Thrive or dive: can our economy weather the climate crisis?

Marco Minasi-Smith, Fortismere School, London

Marco Minasi-Smith, from Fortismere School, London, is the runner-up of the third Bank of England/Financial Times schools blog competition. The competition invited students across the UK to write a post on the theme: the economy and climate change.

While Australia mourns the human and ecological cost of its ‘black summer’ of fires, the tragedy poses a question for economic policy-makers everywhere: how do we prevent climate crises becoming economic ones?

Even a 28 year recession-free economy like Australia’s is reeling from the destruction of 3,000 homes and over 100,000 square kilometres of precious bush, forest and farms. Some towns have run out of water because of the continuing drought. How would our economy cope with a crisis on this scale?

The grim reality is that even if we stop emitting greenhouse gases, NASA argues that such extreme weather and climate events may continue for decades or even centuries. What we can control, however, is our economic preparedness for the inevitable pain. Here are three actions that could make a difference.

First, we must count in dollars not just degrees centigrade. A top team of mathematicians, economists and actuaries must be established to calculate the full financial impact of the climate crisis. This data will focus the minds of policy-makers. Whether the planet warms by one degree or several, we need to know how many billions of dollars it will cost us — and who will pick up the tab. We pore over temperature data but few of us engage in understanding and mitigating our exposure to the costs.

Following the money will also help us budget for the critical but challenging transition away from fossil fuels. For example, for every litre of petrol we buy, the British Chancellor levies 58p in fuel duty. We need electric cars to become mainstream, but this change alone would leave a giant hole in government finances, which in turn limits investment in greener energy. Like it or not, fossil fuels still drive large sections of our economy and financial markets. Our best intentions to divest from them must be backed by sound economic plans to do so.

Second, government funding is needed for the most vital but least profitable long-term research and development. Such direct public sector investment is essential to accelerate green energy development. The private sector is not geared up for the high-risk, multi-decade sums required to wean us off the 80 per cent of energy that still comes from fossil fuels.

Among the toughest problems to solve is sourcing energy for aviation, heavy vehicles, shipping and those types of manufacturing for which the use of renewables is not yet feasible. Just as technically complex is replacing petrochemicals, plastics and synthetic fibres, which all come from fossil fuels, and are used in everything from smartphones to sneakers.

Finally, depoliticise the toughest, most complex financial decisions on climate. The next decade will require all countries to make a series of tough and unpopular decisions such as who pays for mitigation and the impact of climate catastrophes. We need impartial, multidisciplinary experts to make those crucial and controversial decisions, rather than politicians keen to score votes in the next election.

Bad economic decision-making is one storm we can avoid.

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