Climate change and the environment - Social Policy Bonds

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Climate change and the environment

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The net negative impacts on human, animal and plant life of climate change – probably better termed climate breakdown[1] – are incalculable, massive and likely to be catastrophic for some populations. We are pretty sure, but not certain, that greenhouse gas emissions cause some, possibly most, of the changes in climate that we are experiencing.

We can be more certain about whether we really care about the threat of climate change. And the answer is a resounding: not really. Lots of portentous talk, high-level conferences, exhortations, subsidies for renewables (though not as many as for fossil fuels - see below), stirring rhetoric and doom-laden prognostications. There has been some progress, at the margins. But meaningful results? David Wallace-Wells tells it like it is:

The Kyoto Protocol achieved, practically, nothing; in the twenty years since, despite all of our climate advocacy and legislation and progress on green energy, we have produced more emissions than in the twenty years before.[2]

Recent headlines confirm this:

  • Faking it on climate change[3]

  • UK is failing to meet almost all of its climate action targets[4]

  • Accept people don’t, and may never, give a toss about climate change[5]

The billionaires people have spoken

‘People’, says that last headline, and it’s accurate. It's true that our political systems are so corrupted by and entwined with the ultra-rich that the long-term interests of ordinary people count for less than the short-term goals of billionaires and the biggest corporations. They and their lackeys in government are responsible for fossil fuel subsidies in the rich world estimated to be worth $160-200 billion[6] per annum, and in many countries billionaires exert outsize influence over policy. (In the US for example: How the Koch Brothers Are Killing Public Transit Projects Around the Country[7].) But, while we’d like to blame powerful vested interests for climate breakdown that threatens the lives of millions, that isn’t the whole story. It’s more like a cop-out than the complete answer.

The fact is that we have collectively chosen not to do anything significant about climate change. We’ve chosen quality and quantity of life in the short run, over quantity and quality of life in the longer term. We find it easy to do this, in my view, because:

  • 'Climate change' is too abstract. and

  • We focus too intensely on greenhouse gas emissions, whose effects aren't fully known, and whose reduction might or might not do anything significant to bring about a more benign climate at some indefinite future time.

My suggestion is that rather than address or pretend to address what we suspect, but don't know for certain and cannot prove, is the principal cause of climate change (greenhouse gases emissions), we should try to deal with environmental depredations, whether or not we think they are caused by climate change.

Limiting greenhouse gas emissions isn't happening and, the way we're going, is never going to happen. Even if the billionaires were to switch sides, most of us don't really want it to happen: the gilets jaunes protests in France tell us of resistance that will greet modest efforts to raise tax  levels on fossil fuels. The economic and political costs of such efforts are upfront and high; the benefits nebulous and long term. What we want, what we can understand, relate to, and identify with, are reductions in the more tangible environmental pathologies: flood, wildfire and other adverse climatic events, loss of biodiversity, loss of wilderness, pollution of the air and seas. We are more ready to pay taxes to help human, animals and plant life than we are to do something that might reduce the increase of some measure of global temperature some decades hence.

So I suggest that we stop trying to target greenhouse gas emissions and instead aim at explicitly trying to solve our most urgent environmental problems, including those that might be caused by climate change. Further, I suggest that we reward the outcomes we want to see, rather than the means that we think, with our current, limited knowledge, might achieve them.

My view is that we should try to solve our environmental problems however they are caused, rather than try to prevent climate change. The two are not mutually exclusive, as we shall see.

We need buy-in

What’s wrong with targeting greenhouse gas emissions?

  • We don’t really know what’s happening to the climate

  • We don’t really know what’s causing it

  • We don’t know whether trying to reduce greenhouse gas emissions will solve whatever the problem might be

  • We do know that targeting greenhouse gas emissions will have large upfront costs, and that any benefits will be way into the future, uncertain and, even on the best advice of the experts, tiny.

The science appears persuasive: that greenhouse gas emissions are changing the climate in ways that adversely affect human, plant and animal life. It’s less convincing about the effects of reducing these emissions. But the most relevant thing about the relationship between gas emissions and the climate is that it's too tenuous and abstract to generate buy-in. There have been no significant actions taken and there will be no significant actions taken because the relationship is too tenuous and abstract to generate buy-in. And buy-in is what we urgently need.

I am not suggesting that greenhouse gas emissions remain untargeted: only that any efforts to reduce them be made on the most current science and on the basis of whether doing so is most efficient way of achieving our environmental goals.

Professor Jem Bendell paints a cataclysmic picture:

The evidence before us suggests that we are set for disruptive and uncontrollable levels of climate change, bringing starvation, destruction, migration, disease, and war…[8]

My suggestion is that planetary well-being would be better enhanced by aiming explicitly to reduce such scourges -  starvation, destruction, disease and war - than by targeting (or, as now, talking about targeting),  greenhouse gas emissions.

