When the subject of climate change is discussed, a peculiar view often emerges. This view tends to accept the business-as-usual scenario as an inevitable outcome of the economic system or simply as the human condition.
According to this perspective, the power of greed shapes and drives our capital markets, and it is this greed that has caused the global society to industrialize and has allowed the buildup of excessive levels of GHGs. In other words, a merciless capitalist spirit is at the root of our climate change problem, and addressing climate change requires the elimination of the capitalist system that underlies it.
Oddly this point of view can emerge from both the far left and the far right of the political spectrum. In light of this view, it takes an almost aikido-like response to initiate a different world view. On the one hand, such a response requires agreeing that greed will work its way into our economic system and will have both positive and negative consequences. Furthermore, the response requires a counterintuitive and perhaps risky acknowledgement that the solution to climate change actually depends on capitalism to pull us out of the quagmire.
The only alternative to invoking the capital markets is relying on governments and public finance to rebuild our global energy system. Relying on governments has its own downsides, however. One of these is whether governments and public finance can move quickly enough and at a scale large enough to make a difference. We know that governments have mounted wars in the past that have organized capital at unparalleled rates.
During World War II the United States mobilized nearly every aspect of our industrial capacity to build enough ships and tanks to subdue the rise of Nazism in Europe and to overcome the Japanese in the Pacific. So we shouldn’t dismiss public spending as a way to address climate change. The world spends about 4 percent of its global economic output on wars and military defense. But fighting wars is rarely sustainable, whereas efforts to spur the capital markets to address climate change can be.
The transition to a sustainable economy requires a different interpretation of what drives our capital markets. In spite of how greed may influence our capital markets, I don’t believe our global industry, spawned by our capital markets, is the product of greed. Capital markets are the product of an intense human desire to build and create new possibilities. Capital markets exist as a creative source to address fundamental human concerns and needs and to organize the talents and capital necessary to manifest innovative solutions.
Rather than avarice, our capital markets are an example of unprecedented human creativity. The creation of wealth is certainly a result of the process. But the maximization of wealth is more a measure of the capital markets’ success rather than their raison d’être. Regulatory policies play a role too. Regulations exist to make sure that markets operate efficiently. Regulatory policy is therefore the principle vehicle for stimulating the necessary social innovations to obtain global sustainability and encourage us to live within a limited environmental footprint.
Regulations are neither bad nor good, just as capital markets are neither bad nor good. But there is a difference between effective and ineffective regulations.
Take, for example, the transformation from horses to cars in the United States, which occurred more than a hundred years ago. The government regulated safety and environmental standards in the automobile industry, and industry complied ingeniously at every intersection. For example, cars have evolved from having a simple tailpipe to being equipped with catalytic converters.
Airbags, which are now standard in 100 percent of cars sold in the United States, hadn’t even been invented when I was born. The system succeeds when regulations achieve their policy goals. What makes capital markets work is that there seems to be no limit to the speed of money.
Since the turn of this century, international capital markets have risen quickly and global equity markets, in particular, have become increasingly easy to access. Day traders in New York City, or even in Des Moines, are able to move their risk capital from the London market to Hong Kong and back to London practically in a single day. Twenty-five years ago, this would have been impossible.
Flows of international capital were regulated and procedures were manual, whereas now all transactions are electronic and nearly instantaneous. Capital flows faster today, but not because of regulation or even deregulation. Capital flows faster because of technical innovation. Such innovation means that our regulatory bodies must respond even more quickly — because existing regulations become antiquated almost overnight and they must be regularly updated to remain effective. In order for capital markets to function efficiently, regulations need to keep pace.
Trade magazines of nearly every industry acknowledge that global sustainability is the new condition we must strive for and design our regulatory environment to achieve. To keep pace, they require global regulation and an effective, shared sustainability model. Otherwise, the system risks the potential of a worldwide breakdown.
Global markets are now linked with every regional market and can crash all at once, in one fell swoop. Oceans may separate nations, but they are certainly no longer a defining boundary for markets. So to achieve global sustainability, the global society must coordinate new regulations between and among nations to a degree never before imagined.
This article is excerpted from Thomas Stoner’s book Small Change, Big Gains: Reflections of an Energy Entrepreneur. The book demonstrates how is possible to build a stronger, more sustainable energy portfolio with realistic changes and approaches to renewable energy and investments while still allowing new companies to grow and prosper.
Thomas Stoner has 30 years of experience in the C-Suite, in the boardroom, and as an investor in renewable energy assets. He graduated from Hampshire College and the London School of Economics in the 1980s. Professionally, he helped lead three companies in the clean technology space, including one of the original CleanTech venture funds backed by international development banks. He has also led two publicly traded companies: Econergy International PLC, a renewable energy independent power producer (IPP) traded on the London AIM market; and Evergreen Energy, a clean coal technology company traded on the NYSE Arca Exchange. Over the course of his career, he has raised more than $300 million for global clean energy initiatives.
The opinions and perspective expressed in this article are those of the author and do not necessarily reflect those of ThomasNet News or its staff.