Street Smart Economics | Expecting market forces to address climate change is unrealistic and ineffective

We are in real trouble. Global carbon dioxide emissions (the main cause of global warming) continue to rise, hitting a new high in 2023. Last year was also the hottest in recorded history, and, year by year, more Americans feel the consequences. Yet, we have seen only modest attempts to bring emissions down.

Unfortunately, the U.S. government continues to believe, despite evidence to the contrary, that market forces will encourage a speedy transition away from fossil fuels. Instead, we need to organize in support of direct action to bring down energy use and emissions. We need nothing less than a system-wide transformation of our economy.

It’s getting hotter

Alarm bells are ringing in government circles.

“Heat is no longer a silent killer,” Xavier Becerra, U.S. Department of Health and Human Services secretary, said. “From coast-to-coast, communities are battling to keep people cool, safe and alive due to the growing impacts of the climate crisis.”

According to his agency, there were approximately 2,300 heat-related deaths in 2023, triple the annual average between 2004 and 2018. However, because only those with death certificates listing heat as the main cause of death are included, most researchers believe the actual count to be far higher.

And 2024 is shaping up to be another scorcher. Much of the country is suffering from unusually hot weather. In June, The Guardian reported “about 80% of the country’s population” were “experiencing a kind of heatwave not seen in decades, smashing records.”

The Pacific Northwest is no exception, with July temperatures soaring over 100 degrees in a number of Oregon cities. As an Oregon Public Broadcasting article pointed out, “The abnormally high temperatures, part of a multiyear warming trend in Oregon, are prompting concerns about health in a state where many homes lack air conditioning.”

Markets are not the answer

President Joe Biden has touted his administration’s efforts to reduce U.S. greenhouse gas emissions. At its core, his clean energy strategy can be summarized as follows: electrify as much of the economy as possible, as quickly as possible, using solar and wind power.

The Biden administration has used financial incentives and regulatory initiatives to push the economy in the desired direction, but market dynamics — the decline in the cost of renewal energy relative to that of fossil fuels — was always expected to be the main driver. That cost crossover happened some five years ago, yet fossil fuel use continues to grow.

U.S. crude oil production set a new record in 2023. Although renewable energy production has expanded significantly in recent years, fossil fuel use in electricity generation continues to grow; the share generated by natural gas hit a record high of 42.1% in 2023. Rather than replacing fossil fuels, solar and wind power are largely satisfying the steady increase in overall electricity demand.

The main reason lower solar and wind costs fails to speed the expected transition away from fossil fuels is that investors don’t find renewables an attractive investment. It’s about the money, as Brett Christophers, a professor of human geography, explained in a recent column in The Guardian.

“Bluntly stated, clean energy — developing and operating solar and windfarms, and selling the electricity they generate — simply isn’t a very attractive business,” Christophers wrote. “Returns are typically in the 5-8% range. Compare that with oil and gas production, where returns generally exceed 15%, and it is little wonder clean energy stocks have been falling while oil and gas shares outperform.”

Profitability, not prices, matters to CEOs and stockholders, and the profitability of fossil fuels is too good to pass up, no matter the climate threat.

It’s not too late to act

We must act quickly to reduce emissions. According to the United Nations’ climate chief we are on track for a “ruinously high” 4.86 degree temperature rise, far above the 2.7 degree target established by the Paris Climate Conference. Such a rise would likely mean “Two billion people would be pushed outside humanity’s ‘climate niche,’ i.e. the benign conditions in which the whole of civilization arose over the past 10,000 years,” climate experts told The Guardian.

We have no choice but to radically transform the way we live and work. The starting point for such a transformation must be a reduction in the exploration, production and use of fossil fuels in favor of clean energy sources like solar and wind. However, given the need to reduce overall emissions and resource exploitation, we cannot aim for a simple one-to-one replacement of energy sources. As beneficial as they may be, renewable energy sources also depend on critical raw materials that are limited in supply, and their extraction creates its own ecological problems, especially for those in the Global South.

Energy savings should come from reducing the production of ecologically destructive and socially less necessary goods and services, such as single-family mansions, giant sport utility vehicles, private jets, luxury cruises, fast fashion and the like. And because the U.S. Department of Defense is the single largest producer of greenhouse gases in the world, we should also reduce our military budget and activities around the globe.

The resulting savings will allow us to use the growing capacity to produce solar and wind energy to support a significant expansion in socially beneficial goods and services. Examples include a national health care system, a universal education system, an accessible and affordable program of public housing, an expanded public transportation system and support for regenerative agricultural practices.

After decades of unchallenged neoliberal policies, many people will understandably find it hard to imagine how such a transformation could be achieved. The challenges and tasks will be many.

Helpfully, we have the U.S. World War II conversion experience to demonstrate the feasibility of such a transformation. Despite the many differences in times and aims, there are some significant similarities in the challenges planners faced then and ones we are likely to face now. Most importantly, then as now, there was an urgent need for a system-wide economic conversion, a conversion resisted by many of the country’s most powerful business leaders.

Many corporations refused to invest to expand their capacity to produce needed goods. Overall private investment fell in value over the years 1941 to 1943. That last year, business investment was only 37% of its 1940 level.

The U.S. government succeeded in transforming the economy from civilian to military production only because it undertook the required spending, investing and planning. Military spending as a share of GDP rose from 1.6% in 1940 to 36.0% in 1944. That last year, federal purchases of goods for the military accounted for approximately one-half of all goods produced.

The economy was able to respond to the explosion in military spending because the government pursued an active and aggressive policy of targeted investment. In May 1940, the Congress created The Defense Production Corporation, or DPC, which had a blank check to finance the expansion of facilities deemed critical to the war mobilization. The DPC kept ownership of the new facilities it financed, but planned the construction with predetermined companies who were then allowed to manage them. The DPC alone financed and owned some one-third of all the plants and equipment built during the war.

The successful conversion also required detailed planning. For example, newly created government agencies worked to free resources for war production by selectively ordering the curtailment or outright suppression of production by many civilian industries. Other agencies were created to ensure an efficient allocation of resources. This included directly allocating critical metals and components among competing firms producing for the military.

The wartime conversion of the U.S. economy was a tumultuous affair, with many mistakes made. Yet, for all that, government policy succeeded in transforming the economy into the celebrated “arsenal of democracy.”

There is much we can learn from this wartime conversion experience. Among other things, it demonstrates the feasibility of a rapid, system-wide conversion. It also shows the critical importance of state planning, public financing and ownership, and state direction of economic activity in its achievement. And it alerts us to expect business resistance.

But having confidence that a transformation can be achieved is not the same as having the political strength to achieve it. We face enormous challenges in building the movement we need. Among them: weakened unions, popular distrust of the effectiveness of public planning and ownership, and weak ties among labor, environmental, and other key community organizations. Overcoming these challenges will require sustained conversations and organizing to strengthen the capacities of and the connections among our organizations and to develop a shared vision of the changes we need to make.

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