The deal we need to make
The costs of not making some sort of environmental policy deal
This newsletter uses the STEEP framework to cover social, technological, ecological, economic, and political issues in an effort to provide a holistic view of the forces & patterns shaping our current reality.
Since it’s holiday season and family members love to ask about childbearing during this time (and you can’t think about childbearing without thinking about impending ecological doom), this newsletter is going to focus on how humans need to evolve re: climate change. This one is especially focused on political action and its economic impact. This one’s a bit dense, so get yourself a warm beverage and get cozy.
TLDR;
The US has not yet implemented a climate plan, even though we cannot afford not to. The cost of doing nothing is $2.9 trillion by 2050. There is no choice but to prioritize climate action and make some sort of deal. But to be real, the U.S. needs additional $$ to make this possible.
Joe Biden’s Clean Energy Revolution is a less expensive, more moderately paced plan than the Green New Deal ($2 trillion to implement from the federal budget vs. $93 trillion, 2050 target vs. 2030 target).
The EU has been the first to actually sign a Green Deal (December 2019) with a 2050 target. In a highly globalized economy, the deal doesn’t truly account for agriculture but there are some promising proposals reflecting a “circular economy” and energy efficiency that can inspire other countries (hopefully, the US, China, and India for starters).
Before we get into it — did you know that neither AOC nor Bernie coined the term “Green New Deal”? It was first used by Pulitzer Prize winning journalist Thomas Friedman in January 2007. This idea has been around for over 13 years. ⏱
And yet, we continue to dilly dally and lose species at 1,000x the normal rate. (Not even considering the negative impact on human life).
Policy + Economics: The Green New Deal in the U.S.
I’ve heard about the Green New Deal but haven’t looked into it. What’s in it?
The overarching goal is to meet 100% of power demand in the US through clean, renewable, and zero-emission energy sources by 2030. The Green New Deal also includes big social protections like job creation ( a job guarantee for all Americans) and a call for all Americans to have access to nature, clean air and water, healthy food, a sustainable environment, and community resiliency.
The proposals span roughly 4 key areas:
Deal with damage that’s already been done (i.e. make sure our infrastructure can withstand extreme weather, clean up hazardous sites)
Change how we make energy (i.e. distributed energy grids)
Change how we use energy (i.e. make buildings more efficient, cleaner transportation like high speed rail)
Restore and protect natural ecosystems (i.e. sustainable agriculture, afforestation, etc.) We know from previous newsletters that forests are key for dealing with carbon levels. 🌲🌳
A vision video from AOC and the Intercept if you don’t feel like reading:
Sounds nice but I’ve heard the Green New Deal is expensive. How much will this transition cost?
According to this Investopedia breakdown, the Green New Deal is would cost ~$93 trillion to implement over 10 years.
Biden has proposed a Clean Energy Revolution, which is less ambitious and also way cheaper — the proposal suggests that the Federal government would invest $1.7 trillion and the private sector, state, and local governments would contribute about $5 trillion. Biden’s plan uses the Green New Deal for inspiration but doesn’t guarantee jobs, food, or housing.
As a side note: I think this is what the Green New Deal policy writers were hoping to do — set forward an ambitious vision, knowing that actual implementation would get watered because it’s actually very hard to do. A classic negotiation strategy.
Since most of us don’t think in trillions (1,000,000,000,000 — yes that is TWELVE zeros 🤯), let’s put all of this into context.
Let’s take a look at large federal deals from the past.
Obama’s American Recovery and Reinvestment Act bailed the US out of the 2008 financial disaster. FDR’s New Deal fundamentally changed how the US economy and labor policy works to claw the country out of the Great Depression. The difference here is that these policies were responding to immediate crises — and the climate plans have longer timelines.
I wouldn’t consider a climate plan a bailout per se — we need to invest in new technologies to make and consume energy more efficiently (and save costs over time).
According to the World Resources Institute, $1 million spent on clean energy in the United States generates more than twice as many jobs as $1 million spent on fossil fuels in the short- to medium-term. Investments in public transit, walking, and cycling create more jobs than investments in highways.
That also probably why Biden’s Clean Energy Revolution doesn’t include a federal jobs, housing, or food guarantee — because those are costs that are likely to continue rising (rather than investments that can pay for themselves over time, like making buildings more energy efficient).
