In addition to fuelling the euro crisis, current light-touch economic regulation is also causing a deep ecological crisis. Most political viewpoints do not perceive this debt crisis as they do the euro crisis, but they should. We are in all probability heading for an age of environmental catastrophe, specifically as concerns the climate. A good overview of the issue can be found in the widely cited article, “Global Warming’s Terrifying New Math”, written for Rolling Stone by Bill McKibben. He notes that, of the oil reserves in the hands of the energy companies, only one fifth can be allowed to be burned if we are to prevent the climate from heating up beyond critical limits.

However, decisive action is possible to prevent the threat to the economic system from the great market disturbance of uncontrolled climate change. Also, the scale of the required actions is moderate when compared, for instance, to dealing with the euro crisis.

The economy should, above all, have to account for externalities better: if two people trade with each other, selfishly, they rarely feel the need to assess the impacts of their exchange on the people around them. But for the general good to be realised, these impacts must always be considered and, ultimately, the polluter must pay, so that future pollution can be avoided. There is no incentive for markets to destroy the environment; for businesses, there is.

Businesses make choices that stress short-term gains. Unsustainable activity as such is not, of course, the aim of businesses or their owners, but the economic benefits that accrue to them are greater than the costs of pollution incurred in some indeterminate future.

These short-term gains eat away the foundations of the large and obvious solutions, such as international emissions trading. The market mechanism itself would nevertheless be an efficient way to balance out scarce resources: with comprehensive emissions trading there would be no need to worry about whether new oil shale finds would make battling climate change impossible. Burdens on the atmosphere would then be broken down into tradable quotas that would only be used where most needed.

A better functioning emissions trading system, one that would bypass business interests, would also bring fairness into how the costs are distributed. Energy-intensive industries would have to pay considerably more for their emissions quotas than they do now (often nothing!), whilst a citizen paying energy tax would pay less. An illustrative example is Finland’s system of car taxation, where reducing a ton of carbon dioxide with a lower-emitting car costs hundreds of euros, compared to current emissions trading, where reducing a ton of carbon dioxide in industry costs around 10 euros. Even though the tax works rather well in shifting the nation’s fleet of cars towards low emissions, from the point of view of reducing emissions, it is not the most efficient way.

It is natural, therefore, that the businesses that benefit from harming the environment and, for example, from imperfect emissions trading, are keen to continue with the current system as long as possible. If however, through regulation, fossil fuels were to become expensive, and so were left unused, the future of these businesses and their stock would be threatened. And this is what spurs business on to lobby so hard.

Harms should be reduced and “appropriate” solutions left unexplored

In political terms we need to concentrate on levelling the playing field and improving price regulation. This will also make it possible, in spite of the lobbyists, to exploit new technologies better.

For example, through the 2000s, renewable energy production has consistently grown faster than predicted. This is affected in part, of course, by the way forecasts are anchored in conventional energy solutions, but also by developments within the energy technology sector.

Investments in renewable energies are fragmented across many players and competing markets, which also means that they are progressing faster than it was possible to anticipate.
However, due to the short transition period, a solely technological revolution is insufficient – rather, states would be well advised to support solutions that reduce harms most efficiently regardless of how they are implemented. The renewable energy tariff in Germany, originally considered expensive, is moving things forward at a significant pace because it doesn’t concern the technology being used. Setting sufficient limits and giving up subsidies for fossil fuels would speed up progress even further.

How can citizens be included?

At the same time, improved regulation of the markets would steer individual consumption. If there were more efficient limits on damage, people as individuals would perceive them better than before, above all in the way the environmental harms associated with products would be reflected in their prices. As we noted above, a price must be put on people’s wishes to consume the environment’s limited resources.

The problem with taxing a particular harm as such is that the burden of such taxes tends fall disproportionately on poorer consumers. From an environmental perspective this is correct: the polluter pays. Yet it would not be acceptable that low earners should end up paying unreasonably, with taxes on environmental harm raising the relative price, for example, of groceries. As taxes aimed at consumption rise, income taxation should be reduced, particularly among lower earners and those who depend on benefits, who should be compensated for price rises. This is not in itself a novel approach, and it has been successfully argued by, for example, the Finnish Green Party.

New approaches to pricing harms are nevertheless needed. Good examples include the progressive electricity and meat taxes that we consider in our book titled “Avoin vihreä talous”, the Open Green Economy.

A progressive electricity tax would push towards lower consumption, particularly through affecting those whose behaviour is wasteful. In practical terms, this would succeed through a steadily increasing electricity tax, where everybody would be compensated through an equal proportion of their tax refund. In practice this would work like a small basic income, which a citizen could use to purchase, for instance, electricity. Those who use electricity sparingly would see savings, while the wasters’ increased electricity bill would usher them towards more responsible action.

From the perspective of sustainable consumption, many choices relate to food, and these choices can also be steered through taxes. To some extent this is already happening, for instance, in the way that in Finland confectionary and soft drinks are liable to a tax on harmful activities. Achieving environmental sustainability, however, would require moving towards low-carbon consumption, where a core element would be an environmental tax on meat and other foods embodying high levels of carbon. In this tax model food would be priced to include all of the carbon emissions that the production cycle of a kilogram of meat or cheese has caused. For the tax to steer behaviour it would need to be pitched higher than current emissions trading, somewhat like automobile tax. It makes sense to grasp the prices that the consumer sees specifically: it would hardly help to stockpile quantities of meat purchased from outside the taxed area.

The difficulties of shortening working hours

New approaches to pricing harms are nevertheless needed. Good examples include the progressive electricity and meat taxes that we consider in our book titled “Avoin vihreä talous”, the Open Green Economy.

When we want to steer consumption towards lower emissions, it is worth investigating the role of labour in the economic system as a whole. One of the core green principles for developing society as a whole, and consumption specifically, has been to highlight quality time at the expense of mass consumption. The idea remains a good one in principle, and easy to intuit, but its effects are limited and it is challenging to implement.

At the same time we have to note that further reduction in working hours does not suit the much admired Nordic welfare model, for instance: people have a tendency to use all possible services, from training to health care, even when working hours are not particularly long. If this happens by steering productivity growth into shortening working hours, there should be no problem. But in a rapidly ageing Europe with a weak dependency ratio, this would be difficult to realise in practice without dismantling the structures of the welfare state.

The most important thing would seem to be then to give people choice. If sufficient limits are imposed on polluting, it will naturally be easier to curtail working hours when one’s lifestyle is ecological and one need not spend income, even indirectly, on purchasing emission permits or carbon taxes.

In conclusion

Taking the environment seriously can go together with the idea of market mechanisms so long as the limits imposed by nature are recognised and breaking them is prevented. As new limits are being established it is necessary to ensure that taxes on harmful activities, for example, do not create an unreasonable burden on the poor. Through more ecological choices we can relax our lives and make them somewhat more comfortable by reducing our working hours a little. This kind of green vision is not just realistic, it will please many – and that is why it is politically feasible.


– On leisure time and work, Bertrand Russell: In Praise of Idleness
– On productivity and the difficulty of enhancing it, Tyler Cowen: The Great Stagnation
– On shortening working hours, Osmo Soininvaara: Vauraus ja aika
– On the green economy and economic limits, Heikki Sairanen ja Jaakko Stenhäll: Avoin vihreä talous

Beyond Growth/Degrowth
Beyond Growth/Degrowth

The focus of this edition is on the debate over economic growth - can economic growth continue? And if not, what alternatives might exist?

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