Lord Turner on failed markets, irrational markets and environmental policy – 21 May 2009
Lord Turner, Chair of the CCC and Financial Services Authority gave a lecture at UCL’s Environment Institute last night, on the relationship between the irrational nature of the economy and climate change. The peer said that the recent financial meltdown, was the ‘worst seen in the history of capitalism’ and symbolised an ‘intellectual as well as a banking crisis’ which had ‘challenged previously widely held beliefs across the field of economics’. The CCC had considered such issues whilst determining what mechanisms could be used to tackle climate change, said Lord Turner.
The CCC’s report concluded that the electricity sector would have to be radically decarbonised by the 2030s in order to meet the 80% 2050 target. This cleaner electricity could then be applied, across other sectors such as transport, to help reduce emissions. He said that the CCC had concluded that the volatile nature of the financial market, with its direct impact on carbon and fossil fuel prices meant that a wholly market-led approach to tackling climate change would simply not work. Stronger policy instruments, coupled with government intervention would be needed to deliver the radical changes required.
On this, he cited the Government’s announcement that all new coal fired plants will only be built on the expectation that they are retro-fitted with Carbon Capture and Storage technology in the 2020s. Another policy instrument, which the CCC is looking at is the introduction of a carbon floor price to the EU Emissions Trading Scheme.
Above all, Lord Turner argued that the cost of tackling climate change should be accepted, not only because it would represent a very small percentage of GDP (between 1-3% in 2050), but because ever-increasing GDP figures would not necessarily lead to increasing social welfare or happiness. He advocated the development of more socially conscious economics which moved away from a dependence on the ‘black box of mathematical modelling’ towards a more holistic view of what was right for society. He said that given the catastrophic impacts that dangerous climate change would have, a small cost to GDP should be accepted.
He was also upbeat about the potential to ‘nudge’ consumer choice by persuading people to switch to smaller vehicles (with more carbon efficient engines), to drive slower and break less harshly (eco-driving), and to adapt their diet from one that was high in carbon-intensive meats like beef, towards eating more vegetables and meats like chicken, which have a lower environmental impact.