The Guardian: If the 20th century was the “age of extremes”, to quote Eric Hobsbawm’s famous title, the 21st may well be the age of the combined effects of debt and climate change. And it will, no doubt, witness its share of extreme events.
Debt and climate change are nothing new, of course. As David Graeberhas shown, debt is almost as old as humankind, whereas climate has varied across geological epochs. However, both have become more important in the past decades, and have now taken centre stage.
Debt and climate change are deeply connected, and understanding their interplay is crucial to making sense of upcoming political events. It is also crucial to building coalitions between social movements fighting austerity policies implemented in the name of debt reduction in Europe and elsewhere, and movements fighting climate change.
For this, one can search for inspiration in the Intergovernmental Panel on Climate Change’s (IPCC) fifth report, which was published early this year. The second part of the report includes a section (10.7) dedicated to the effects of climate change on finance and insurance. It was barely commented upon when the report was published. Yet it is a decisive section, as it establishes a link between the environmental crisis and economic and financial issues.
Climate change will represent a major challenge for finance and insurance, the IPCC report observes. The increase in the number and intensity of natural catastrophes, for instance, will lead to significant raises in insurance payouts. As the world population and the economy grow, more people and goods are insured, and will therefore give rise to more claims in the event of disasters. With a cost of around $20bn for insurers, Hurricane Sandy in 2012 was only the beginning of a trend that will worsen in the decades to come.
Likewise, finance will suffer from the impact of climate change. The value of securities is linked, in (sometimes very) complex ways, to underlying material assets, which will be affected by natural hazards. Moreover, disasters can disrupt supply chains, and hence put corporations in jeopardy. IT systems on which trading relies can also break down. Contrary to common belief, finance is a concrete, down-to-earth activity; it will not be immune to the impacts of an environmental crisis.
Climate change will also affect public finances. According to the IPCC report, “a financial gap [will open] in the months immediately following an extreme weather event, often exacerbated by over-stretched public finances”. This financial gap is precisely where the connection between debt and climate change takes place. Here’s how.
Today, states are burdened by mounting debt levels. Public debt is a political construction that goes back to the 1980s, when massive tax cuts for the rich started being implemented by neoliberal governments across the world. However, debt skyrocketed in the wake of the 2008 crisis, which greatly aggravated what Wolfgang Streeck calls in his recent bookthe “fiscal crisis of the state”.
What does this have to do with climate change? Overstretched public finances, the report suggests, will make it more difficult for the state to take action in the event of natural catastrophes: rescuing the victims, rebuilding infrastructures, implementing preventive measures etc. And since pollutions, floods and heatwaves will become more numerous and intense, demands for state action will inevitably increase, thereby deepening the crisis.
This fiscal crisis of the state will weigh not only on reaction and adaptation to climate events, but on mitigation policies. Cutting greenhouse gas emissions implies an energetic transition on a massive scale towards clean energies. This requires investments by the state, which will be difficult given the already overstretched public finances. Rising debt levels inflicted on societies by neoliberal tax cuts for the rich gravely compromise our capacity to adapt to climate change.
So far, so good. But then the IPCC report takes a final step – in the wrong direction. To bridge the gap in public finances caused by recurrent extreme weather events, it recommends appealing to private investors. More precisely, it advocates the implementation of financial instruments such as catastrophe bonds or microinsurance as a means to lighten the burden on the state in the face of a changing climate. Where the state does not have the resources to act, financial markets should take charge.
This financialisation of adaptation was already encouraged, in the years preceding the release of the IPCC report, by organisations such as the World Bank and the OECD. Thus, a 2012 working paper published by the OECD spoke of the need to “immunise public finances” from the effects of climate change, by issuing so-called “sovereign” catastrophe bonds, ie catastrophe bonds issued by states.
Financialising adaptation is a bad idea for numerous reasons. Here are two. Firstly, finance is prone to crisis, as the subprime market’s collapse demonstrated in 2007. Thus, financialising adaptation would put adaptation policies – parts of them at least – at the mercy of the erratic behaviour of financial markets. Adding financial instability to environmental instability will only increase the scale of disasters. What is needed, on the contrary, is less reliance on the logic of markets, and more environmental long-term planning.
Secondly, finance is in its essence undemocratic, i.e. out of the control of democratic deliberation. It is a form not only of economic dispossession, but of political dispossession, where the few choose for the many.
Adaptation to climate change, however, will require the involvement of the people, the deepening of the democratic process, and even the invention of new democratic institutions. Without their active commitment, their knowledge and knowhow, it is doomed to fail. The reason for this is that adaptation will in a good part be a matter of reorganising the daily lives of the people, and that this will obviously not be done without them. Adaptation to climate change, from this perspective, may well be our chance to revitalise democracy “from below”.
The IPCC report has done a wonderful job at alerting the global public opinion about the urgency to prevent, or at least limit, climate change. Also, it has correctly identified the growing pressure climate change will put on public finances, thus worsening the crisis of the state. But when it comes to finding solutions, it has not escaped the neoliberal zeitgeist, and especially the tendency to see in financial markets an answer, rather than a source of social problems.
It will be the task of future coalitions of social movements to not only acknowledge the growing connection between debt and climate change, but to imagine new ways of countering their damaging effects on societies.
Started in year 2010, ‘Climate Himalaya’ initiative has been working on Mountains and Climate linked issues in the Himalayan region of South Asia. In the last five years this knowledge sharing portal has become one of the important references for the governments, research institutions, civil society groups and international agencies, those have work and interest in the Himalayas. The Climate Himalaya team innovates on knowledge sharing, capacity building and climatic adaptation aspects in its focus countries like Bhutan, India, Nepal and Pakistan. Climate Himalaya’s thematic areas of work are mountain ecosystem, water, forest and livelihood. Read>>