How We Must Reimagine Capitalism To Solve Climate Change

For the past century and well into the present, capitalism has gone unchecked. This has come at a severe cost to the planet.

While the burning of fossil fuels were seen as a way of progress & industry for the human race & the backbone of how we produced energy & traveled in the 18th century with the industrial revolution and all the way up to the 21st century, it has come at a huge cost with the consistent degradation of the planet.

Today we’re battling things like uncontrollable floods, extreme heat, rising sea levels, and extreme weather fluctuations & climate change has become a stark reality which we as a species, have to grapple with and address and combat.

Unchecked capitalism is the reason we’re in this mess in the first place.

Don’t get me wrong, I’m not against capitalism. Free markets and trade and having work & a purpose to define our lives & give us a ‘why’ to live for and stay productive are the aspects of capitalism at its best.

However, when it comes at a cost to the planet and the preservation of the Earth and nature for our future generations, there needs to be a positive trade-off and balance.

Speaking about climate change and how capitalism has got us here, climate activist, economist and professor Rebecca Henderson says:

Climate change is killing the cedars of Lebanon and the forests of the American West. And it’s not just the trees. Since 1998, extreme heat has killed more than 160,000 people, and unchecked climate change could kill millions more. How did we get here?

There are many reasons, of course, but one of the most important is that we let capitalism morph into something monstrous. I’m a huge fan of capitalism at its best. After all, I’m an economist and a business school professor. I think genuinely free and fair markets are one of the great inventions of the human race. But here’s the catch: markets only work their magic when prices reflect real costs. And right now, prices are badly out of whack. We’re letting the firms who sell fossil fuels, and indeed anyone who emits greenhouse gases, cause enormous damage for which they do not have to pay. And that is hardly fair.

The Cost Of Burning Fossil Fuels Per Dollar From An Economic Perspective

It’s well established at how damaging burning oil, gas and coal is to the planet. In 2022, we’ve got abounding means of producing clean energy solutions that this outdated means of producing energy should really be a thing of the past.

However, we’re still using fossil fuels for the bulk of our energy & transportation needs and it could take decades to completely displace them for good.

In 2020, more than a million acres burned in California, and massive floods put a third of Bangladesh under water & there have been other indicators of the severity of our blatant disregard of the the environment and the repercussions of greenhouse emissions as we begin the new year of 2022.

But what cost does this come at?

i.e. putting figures to the cost of burning fossil fuel as energy.

An analysis from an economic lens of comparing the price of burning $10 of coal, to its cost on the environment, suggests that the prices are considerably skewed.

Rebecca Henderson puts a value to the cost of burning a handful i.e $10 of coal by using data from studies by her economist colleagues.

She argues:

“Hundreds of studies have tried to put a number on these costs. My sense of this work, and here I’m relying on my colleagues in the School of Public Health and my friends in economics, is that generating 10 dollars’ worth of coal-fired electricity causes at least eight dollars’ worth of harm to human health and at least another eight dollars’ worth of climate damage and probably much more. So the true cost of this handful of coal? It’s not 10 dollars. It’s something more like 26.”

The Harsh Reality At The Moment

Energy companies through the years have had massive subsidization with the help of governments across world and they’ve used their heavily subsidized profits to categorically deny and undermine climate change & the science behind it in exchange for profit, while also lobbying politicians by fattening their pockets with hard cash.

This is the ugly side of unchecked capitalism that is casting its destructive shadow on the planet and giving us more environmental problems as one year turns to the next.

As Henderson explains:

“The hidden costs of doing things like burning oil and gas and eating beef are similarly enormous and just as unfair. Everyone who’s trying to build a clean economy has to compete with firms that are heavily subsidized by the destruction of our health and the degradation of our climate. This is not the capitalism I signed up for. This is not a market that is either free or fair. So … What do we do?

The “easy” answer is that governments should insist that anyone who emits greenhouse gases pay for the damage that they cause. However, at the moment, there’s not much sign that governments are up for this, partly because the fossil fuel companies have spent the last 20 years using their heavily subsidized profits to deny the reality of climate change and to shower the politicians, who should be regulating them, with money.”

“The truth is business is screwed if we don’t fix climate change. It’s going to be hard to make money when the great coastal cities are under water and millions of angry people are migrating north as the harvests fail. It’s going to be tough to keep free enterprise alive if most people believe the rich and the white are using it to trash the planet for their own benefit.”

