Private Financing Won’t Decarbonize Our Economies – But the ‘Big Green Country’ Can | Daniela Gabor

TThe pandemic, as we often hear, is forcing us to rethink the economy. We leave behind one model: the austerity-obsessed small country that outsources macroeconomic stability to unelected central banks. Central banks, in turn, targeted inflation under a benign neglect of unemployment. Meanwhile, the bond market was supposed to discipline governments for fiscal rectitude.

Now, the Biden administration “once in a generation” spending plans We suggest that a paradigm shift is underway. It puts governments, through fiscal policy (taxes and spending), back in the driver’s seat. In this sense, macroeconomics can become more democratic. but are we celebration very soon? The big test of paradigm shift, which is perhaps the primary test, is how we begin to decarbonize our economies.

There are two ways to regulate the low-carbon transition: through the state itself or through the financial sector. What might be called a “big green state” approach involves massive public investment in green infrastructure and industries. When he recently lamented private funding on Biden Infrastructure plans, she was blocking the big state road to decarbonization that rejects the rhetoric of public-private partnerships.

In fact, the “big finance” approach wants the state – through its financial arms and the central bank – to steer the private sector simply by changing price signals. In this scenario, the state plays a smaller role, making carbon costly by forcing companies to pay for pollution. For example, Germany recently inserted A tax of €25 (£21) per ton of carbon emissions on petrol, diesel, heating oil and gas. The wisdom goes that higher carbon prices will spur producers and consumers to switch to green energy. Private financing exists to lend the funds this transformation requires.

The numbers behind private green investment seem to be piling up: there is now $30 trillion (£21 trillion) in ESG (environmental, social and governance) assets. Green ‘rush’ expected to accelerate as central banks act decarbonization their operations and reduce subsidies for carbon-intensive activities. Take the Bank of England’s plans for example: Under its new environmental mandate, it Argues That the move to net zero should be financed largely by private (as opposed to state) financing, in an orderly fashion that would require central banks to support the green environment and only “step up” to penalize carbon financiers if, over time, companies fail to meet commitments to de-carbonisation. carbon.

The carbon funders incubation strategy is at the heart of this year’s Cop26 conference in Glasgow. hot new Disturb the private sector For high-level government employees is green finance. But the world of “green finance” is marked by injustice and inequality. It reduces the work of democratic government to higher carbon taxes, which often put critical Carbon removal for the poor. Government spending is directed tothe ironyPrivate Infrastructure, to cover the gap between the fees paid by users of essential public services and the commercial rates of return expected by private investors.

However, the privatization of public services while increasing carbon taxes on ordinary people threatens a political backlash, which will reduce the willingness of politicians to take meaningful measures to decarbonize. It will also boost pressures to trust global asset managers to set the pace for green investing, despite a rush of ‘Environmental, Social and Governance’ (ESG) financiers. green wash: Public relations exercises that put green labels on high carbon activities. This green washing is a feature, not a flaw, of the decarbonization that is being led by big funding. It allows private finance to enjoy both the green subsidies that central banks have promised and to protect profits from democratic forces that may one day move from cuddling to punishing carbon financiers.

The mega-finance approach owes its political appeal to Financial fundamentalists who point to the sudden rise in public debt linked to Covid-19 to say the country simply cannot afford to green the economy. Instead, financiers are dumping trillions of ESG investments in front of politicians, luring them into believing the market will take care of the climate crisis. This validates unambitious carbon policies, as we see very clearly in the EU’s sustainable financing Initiative, which created a system of green public standards. Four years after its launch, this classification system for “sustainable” activity is now under serious threat green wash Of the member states that wish to include natural gas and other dirty activities in its scope. Turn, European Commitments To develop in parallel with the evaporation of a system that punishes dirty lending.

Surrendering to vested carbon interests becomes easier when politicians cannot rely on an acceptable green macroeconomic model; Instead, they still face, on a daily basis, threats that central banks concerned with inflation will withdraw their protective hand from government bond markets. Indeed, central banks, wary of inflationary pressures brought on by economies that have reopened, are now hotly debating how quickly to allow borrowing costs to rise.

Climate activists must be prepared to take the fight against financial fundamentalists with a simple message: government is not a family. It has central banks on its side, and if there’s a macroeconomic lesson the pandemic has taught us, it’s that central banks can do a lot more. In high-income countries, central banks bought out nearly all debt issued by governments in 2020. They can and should continue to work closely with governments to accelerate decarbonization. We cannot count on private funding to get us out of the climate crisis to which we have systematically contributed. We must deprive carbon financiers of their power, and we do so by making the democratic state–not the investors–lead the way forward.

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