THE CLIMATE ISSUE: WHO STANDS IN THE WAY OF CLIMATE JUSTICE? JUSTICE FOCUS VOLUME 11, NUMBER 3

EDITORIAL The newsletter of the tax justice network Climate Justice and Economic Justice 1 are the Same Fight

WHO STANDS IN THE WAY OF CLIMATE JUSTICE? FEATURES Black Zero Against the Climate 4 Peter Bofinger

The Wall Street Climate Consensus 7 Daniela Gabor

Surviving Democracy: Mitigating 10 CLIMATE JUSTICE AND ECONOMIC Climate Change in a Neoliberalised World Chien-Yi Lu

Carbon Can be Progressive: 12 JUSTICE ARE THE SAME FIGHT Myth-Busting and Mainstreaming Carbon Taxes editorial by The environmental movement urgently needs to make common cause Jacqueline Cottrell Nicholas Shaxson with those whose lives have become increasingly precarious over the NEWS IN BRIEF 15 last forty years. All of our lives depend on it.

he world is divided between those engineering our economies and our lives Many people think that the fight to protect who worry about the end of the to prevent potentially catastrophic global the world’s climate is separate from the Tworld and those who worry about heating. struggles to tackle inequality, oligarchy, or the end of the month, a French “Yellow Vest” racial and gender injustices. For example, protester said in 2018.1 That is a starting point According to the International Energy Agency, climate activists may favour carbon taxes even if such taxes may hit the poor hard for trying to understand how to pay for two the world needs $3.5 trillion in global energy- and have regressive economic effects, while emergencies: the huge costs of the unfolding sector investments every year until 2050, if we Guest Editor: James Henry campaigners for economic justice may oppose are to limit global temperature rises to 2.0 Managing Editor: Dan Hind economic shock of the Covid-19 lockdowns, carbon taxes for the same reason. This is a degrees centigrade.2 Contributing Editors: John Christensen & Nick Shaxson and the even bigger long term costs of re- dangerous delusion, for – as this edition of Design and layout: www.tabd.co.uk Tax Justice Focus shows – the two struggles Email: info(at)taxjustice.net 1 https://www.lemonde.fr/politique/article/2018/11/24/ are inseparable, and each will fail without the Published by the Tax Justice Network. gilets-jaunes-les-elites-parlent-de-fin-du-monde-quand- 2 https://www.iea.org/news/deep-energy-transformation- nous-on-parle-de-fin-du-mois_5387968_823448.html needed-by-2050-to-limit-rise-in-global-temperature other. This is for several reasons. © Tax Justice Network 2020 For free circulation, ISSN 1746-7691 SECOND QUARTER 2020, VOLUME 11 ISSUE 3 TAX JUSTICE FOCUS

“The world is divided between those who worry Part One of our edition on tax justice and the climate, published last month, provided about the end of the world and those who worry some answers: removing $400 billion in annual fossil fuel subsidies; transparency about the end of the month.” through new climate-friendly accounting standards; activism from groups like Extinction Rebellion; and a scheme to environmental threats, while also providing Neoliberalism, an organised programme auction carbon permits and redistribute the safe havens for fossil fuel wealth looted from to usurp democracy by replacing political proceeds equally to all citizens.5 the environment.3 decision-making with economic calculations, This edition, Part Two, considers the is the bedrock of the climate crisis, she obstacles to rapid change, and how to A second reason was articulated by the explains. Neoliberalism was always a strategy overcome them. Yellow Vest protesters in France, furious that that used deceit to undermine progressive ordinary folk are asked to pay new carbon Keynesian economic ideas, just as climate In our lead article Black Zero against the taxes while unaccountable elites engorge denialists have undermined climate science. Climate PETER BOFINGER, arguably themselves on state largesse. If the gigantic The trick has been to give people the Germany’s best known economist, kicks back costs of the carbon transition are shouldered appearance of empowerment through against a deadly German consensus known as by lower-income groups, their rage at being individual choice and freedom – but in the Black Zero: the idea that governments must Epidemics in the 19th century compelled the shafted – again – will create fertile ground process atomising and dividing them and always match spending with tax revenues and state to change in profound ways as citizens for demagogues and conspiracy theorists to thus dismantling and discrediting the idea of not borrow or run budget deficits. His article, insisted that the safety of the people was the highest law. We have yet to see what recruit them in their millions and overturn society, government and the common good. written for us just before the Covid-19 tranformations the current pandemic will the climate movement. This is already That common good includes the climate, of crisis erupted in Europe, unpacks the “corn impose. Much depends on how we respond in happening in the United States, Brazil, and course: any approach to tackle global heating economy” fallacies and misunderstandings the months ahead. elsewhere, and it is also a reason why the based on individual empowerment and that underpin Black Zero and shows why climate movement is struggling to emerge freedom will fail. states can and must now borrow (and use First, we face many of the same enemies, from what one of its leaders has called its central bank intervention) to pay for the transition.6 But German thinking has infected such as Charles Koch, Rupert Murdoch and “white, middle class ghetto.”4 So economic justice is not just a nice other powerful interests who have financed add-on to climate justice: we must the European Union through mechanisms both climate denialism and campaigns to Taiwanese academic and author CHIEN- join forces. This must not be a story of such as the Stability and Growth Pact, and persuade voters to cut taxes and deregulate YI LU outlines a third reason why the environmentalists against workers, or of now risks sabotaging the possibility of climate 7 our economies – with the Trumpian aim to two struggles are inseparable, in her poor nations against rich ones. It is a battle funding. override democracy and build oligarchic article for this edition of Tax Justice Focus. to organise to rebuild the common good, power at all costs. It is hardly surprising against the -using carbon elites 5 https://www.taxjustice.net/tax-justice-focus/ that their campaigns go together: according 3 https://www.lemonde.fr/blog/piketty/2019/06/11/ and economic elitists. There is no other way 6 https://www.ineteconomics.org/perspectives/ to the French economist , the-illusion-of-centrist-ecology/ to proceed. blog/modeling-the-financial-system-with-a-corn- economy-misleading-and-disastrous the richest 1% of the planet emit more 4 https://www.independent.co.uk/environment/ carbon than the poorest 50%. Meanwhile green-movement-must-escape-its-white-middle- 7 https://emmaclancy.com/2020/02/17/discipline-and- class-ghetto-says-friends-of-the-earth-chief- So: how can we pay for the climate punish-end-of-the-road-for-the-eus-stability-and- tax havens reduce states’ ability to address craig-10366564.html transition in a progressive way? growth-pact/

