What’s the value of your future hippo?
My economics course is coming to an end soon and in the final lessons we are moving into territory which, for me, is really all that matters. We are looking at the economics of climate change.
Two things have really made me sit up and pay attention. The first is really an admission. Though I am a believer in human-caused climate crisis, it hasn’t always been this way. Some years ago, I found it hard to believe that humans, puny as we are in terms of the cosmos, could have such dramatic and far-reaching effects. Though politically aware, I did not read so much nor listen to so many points of view as I do today.
And even now, a climate activist of sorts, I am ashamed to realise that (until today) I had never read the core science that underpins the debate about the future of our planet. This text is the IPCC* Sixth Assessment Report, Working Group 1: The Physical Science Basis, published in 2021 (yes that recently!). As readers of my writings will know, I often skim things and the great news is that there is a summary for policymakers that is designed for skimmers. There are headlines you can expand if you want to understand more. But the stark facts are there, in bold type, and they are inescapable. I implore you to read it, even if just the 14 sentences in bold.
It is shockingly stark and, more than the abject terror that lurks beneath the surface of my thoughts on this subject, it drives me towards even more passionate action and advocacy than before. Now there is nowhere to hide from the truth.
*Intergovernmental Panel on Climate Change
Readers will also know that I struggle continuously with what seems to me to be the impossibility of the position held by many/most leaders of developed nations, multinational corporations and the world’s billionaires. Namely, that they do not seem to see the future that is currently our inevitable fate or, if they do see it, they don’t place any value on it.
And, thanks to my studies, it’s that word value that is the key. It has unlocked for me a new understanding of why their perspective is so different and why they don’t take the actions that to me, and millions of others, seem absolutely essential to our survival.
This concept is a maths/finance concept called the discount rate. I struggle a bit (completely) with the mathematical equations presented to me and skimming in this case is more akin to total blindness if I’m honest. But, the course leaders are exceptionally good at explaining things in ways that make sense. This is where the hippo comes in (I know you were waiting for that!).
The discount rate is your calculation of a future value of something; or, how valuable something in the future is to you, if it were happening today. This is really the basis of savings, investments and loans. If you have £1000 you can spend it (and have the pleasure of what £1000 can buy you) today or you can save/invest it based on the discount rate (interest) you expect to receive, ie, it will be worth more in the future (this of course does not take into account the impact of inflation which may mean your returns are less than you thought and you might have been better spending it).
In the context of the planet, you can take your £1000 and decide that it is better to invest it (perhaps by paying higher taxes) in a liveable future for your grandchildren. If you took this kind of decision, your discount rate would be low. It is worth more to you to see that money spent on future gains than it is to get some benefit today. Put another way, you are able to bring your future closer to you and make decisions accordingly.
The value, to you, of a planet with hippos living on it (or foxes, primroses, or children) is greater than one without.
If, on the other hand, you have a high discount rate, you might decide that you prefer to enjoy yourself today, putting off thoughts of the future or perhaps leaving it to others to think about.
My discount rate is low. I can see the future hippo (or lack of it) as if it were standing in front of me. I feel very deeply the pain of the earth as it gradually runs out of resources, the atmosphere heats up and species begin to die. I find it hard to see a future where economic (or more properly, financial) growth even occurs much less occurs in such a way as to avoid climate catastrophe. It doesn’t seem in any way plausible to me to imagine that by continuing as we are we can also imagine a happy and healthy future for our grandchildren and their children.
But — and this is my big breakthrough — I can see why, if you are wealthy, you might be able to imagine it’s possible to pay your way out of this version of the future. We have seen some of the super-rich investing in ways to leave this planet behind forever. This of course would be the ultimate ‘solution’ if the only grandchildren you can imagine are your own and you believe your wealth will secure them a wonderful future on Mars.
So how do people like this, those with a high discount rate, proceed through life without imagining, even for a moment, all of the world’s grandchildren? With such power and wealth, those people could change the direction we are travelling in and secure our beautiful home for all of our futures.
And the answer is that, for some unfathomable reason, they look at the planet simply as a resource. Something to invest in, or not. Something that can be valued in monetary terms. Something that is here to be exploited.
And in the UK, Prime Minister Rishi Sunak has just exemplified all that I have just learnt. He has claimed loud and clear that people cannot afford to pay for a better future.
We seem to have defaulted to an approach which will impose unacceptable costs on hard-pressed British families… I’m confident that we can adopt a more pragmatic, proportionate, and realistic approach to meeting Net Zero that eases the burdens on working people… Even the most committed advocates of Net Zero must recognise that if our solution is to force people to pay that kind of money support will collapse, and we’ll simply never get there.
Let’s just unpack these statements a little bit in the context of what I’ve learnt.
- “unacceptable costs” means he can’t risk being unpopular this close to an election and he doesn’t believe that enough people have a low discount rate (want their grandchildren to share their planet with hippos).
- “eases the burdens on working people” means the same really because of course he, with his vast wealth, could easily afford to invest now for a better future.
- “support will collapse” is the absolute crux of his argument. It is about whether investing in Net Zero can garner sufficient support, not whether it’s the right thing to do.
I don’t know what Sunak’s discount rate is. As an individual I imagine it will be high, because he really could afford to send his grandchildren to another planet in 100 years. As a prime minister it’s hard to say. He must know the evidence is overwhelming and therefore must have a reluctantly low discount rate. But he’s just not prepared to risk votes to save the future. The value he places on the future hippo is almost zero and his belief is that the majority of British people agree.
I don’t. Do you?