What Can We Do? — A Possible Solution Of How Businesses Can Fix The Problem With Their Interests Intact

It’s about time that businesses and governments across the globe become part of the solution in the fight for resolving climate change. The awareness is increasing, but it’s far from a collective worldwide effort.

According to Rebecca Henderson, if businesses step up and fix the damage they’re doing by changing how they do business and governments join in by regulating it with suitable policies, capitalism can be at its best with the interests of all parties concerned and the environment firmly in place.

She explains:

“So here’s my crazy idea. I think business should step up. I think business should fix capitalism. I know. Some of you are probably thinking, “Fat chance.”

“But fixing this is squarely in the private sector’s interest.”

“Let me generalize. These are the four pillars of change: Build a business that can set the right price and still be profitable. Persuade your competitors to do the same thing. Make sure that investors understand there's money to be made. And push governments to put the right price into law so that bottom-feeders can't survive.”

An Example Of How This Idea Has Worked — Norsk Gjenvinning

Henderson takes the example of recycling company Norsk Gjenvinning, whose CEO named Erik Osmundsen is a friend of hers. She explains how he changed company policy to reduce emissions by billions of tons in the process of going green; how he faced hurdles and obstacles, lost customers, investors and employees, but as soon as he went public, people around the world began to step up and solve the crux of the problem.

She explains:

“So let me tell you what this looks like on the ground. My friend Erik Osmundsen left a cushy job in private equity to become the CEO of a garbage company. That sounds like a slightly odd idea. But Erik wanted to make a difference, and changing the way that trash is handled could reduce emissions by billions of tons. Right away, he ran into a massive problem: the industry was thoroughly corrupt. Firms were cutting costs by dumping waste illegally, the regulations were poorly enforced and the fines for violation were tiny.”

“Erik announced he was going to run clean and to raise prices to cover the costs of doing so. Many of his senior team thought he was crazy. Half of them quit. So did many of his customers. His competitors denounced him for bringing the industry into disrepute, and he started to receive personal threats. But corruption works best when it’s hidden.”

“As soon as Erik went public, people started to step up. A few customers were willing to pay more. His investors agreed that taking the high road could pay off. Those of his employees who remained loved the idea of taking a stand and found all kinds of legal ways to cut costs. Erik persuaded several of his competitors to join him in refusing to dispose of garbage illegally, and it got much tougher for regulators to stay on the sidelines. Today, Erik’s company, Norsk Gjenvinning, is one of the largest recycling companies in Scandinavia.”

The Way Forward — Reimagining Capitalism

While Erik’s story is a drop in an ocean, it still offers a sense of hope and a roadmap forward for capitalism to fix the mess it caused in the first place and keep every party’s interests intact, and more crucially, ensure that the planet is a priority.

By using this 4-step plan as a guideline, increasing awareness, and going public with their policies and intentions, we can together fix capitalism and it in turn, fix the devastation it has caused through the decades by running unchecked.

If companies around the world take the initiative and change their business models, voice their plans publicly, create more awareness and governments aid in implementing policies and regulations, we can together fix climate change while keeping capitalism intact and make markets and business truly fair.

She adds:

“I’m not telling you we’ve got this nailed. Things are pretty desperate. But there are thousands of businesspeople like Erik, and there are millions of people like us. And we are customers, employees, investors and citizens.”

“Instead of giving up on capitalism, let’s fix it by making sure that markets are truly fair and truly free, and that no one can dump garbage on us and walk away without paying for it. We have the resources and the technology to solve climate change. Together, we can save the trees and each other.”

There are many people around the world stepping up to solve the issue of climate change, as I’ve explained in an old article of mine about Tracking Worldwide Carbon Emissions Using Satellite Imaging & AI Computer Vision Algorithms.

The hope is that some companies take the initiative and begin, and the rest follow. In this way, we can create a movement of businesses around the world joining in and ushering a cleaner and greener approach to conducting their business while also remaining profitable.

This is the way we can reimagine capitalism to thrive and make sure the planet does too.

In her 7 minute TED Talk, Rebecca Henderson outlines her ideas with data, and examples of how if we reimagine capitalism, we can eradicate the old ways and usher in a more responsible way of conducting business with the planet as a priority.