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“Neoliberalism was always a strategy that used seems unlikely to melt away with a V-shaped recovery, and a return to the status quo.11 deceit to undermine progressive Keynesian The time to push new ideas is NOW. economic ideas, just as climate denialists have The 18th Century political philosopher Edmund Burke summed up how to undermined climate science.” proceed: “When bad men combine the good must associate; else they will fall, If states cannot finance the climate This is an existential danger to us all. It is one by one, an unpitied sacrifice in a transition, then the financial sector will the climate version of the Finance Curse,9 contemptible struggle.” do it. and the subject of our next article, The Wall Street Climate Consensus by DANIELA If we do not unite climate justice with This would pose immense dangers, not just GABOR, a world expert on finance and economic justice, tax justice, racial justice because states can borrow to spend far shadow banking. The transition can be and gender justice, those worried about the more cheaply than private actors can, and financed in two ways, she writes. The first end of the month will become the enemies because states are accountable to citizens would follow a Green New Deal logic, of those worried about the end of the whereas financiers are not. with state-led green industrial policies and world. The result will be an environmental, monetary policies, and strong penalties for economic and political catastrophe. Financial sector players will also use an polluters.10 The other, status quo route, sees array of tried and tested mechanisms private actors providing the financing: they to shift the risks of investment onto the will harvest the rewards while states and public, and shift the rewards to themselves. taxpayers take on the risks, in a dangerous They specialise in creating and occupying game of “subsidised greenwashing.” She economic choke points through which outlines just how to confront the Wall vast sums must pass, from which they can Street Climate Consensus. milk great wealth that would otherwise be spent on the climate, or on softening the In the final article JACQUELINE economic blow of the transition (or of the COTTRELL explains how fossil fuel lobbying Covid-19 crisis). As former Bank of England has undermined the push for a regime Governor Mark Carney crowed earlier of carbon taxes and explores how this this year, the immense sums required to rearguard action by the worst people in the finance the climate transition “could turn an world can be defeated. existential risk into the greatest commercial Economic crisis is an opportunity for opportunity of our time.”8 deep-seated change. The Covid-19 crisis

8 https://www.bankofengland.co.uk/-/media/boe/files/ 9 https://financecurse.net speech/2020/the-road-to-glasgow-speech-by-mark- 11 https://www.theguardian.com/business/2020/apr/29/ carney.pdf?la=en&hash=DCA8689207770DCBBB17 10 https://diem25.org/category/green-new-deal-for- ten-reasons-why-greater-depression-for-the-2020s- 9CBADBE3296F7982FDF5 europe/ is-inevitable-covid

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BLACK ZERO AGAINST feature THE CLIMATE Peter Bofinger

The climate emergency requires massive public investments if we are to avoid catastrophic, civilisational, collapse. The irresistible logic of the Green New Deal is starting to collide with the adamantine obstinacy of the economic establishment. Peter Bofinger argues that one of them will have to give.