Reduced starvation, disasters, disease and war are goals that are less abstract and more meaningful to ordinary people than climate change. By targeting them we’re more likely to generate buy-in from people, and buy-in is essential to bring about urgently needed policy changes that will create, at least in the short term, losers. All the evidence is that, after many years of exhortation, dire warnings, and extreme climatic events, there’s very little buy-in to the goal of reducing greenhouse gas emissions.

It’s not so difficult: it’s a simple re-framing of policy to aim for environmental goals that people can understand, rather than to aim for some target level of greenhouse gas emissions which is, at best, only a putative means of achieving some of them.

Environmental Policy Bonds

I propose that we reward the sustained achievement of such goals. Further, I propose that we do so in ways that channel market forces – the most efficient way we yet know of allocating society’s scarce resources – into the achievement of our environmental goals. My idea is that we do this is by issuing globally backed Environmental Policy Bonds targeting our biggest environmental challenges, regardless of their supposed source.

Say we want to halve some measure of environmental degradation. This could comprise a range of impacts, including those caused by adverse climatic events, all of which we would want to fall within an approved range for a sustained period. Such effects could be physical, biological, ecological or financial. Assume that a fixed number of Environmental Policy Bonds is issued redeemable for ten dollars each, but only when our environmental targets fall within an approved range, as certified by an independent scientific body. The bonds would be sold by open tender as at an auction; those who bid the highest price for the limited number of bonds will be successful in buying them. Thereafter, the bonds would be traded on the open market.

What will determine the price of the bonds? Most obviously the market's assessment of how likely, and when, the targeted level of environmental goals will be reached. Interest rates on alternative investments will also be a factor. The bonds might sell for a tiny fraction of their redemption value if people thought there were virtually no chance of our environmental goals being reached in their lifetime. People will differ in their valuation of the bonds, and their views will change as events occur that make achievement of the targeted objective a more or less distant prospect. The market price of the bonds, once issued, would be publicly quoted just like those of ordinary bonds or shares.

Let’s assume that bonds targeting starvation, have been issued, and that they sell for just one dollar. People, or institutions, now hold an asset that can appreciate by 900 percent once starvation has been reduced (or held) to some low level. The bondholders therefore have a strong interest in reaching that goal.

The most important purchasers of the bonds are likely to be those who finance initiatives aimed at achieving our targeted goal. They could use their own capital, or borrow on the strength of the redemption value of their bonds (or on the strength of any increase in the value of their bonds), to explore, research and implement projects they believe to be efficient and effective.

Currently, many such initiatives are taken by government or non-governmental bodies. However, there is a crucial difference: under a bond regime the self-interest of bondholders means they will have the incentive to seek out those ways of reducing starvation that will give them the best return on their outlay. Without government planning, bondholders will look for and finance the most cost-effective ways of achieving our targeted goal.

Importantly, the bonds would be tradeable, so that once somebody has done what they can to bring about the achievement of the targeted goal, and seen the value of the bondholding rise, they can sell to investors who believe they can most efficiently bring about further progress. Tradeability means we can target goals that can be reached only after a long period, even beyond the lifetime of holders, because people do not need to hold them till redemption to realise a profit.

The bonds would reward the achievement of verifiable, meaningful outcomes including such environmental goals as cleaner air, cleaner seas and loss of habitat. We could target for reduction those environmental ravages that we now attribute wholly or partly to climate change, including species loss and the impacts of adverse climatic events. The way the bonds would work means that investors would work out for themselves at all times, whether or not the best way of dealing with our environmental challenges is to tackle what we think are their root causes.

We need buy-in as much as we need diverse, adaptive approaches, and we need to think long term. Really long term. No single, top-down, one-size-fits-all policy will work. Environmental Policy Bonds can encourage the array of diverse, adaptive approaches that we need to begin to solve all our social and environmental problems.

For more about buy-in see this page.

© Ronnie Horesh, March 2019

[1] Climate change? Try catastrophic climate breakdown, George Monbiot, 27 September 2013

[2] The Uninhabitable Earth, David Wallace-Wells, February 2019

[3] Faking it on climate change, Bjorn Lomborg, ‘Project Syndicate, 19 February 2019

[4] UK is failing to meet almost all of its climate action targets, Michael Le Page, ‘New Scientist’, 19 February 2019

[5] Step one: accept people don’t, and may never, give a toss about climate change, Danyl Mclauchlan, ‘The Spinoff’, 11 October 2018

[6] OECD Companion to the Inventory of Support Measures for Fossil Fuels 2018, OECD, 21 February 2018

[7] How the Koch Brothers Are Killing Public Transit Projects Around the Country, Hiroko Tabuchi, ‘New York Times, 19 June 2018

[8] The Climate Change Paper So Depressing It's Sending People to Therapy, Zing Tsjeng, 27 February 2019

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