Environmental Stewardship to Propel Global Growth
Try as they may, more than seven years after the Global Financial Crisis, central bankers have not been able to resurrect previous levels of global growth and investment. Yellen, Kuroda, Draghi, and others have taken a multitude of unconventional measures to reignite aggregate demand, only to be held back by excessive debt burdens, fiscal headwinds, and market dynamics that continue to pose depressive threats.
Many influential voices have long touted that unconventional monetary stimuli experiences severely diminishing returns when not accompanied by fiscal stimulus and reformation. However, political gridlock in many developed economies has stalled any and all efforts to fight the lack of global demand from all fronts.
Many now believe that the famed “helicopter money” in the form of fiscal infrastructure investment is the solution to kick-start the global growth engine. But what type of infrastructure investments — and how much is needed?
The answer to that question comes in the form of environmentally sustainable infrastructure through the Paris Climate Agreement.
According to IMF and The World Bank, the global economy will require upwards of $90 trillion USD in infrastructure investment in the next 15 years to keep within the internationally agreed limit of a two-degree Celsius temperature rise.
Although this amount is more than twice the current stock of global public capital, this major expansion of investment is “critical to whether or not the world locks itself into a high- or low-carbon growth trajectory”. Moreover, the incremental cost of the most needed infrastructure investments over this time period, low-carbon climate resilient infrastructure, is only $4.1 trillion.
It’s comforting to see many countries take swift and cohesive action to address and ultimately reverse the unsustainable systems currently in place, however, this is nowhere near enough. Further action, including strict carbon pricing, fossil fuel subsidy reformation, the amendment of the Montreal Protocol to phasedown HFC’s, and the implementation of market-based measures to reduce international aviation and shipping emissions, must be taken in order to ensure that the goals set by the Paris Climate Agreement are achievable.
The main aim of the Paris Agreement is to limit and reduce carbon emissions, but this is just the beginning: In order to build a truly resilient and sustainable global economy, all nations must put aside their shortsighted differences and work together to achieve the ambitious goals laid out by our intergovernmental organizations.
The Pillars of Sustainability define the economy (physical capital) as a subsystem of society (human capital), which is a subsystem of the biosphere (natural capital). In order for all systems to function efficiently, we must ensure that they are built in a way that minimizes aggregate detrimental effects. To do this, we must arrange each system in a way that is not built on a self-serving foundation but on a foundation that serves the system in which it belongs.
The signing into force of the Paris Climate Agreement is the key starting point — not just on the sustainability front, but also on the global growth front. By leveraging the Agreement’s momentum and taking advantage of other market factors, such as oversupplied energy markets and historically low interest rates, we can attack depressed aggregate demand and dilapidated global infrastructure by reforming fossil fuel subsidies and investing in low-carbon technologies. Doing so we will kick-start the global growth engine while ensuring that we stay true to our commitments of building a more sustainable global economy.