o take climate change seriously, we most. When French President Emmanuel must completely transform how we Macron tried to impose new fuel taxes in Tgenerate, transmit and store energy. 2018, protests by the Gilets Jaunes (or Yellow We need to change the ways in which Vests) erupted on French streets, eventually people and things move around. We must forcing him to reverse course. The way retrofit and refurbish our homes and offices around these potentially insurmountable and public buildings, to make them friendlier political difficulties is to return the proceeds to the climate. As Jeremy Rifkin has rightly of carbon taxes (or the revenues from said, we need a Third Industrial Revolution.1 carbon trading schemes, as Prof. Jim Boyce argues in the previous edition of Tax Justice This raises a big question. How can we pay Focus) directly and equally to each citizen, as for it? ‘carbon dividends’. So if such schemes are put in place, the revenues will likely have to To raise finance on the enormous scale flow back to the population, instead of being required, only a few options are possible. invested in green projects. Wealth taxes and higher corporate taxes can contribute, but it The first could be to tax carbon. But the is unrealistic to rely on them to raise funds Black Zero: a fiscal orthodoxy from which nothing can escape. big problem here is that this will tend to at the vast scales required. make fuel more expensive, which will in turn tend to hurt poorer sections of society the Could we finance a third industrial “In Germany there is a broad consensus that, while revolution through public-private 1 Jeremy Rifkin, The Third Industrial Revolution: How climate change is important, Black Zero is much more Lateral Power is Transforming Energy, the Economy, and partnerships, where financial institutions the World (New York, 2011). raise the funds to finance green projects? important.”

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“There is an obstacle. That obstacle is a mindset, a deficit, this reduces private savings and Expenditures for the climate private investment. The author does not programme which says that governments must not borrow, they qualify this in any way in this core text book. Expenditures must not add to the national debt, and they must not Expenditures minus revenues But this argument is completely wrong. spend more than they receive in revenue.” from certificates It rests on the outdated classical logic 0.5 of a corn economy. The idea is that if a household saves corn, and the government This may help in some situations, but And here is the crux of the current problem 0.4 governments can generally borrow so much facing Europe. If Black Zero says you cannot grabs some of that corn, then there is less corn to plant or to eat. That may be true more cheaply than private sector actors can, borrow to invest, then we cannot pay for for a household that saves corn. But it is 0.3 so this is an extremely expensive option. a credible green transformation, at least untrue if there is a financial system. The (Elsewhere in this edition, Prof. Daniela Gabor without savage, economy-damaging cuts government does not absorb someone else’s 0.2 raises additional warnings about relying heavily elsewhere. money when it borrows and spends. As John on private finance.) Yet in Germany there is a broad consensus Maynard Keynes explained, you don’t have to 0.1 that, while climate change is important, Black consume less to get financing: it comes from The only other solution that is big Zero is much more important. We need banks or from capital markets. The financial enough to address the challenge is for 0 Black Zero, the thinking goes, to protect our system creates money. And when the governments to borrow to pay for the 2020 2021 2022 2023 children and our grandchildren from large government borrows it spends the money green transformation. Interest rates are public debts. Black Zero first, climate second. into the economy immediately. (This idea is your debt as a share of your economy. And at historically low rates – bonds issued And Germany is the most powerful country also embedded in Modern Monetary Theory, if you can borrow at negative interest rates by some governments currently enjoy in Europe – so this way of thinking suffuses by the way.) – as you can now – this equation becomes 2 negative yields. There is no sign of inflation, European policy-making. even more attractive. Not only that, Another related theory, known as Ricardian and ample room for borrowing. So in this government bonds are safe assets: people in Where does this bias against deficits come Equivalence, says that the government is like environment, government borrowing is the financial sector right now are worrying from? In Germany there are historical a household, and if it borrows today it must by far the best way to pay for the green that there are not enough safe assets. To cap reasons for its existence: old memories of repay it eventually through higher taxes in transformation. it all, there is high demand for green bonds. hyper-inflation, and more. But in fact, it is future years. So, this theory goes, it is kindest taught in standard economics textbooks to our children to reduce government debt But there is an obstacle. That obstacle is The money for a green transformation is around the world, and a generation or more eventually to zero. a mindset, which says that governments there for the taking. Yet this anti-borrowing must not borrow, they must not add to of economists has fallen under its spell. But again, this makes no sense. If you can obsession has been embedded into German the national debt, and they must not spend For instance, in his popular book The borrow money at a one percent annual and European institutions for decades. For more than they receive in revenue. Budget Principles of Economics, Greg Mankiw says interest rate, for example, and invest the example, in the 1992 Maastricht Treaty deficits must be zero. We Germans call this that public debt ’crowds out’ private debt. proceeds in a project that will yield four that established the European Union it was Schwarze Null, or Black Zero. That is in the main introductory text percent returns, your economy – and decided that governments should bring their that millions of students have read, and likely your children – will be better off. The debts down to or below 60 percent of GDP. 2 ‘German Rates and Bonds, Bloomberg, Accessed 3 March, 2020, https://www.bloomberg.com/markets/ it’s presented as a fact of life: whenever a ensuing growth of your economy means that But 60 percent is a totally arbitrary number! rates-bonds/government-bonds/germany government increases its debt and runs this productive borrowing could also reduce A doctor who tried to treat a patient on

