not as an incentive to introduce energy efficiency but as a weapon to attack environmentalists and an opportunity to portray the Conservatives as the consumer's friend.

A further deplorable example is the reduction in air passenger duty chargeable on long-haul flights. Here we see the irony of UK citizens being encouraged to escape 'the weather' by visiting palm-fringed islands that their own behaviour is putting at risk.

Hyperbolic discounting

The budget was a classic case of politicians trading off what behavioural economists call 'hyperbolic discounting'. Rather than making decisions from a cool and intellectual standpoint we are actually a mass of competing irrational desires.

Our decisions are particularly irrational when they involve money or have consequences over the long term and tend to prioritise immediate gains over future gains.

Put simply, we will tend to choose jam today rather than jam tomorrow, and ignore future costs of the jam we have consumed today.

While hyperbolic discounting explains our inability as a global community to deal seriously with the threat of climate change it also has something to tell us about Osborne surprise announcement that people would not be required to buy annuities with their pension savings.

Bribing us with our own money

As the theory of hyperbolic discounting would suggest, this announcement of the freedom to consume all our jam today was greeted with delight - the Chancellor being congratulated for trusting us with our own money.

But what of the long term? While some UK citizens will invest their pension savings wisely, making a realistic guess about how long they are likely to live, it is inevitable that others will blast them away on expensive foreign holidays or flash cars leaving themselves in isolated penury if they live beyond the horizons of their rational decision-making.

Or indeed they may be smooth-talked by boiler room operators to invest all their money in worthless carbon credits, shares in non-trading companies, empty wine cellars in Bordeaux, never-to-be-built off-plan apartments, or any of a host of other scams.

But politicians should not be so irresponsible

Our inability to take the individual decision to reduce our production of carbon emissions, by for example taking a domestic holiday or giving up driving, is based on the same irrationality as not giving consideration to future needs.

But surely the role of responsible politicians is to make policy based on the rational examination of evidence and for the common good.

The Chancellor's decision to use the Budget for narrow party-political interest at such a high long-term cost makes clear the narrow sphere of concern of the dominant politics of our time.

It requires no political skill to give people a choice over how they spend their own money or to make it cheaper for them to fly long-haul. How selfish and narrow-minded such policies will seen in 20 or 30 years time when our children are suffering the consequences of 2°C  or 3°C increases in global temperatures.

And how selfish they appear today from the perspective of vulnerable communities in low-lying coastal areas around the world, on the Pacific Islands, and in the areas of Africa that are already facing famine as a result of climate-related drought.

With Labour offering no alternative to the government's fossil-fuelled growth drive, and the Liberal Democrats having shed their green clothes in a naked bid for power, only the Greens are left to remind the public that the planet is in crisis, climate change is the greatest challenge we face, and an energy revolution should be the most important objective of policy.

 


 

Professor Molly Scott Cato is Green Party national speaker on finance and lead European candidate for the South West.

 

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