THERE is a growing consensus that, rather than an excuse for inaction on climate change, the financial crisis and accompanying economic slow-down represent an opportunity to expand investment in green technology and energy efficiency. This has been described as the ‘Green New Deal’ taking inspiration from F.D. Roosevelt’s New Deal that helped end the Great Depression in the United States.

Why do we suddenly have the capacity to spend money on green investments that we didn’t have before, isn’t there supposed to be a financial crisis?

The capacity for investment comes from the fact that the real economy or potential output of the real economy has not fallen. Instead what has happened is the mass illusion of the financial system, which helps inspire us to work, borrow and spend, is collapsing. We then stop ordering goods and services, and the economy ceases to operate at its full capacity.  This is then measured in rising unemployment.

Many would argue that a large proportion of spending over the last decade has been mis-directed with the plasma TV and patio crisis, whereby people preferred to spend money on plasma TVs and home improvement rather than health or reducing their environmental impact. The cost of addressing climate change was measured in the plasma TVs foregone.

Greed as a motivator and debt as a mechanism having taken a sound whipping in the last few months: it’s time for new directions. Japan attempted to address its decade long economic slump with massive infrastructure spending, concreting as far as the eye can see with roads to nowhere in every direction. This plan failed.

There is a need for the government to spend, or create mechanisms for individuals to spend; the fundamental question is how and on what. Retrofitting the economy for a cleaner more sustainable 21st century is the only rational solution.

I say only solution, because before the financial crisis the environmental limits to growth were becoming readily apparent. Clear examples of this were the skyrocketing price of oil which placed the ‘Big 3’ Detroit carmakers on death-row (the financial crisis is administering the lethal injection) and the Pollution Olympics in Beijing. Any attempt to continue carbon-intensive growth as ‘business as usual’ will lose traction very fast. We cannot build new highways unless there are fuel efficient vehicles to travel them.

Conversely, a massive investment in green technology will develop the technological and economic blueprint which enables not only the developed West to clean up its act, but also enables the emerging and developing world to raise their standard of living on a sustainable basis.  This then sets the stage for the next long growth phase.

The Economist magazine criticised the concept of a Green New Deal because government intervention distorts the market, resulting in inefficiency. They cite the German solar rebate as an example, because photovoltaic cells installed in Germany would be less efficient than those installed in sunnier countries, but the demand for Germany puts the price of solar panels up. While this has a simple logic, it misses the point that the objective of government support to solar and other renewables is to enable technology development and increasing manufacturing scale. It is the technology and manufacturing base that solves climate change, not a few solar panels in the desert.

While Professor Sinclair Davidson, speaking at the Tasmanian Economic Forum, may describe the Economist magazine as socialist, this probably says more about his outlook than the magazine. But there is a fundamental question as to how a Green New Deal should be implemented: using capitalist market forces and private ownership, or socialist central planning and state ownership?

Or perhaps some mixture of the two?

The establishment of a carbon trading system, following the Carbon Pollution Reduction Scheme model or some other system is a market based approach. These approaches have been criticised because they will not directly reduce carbon emissions. It is argued that given the urgency of the climate crisis what is needed is direct action.

Direct action, state owned and planned renewable or nuclear energy is an option, but the problem is one of timing and implementation. Governments, state and federal, struggle to implement major spending programs in a timely manner, even when they are straightforward, like road or bridge repair. The Tasmanian water reforms are substantially about creating a framework to fund improvements in regional water and sewerage infrastructure. This should be an excellent recession fighting opportunity, but can they spend significant sums of money before 2010 or 2011? The signs are not good.

Investment at the small scale is easier to implement and can be more effective. Examples include rebates for insulation, solar hot water and photovoltaic investments. Peter Garrett slashed the Federal Government’s support for photovoltaics by capping the availability to households earning less than $100,000. Given that high-earning households are likely to be the vanguard for implementing green technology, the decision was disastrous and can easily be reversed. Peter Garrett was concerned about a ‘bubble’ of photovoltaic investment, something the economy now needs.

At a local level rebates and soft-loans for green efficiency improvements can also be expanded relatively quickly, leading to more jobs for local installers. Business investment can be supported by expanding the MRETS renewable electricity scheme and implementing carbon trading in 2010 on schedule, while being generous in the compensation to households and business. Support for the car industry to develop greener cars is also in the right direction, though we may be well into recovery before the first new design arrives in showrooms.

These schemes are effectively a public-private partnership at the mico-level. The government foots the bill, because household debt is maxed out, but households and business coordinate the investment, because they are much faster than government.

Budget conservatives will complain at the cost of such programs. But this must be traded against the cost of unemployment and the loss of tax revenues if there is a real recession. There is also the comparative test, should the government throw money at families to buy Plasma TVs and councils to rebuild toilet blocks, or throw money at addressing the greenhouse threat. I know which one future generations would choose.

Governments could also fund it for free.

There is a global shortage of money, but money is an illusion; a convenient medium of exchange and record of account. The solution is to print more dollars, which can either be undertaken by Reserve Banks with an IOU from the government, or claimed as ‘seignorage’ revenue where governments owe nothing. The government spends the money incentivising green investment. These dollars then bolster bank, individual and company balance sheets, slowing the financial crisis while boosting demand.

Crisis solved, a planet protected.

Alex Wadsley
Investment at the small scale is easier to implement and can be more effective. Examples include rebates for insulation, solar hot water and photovoltaic investments. Peter Garrett slashed the Federal Government’s support for photovoltaics by capping the availability to households earning less than $100,000. Given that high-earning households are likely to be the vanguard for implementing green technology, the decision was disastrous and can easily be reversed. Peter Garrett was concerned about a ‘bubble’ of photovoltaic investment, something the economy now needs.  At a local level rebates and soft-loans for green efficiency improvements can also be expanded relatively quickly, leading to more jobs for local installers. Business investment can be supported by expanding the MRETS renewable electricity scheme and implementing carbon trading in 2010 on schedule, while being generous in the compensation to households and business. Support for the car industry to develop greener cars is also in the right direction, though we may be well into recovery before the first new design arrives in showrooms.