That is a criticism of the Green New Deal by folks who look at the liabilities incurred with FDR’s New Deal (i.e. mounting Social Security costs) and don’t want the government to commit to these costs.
Can the US afford to take climate action?
Looking at the country’s budget a little deeper (courtesy of the Congressional Budget Office).
Revenue (the money that comes in): $3.5 trillion in 2019.
Assuming that stays the same, we’re looking at $35 trillion in 10 years. So, still not enough to cover the Green New Deal with our current revenue structure.
Btw, of the $3 trill that the feds brought in, about 50% of it was from personal income taxes. Only 6% of it came from corporate income taxes. Corporate income taxes have been halved since 1988 (when corporates contributed 10%).
You can see now why Bernie is so focused on billionaaaaaires and big companies. The U.S. federal government needs more money.
Costs: $4.4 trillion in 2019. More than revenue. The US is already $22 trillion in debt.
So, Biden’s cheaper plan is looking more palatable as a place to start if we don’t really change how much revenue we’re bringing in. Which, he probably won’t.
Aside from just looking at costs to implement climate plans, we need to look at mounting costs associated with not doing anything. They are:
Dealing with extreme weather and fire events: $350 billion for extreme weather and fire events over 10 years (2017 report by the U.S. Government Accounting Office). Forest areas affected by wildfires in the U.S. will at least double by 2050, so let’s say that by 2050, we’ll have spent $2.1 trillion on extreme weather and fire events. Already more than what Biden’s plan proposes!
Damage to public infrastructure and coast real estate: $1 trillion of public infrastructure and coastal real estate in the US by 2100. So $500 billion by 2050.
Lost economic output: $500 billion in lost economic annual output in the U.S. by the year 2100. So let’s call that $250 billion by 2050.
So adding those up, by 2050, we’re looking at $2.9 trillion in costs and losses.
Basically the World Resources Institute estimates that the US will face economic damages equivalent to 1-3% of GDP per year by 2100 in a likely scenario. It can be 3.7-10% in a worst-case scenario.
So, the U.S. really can’t afford to not do something. 🚨
How could the Green New Deal change America’s economy?
Given that the US can’t afford the Green New Deal as it stands, some economists have been re-thinking how the government funds programs like this with Modern Monetary Theory.
As it stands today, Modern Monetary Theory feels more like a thought experiment than something do-able (because of the scale of the changes), but I support thought experiments in which you imagine what the world could look like and then work backwards figure out how to make it happen.
Today, the government pays for spending by raising revenue (through taxes) and by getting loans (i.e. issuing bonds). Modern Monetary Theory’s main point is that the government doesn’t need to get loans because the government prints money.
If you took economics, you’re probably thinking “hello hunny, have you ever heard of inflation?”
Inflation happens when the amount of dollars > the stuff you can buy with those dollars. So instead of your milk costing $3 it could cost $300. If there’s more dollars than milk, milk becomes more valuable.
Here is how MMT economists think about printing money without causing inflation:
Taxes can be used to take money out of the economy (i.e. out of your pocket)
Taxes are also important because they ensure that citizens keep your currency (rather than Americans all of a sudden putting their money in bitcoin or Euros)
Limit lending so that companies and people can’t spend more dollars
Jobs guarantee which gives any citizen a minimum wage job with federal benefits (as a way to keep wages down and therefore, consumer spending down)
This isn’t unchartered territory — the US has printed money to get out of trouble before (and very recently):
The main reasons I think MMT is still a thought experiment is:
The international financial system would have to completely change. Tons of people, companies, pension funds, etc. buy U.S. bonds as a “safe” investment and other riskier bonds’ prices are pegged to those prices. So anyone with a stake in bonds would oppose this unless given another, better option.
Lending is key to companies investing in new technologies and ideas — without the option to raise capital, we’d see stagnation here, which just feels antithetical to the “American way” (and likely to see lots of opposition).
Do we need to wait for a federal Green New Deal? Why don’t states just take it up for themselves (isn’t that the American way)?
This is already happening in some states.
According to the World Resources Institute, 41 states and D.C. reduced their energy-related carbon dioxide emissions while increasing real gross domestic product between 2005 and 2017. The overarching is to change how we make electricity. I like how New Mexico talks about it’s plan.
Given that the U.S. currently gets 80% of its energy from coal, petroleum, and natural gas, we have a long way to go when it comes to what we use to power our electricity.
