Capitalism in the face of climate policy – The disintegration of the old dogma that free markets controls everything optimally

Technological progress shapes our lives far more than many people realize. This shaping is essentially dependent on the profit opportunities associated with it, and these in turn on the market-based structures and competitive dynamics in our society. It is therefore not surprising that the influence of science on everyday human life began precisely when, in the early 19th century, a new economic system made possible the marriage of scientific and technological dynamism with innovative entrepreneurship and professional production management. Starting in England, this system developed to its first peak, allowing a hitherto unimagined economic productivity and economic creativity to unfold. We are talking about capitalism. It was only with capitalism that technological progress gained its incomparably strong social momentum, which continues to this day.

In the discussion about political and social (and not least also ethical) questions of technological progress, we must therefore inevitably also deal with our economic system. The heated discussion about the benefits and harms of the capitalist economic system today is characterized by the same contradictions as the ambivalence of technical progress itself: On the one hand, a massive gain in productivity due to the creation of ever newer technological resources and, based on this, an incomparable growth of – average – social prosperity (especially in industrialized countries), on the other hand again strongly growing social inequality, human – and ecological – exploitation, ethical indifference („profit before morals“), and in general immoderateness in the greed for growth. Especially in recent years, the negative sides of capitalism are once again increasingly showing their ugly face, especially in the face of the ecological indifference of so many powerful business leaders. So, it is no wonder that even beyond old left-wing revolutionary romanticisms there is again a stronger skepticism towards the capitalist economic system and – often accompanying it – also towards new technologies. In fact, there is a remarkable correlation between the political-economic rejection of our Western economic model and a pronounced skepticism about new scientific knowledge and corresponding technologies. Even in the heartland of capitalism, the U.S., one recognizes this skepticism in the new Biden administration, which is in the process of planning a huge public expenditure of money for an active climate policy.

On the other hand, on the side of the political right, one often recognizes an inconceivably naive belief that the combination of scientific and economic rationality alone, i.e., the combination of scientific-technological innovation and monetary capitalism, will lead us as if by itself to new paradises. But for all the strength of competitive creativity and the associated diversity of new ideas in a free market economy, which we have experienced so impressively over the last 150 years, there is no „invisible hand“ in the real world that will make everything work out and lead us to optimal solutions that are desirable from the point of view of all mankind. Rather, the solutions obtained are often optimal only for a certain (often local) group of people, completely ignoring significant broader values and important social realities.

The most important of these is the question of ecological balance. And here, unfortunately, capitalism has almost completely disregarded the climate for far too long. In fact, for almost 150 years, our capitalist system has largely ignored any environmental issues. Thus the very companies that were responsible for the greatest environmental pollution were often the most valuable in the world. More ecologically conscientious companies, on the other hand, have had difficulties. This is not least due to the fact that the time horizon of capitalism – based on that of capital investors – is a maximum of three to five years (the maximum values today mostly apply to private equity investors), while the necessary time horizon for defining appropriate measures against climate change is 30-50 years, i.e. ten times as long.

But it is precisely this short-termism in thinking and acting that is changing now – and this without yet attracting too much public attention. The reason for this lies not in any new market behavior, but in a new political framework for the markets. A study published in June 2020 by Imperial College London and the International Energy Agency analyzed stock market data from the last five and ten years in Germany, France, England and the USA. The result: returns on renewable energy investments have been substantial over the past five years. In Germany and France, this financial investment left fossil fuel investments far behind with returns of 178.2 percent. The latter actually lost money at -20.7 percent. In the UK, the ratio was 75.4 percent to 8.8 percent, and in the USA, 200.3 percent to 97.2 percent.

This dynamic is also reflected in the stock market value of the energy companies themselves. That of NextEra Energy, the largest U.S. renewable energy (wind and solar) company, overtook that of oil giant Exxon last year to become the most valuable energy company on the U.S. stock market. As recently as 2013, Exxon had been the most valuable publicly traded company in the world, but in less than seven years, the company had lost about two-thirds of its market value (meanwhile, NextEra gained nearly 300%). The situation is even more dramatic for the coal industry. The market capitalization of coal companies in the United States, reflected in the Dow Jones U.S. Coal Index, has plummeted by more than 99% (!) in 10 years, from a peak of 500 in 2011, to less than 5 in 2020, at which point (September 2020) the index was quietly tamped down by data provider S&P Global.

Another development in the same direction – and this hardly noticed more – is the price development of permits for companies to emit CO2 into the atmosphere in Europe. After years of the relevant allowances having been given away for next to nothing, real prices began to be charged for them in 2013. But it took five years before the surplus allowances, which had been given away before, were siphoned off by companies and their prices rose as desired. From 2018 to 2020 the price traded on the Leipzig exchange for the right to emit one ton of CO2 into the atmosphere then quintupled. In 2019 and 2020, it hovered between 25 and 30 euros, then rose to more than 32 euros at the end of 2020, to almost 40 euros in February 2021, and to almost 50 euros in May 2021.

As you can see, capitalism and energy sustainability can certainly be combined. The only thing that is needed is a functioning political framework. This contradicts the assumption long held by many economists who solely believed in capitalism that there could be a generic relationship between economic growth and ecological sustainability. Analogous to the (long since disproved) assumption of a correlation between economic growth and the disappearance of income inequalities, the so-called „Kuzner curve,“ according to this, the more economic growth progresses, the less climate-damaging substances would be blown into the atmosphere after a maximum climate impact has been exceeded. And indeed, the economic growth of some industrialized nations has begun to decouple from growth in the release of climate-damaging gases. In Germany, France, England and most other European industrialized countries, greenhouse gas emissions are actually falling even as the economy continues to grow. This is also the case in the USA, albeit to a lesser extent. But globally, we have not yet achieved more than a very weak plateau. And here, in view of the ecological damage that is already becoming apparent, time is running out.

Experience shows that all of this requires a lot of external political shaping, and that is precisely what has now begun. In December 2019, the European Commission adopted the „European Green Deal“: By 2050, net emissions of greenhouse gases are to be reduced to zero. This would make Europe the first climate-neutral continent. By 2030, in turn, CO2 emissions are to be reduced by 55 percent compared with the base year 1990. Just a few months after the EU Commission first announced its targets, China followed suit and announced its own. And U.S. President Joe Biden, who took office in January 2021, now also wants to bring his country quickly onto this course. So, the European initiative has recently become a global dynamic. And that is really very encouraging. But this does not have much to do with capitalism itself. It is rather the other way around: Capitalism is politically steered so that society moves in the desired direction, in this case toward a more climate-friendly economy. And just then, conversely, it is also possible to benefit greatly from the still very comprehensive and not infrequently promising dynamics of capitalism.

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