The good news is that this means jobs (which is how politicians are “selling” climate action). Zero-emissions generation like solar and wind was responsible for about 544,000 jobs in 2019, more than twice as many as the 214,000 jobs in fossil fuel generation.
I would argue that the federal government’s job is to make sure that states and people who need to transition don’t get left behind (i.e. coal workers in West Virginia and cities like Detroit which have very little budget to work with).
The World Resource Institute says it well:
Inequalities highlighted by the COVID-19 crisis make it clear that the United States must ensure that moving forward climate policies are fair and equitable by supporting fossil fuel workers and communities and ensuring the benefits of climate policies are shared by all.
Policy + Economics: The Green Deal in Europe
What is the EU Green New Deal?
The Green Deal in the EU was announced in December 2019 and aims to make Europe the first climate-neutral continent by 2050. It’s estimated to cost €1 trillion (£852bn). €503 billion will come from the EU budget, €114 billion will come from national governments, and €279 billion would come mostly from the private sector. This looks a lot closer to Joe Biden’s plan (sub nations for states).
What is the EU Green New Deal proposing that we can learn from?
There are the typical proposals for energy efficiency, pollution restrictions and carbon pricing but some of the most interesting aspects of the European Green New Deal (to me) are:
€100 billion ($111 billion) of funding to help the people who will be displaced / disrupted by the transition to help create pathways for a low-carbon world.
The European Investment Bank will become a “climate bank” aka 50% of financing will be dedicated to climate action by 2025. It’s expected to lend €1 trillion in financing over the next decade.
Certain sectors will have a “carbon border adjustment” so that the price of imports reflect carbon content.
Products will have an electronic passport that provides information on a product’s origin, composition, repair and dismantling possibilities, and end of life handling. People will have a “right to repair,” which hopefully leads to manufacturers using more durable materials and putting them together in a way that can be easily dismantled and reused.
You can read more at the Center for Strategic and International Studies.
What are the criticisms of the EU Green New Deal?
Because we’re a global society now (with lots of international trade), becoming climate-neutral within your own borders doesn’t count all the way. Especially when you’re importing loads of stuff from countries with less stringent rules than you have.
Carbon accounting: the Paris agreement only holds countries responsible for emissions within the country. Let’s be real about where manufacturing is happening — it’s not in the EU. Each EU citizen imports roughly 1 ton of carbon dioxide in goods every year.
Agriculture and food imports: the EU is one of the biggest food importers in the world (second only to China). Because food isn’t intensively farmed in the EU, there’s more room for forests there, but at the expense of forest in Brazil and Indonesia. The EU isn’t too strict about how food they import is grown elsewhere — but they could monitor this and incentivize other nations to take action as well (some farmers in Brazil have already changed their processes because of this).
Will this be one of the most interesting examples of world-wide collaboration or are richer countries going to continue outsourcing their pollution to poorer countries?
Either way, we need to start somewhere and it’s a positive sign that the EU stepped up to be the first to do it.
Policy + Technology: Worldwide Energy Efficiency
Which countries are the most energy efficient countries in the world?
According to the 2016 International Energy Efficiency Scorecard published by the nonprofit American Council for an Energy-Efficient Economy (ACEEE):
Germany 🇩🇪
Italy 🇮🇹 and Japan 🇯🇵
France 🇫🇷
United Kingdom 🇬🇧 (doesn’t reflect 2016 changes)
China 🇨🇳
The U.S. is #8 (up from #13) out of 35 countries ranked. Food and energy producing countries like Brazil and Saudi Arabia come in last at #34 and #35.
The ACEE evaluates policy and performance across 4 categories:
Buildings (Germany does best here)
Industry (Germany does best here)
Transportation (Italy, Japan, India do best here)
National Energy Efficiency (Germany does best here, check out the Energiewende policy if you want to know more)
ACEEE Executive Director Steven Nadel said: "Energy efficiency is often the lowest-cost means of meeting new demand for energy. Governments that encourage investment in energy efficiency and implement supporting policies save citizens money, reduce dependence on energy imports, and reduce pollution. Yet energy efficiency remains massively underutilized globally, despite its proven multiple benefits and its potential to become the single largest resource to meet growing energy demand worldwide."
As a first step, we really should be focusing more on energy efficiency. We’re still living in an Industrial Revolution inspired world that we created when we were excited about throwing whatever energy source into a machine because it was new and exciting and because we could.