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Fiscal balances: Germany and China Renewable energy capacity investment “We could finance the European GND, with plenty (% of GDP) (2010-1/2019) US$bn left over for other spending priorities, and without even increasing European debt levels.”

for other spending priorities, and without The second obstacle is Germany. The even increasing European debt levels. (And mindset on debt in Germany is rigid, even if even if we did increase the debt, it would some economists are at last starting to think likely harm neither us nor future generations differently. This is the real constraint on anyway.) financing the Green New Deal. such a basis would be sued. It inflicts pain. Public debt is a bit like drinking. Excessive We could increase borrowing in several The money is there. The Golden Rule has If a debt limit means you spend less on the drinking is obviously bad. So what is the ways. One would be to exclude green never been more appropriate than today, things that matter, then it is almost criminal. right amount? investments from the European Stability when we have such low interest rates, and and Growth Pact, which forces European even negative rates. Almost nothing can go Germany’s climate package approved last A good way to decide is to avoid textbook governments to curb deficits and borrowing. wrong if we borrow more to finance this December is another case in point.3 It theories and to follow the ‘Golden Rule’ Another way is to issue Euro-bonds with productive investment. says that we do not want to tax carbon for . If governments make joint liability, justified by the fact that the immediately: we can wait until 2021. If you investments from which future generations climate isn’t a national issue but a European If not now, when? subtract revenues from trading carbon benefit – as with green investments – (and global) one. A third way, suggested certificates, Germany envisages spending just why should it pay for those from current by Paul de Grauwe, is for the European Peter Bofinger is a Professor of Monetary and 0.2 to 0.3 percent of GDP. This is peanuts. It revenues? And green investments can be Investment Bank to issue bonds to finance International Economics at the University of will not tackle the climate crisis effectively. highly productive: if we retrofit the whole green investments, and for the European Würzburg, and was a member of Germany’s housing stock for energy efficiency, for Central Bank to then purchase these five-strong Council of Economic Experts from China, by contrast, has been running double instance, there can be major energy savings, bonds as part of its long-term asset-buying 2004-2019. This article was adapted from a digit deficits for years (if you include national potentially making these investments very programme.4 talk by Professor Bofinger at the University of and provincial government budgets). It has profitable in economic terms. Texas in Austin’s LBJ School of Public Affairs. The borrowed enormous sums, and spent more I only see two potential constraints here. full talk is available on YouTube.5 on renewable energy in the past decade There is more good news here. The Euro One is labour: massive green infrastructure than the United States, Japan and Germany area could stabilise its current debt to investment requires a lot of labour that Peter Bofinger approved this draft before the combined, while enjoying large economic GDP ratio at around 90 percent, while cannot be done by robots. But with COVID-19 outbreak. growth at the same time. Especially for large running a 2.7 percent fiscal deficit, assuming widespread automation and digitalisation economies, there are almost no limits to the a reasonable nominal GDP growth rate of threatening many jobs, job creation is likely deficits that countries can run. three percent per year. People are talking to be highly positive for Europe. about a Green New Deal (GND) requiring 3 ‘Federal Climate Change Act’, Federal Ministry for €150-200 billion per year, which is just 5 Peter Bofinger, ‘What are the Constraints for a the Environment, Nature Conservation and Nuclear 1.3–1.7 percent of GDP. So we could finance 4 Paul de Grauwe, ‘Green Money without Inflation’, Green New Deal? Keynote, The LBJ School of Public Safety, 13 December, 2019, https://www.bmu.de/en/ Social Europe, 19 March, 2019, https://www. Affairs, University of Texas at Austin, https://www. law/federal-climate-change-act/ the European GND, with plenty left over socialeurope.eu/green-money-without-inflation youtube.com/watch?v=iaEPj8W1n2k

6 SECOND QUARTER 2020, VOLUME 11 ISSUE 3 TAX JUSTICE FOCUS THE WALL STREET feature CLIMATE CONSENSUS Daniela Gabor

Wall Street and the City of London are finally starting to take climate change seriously, as a profit centre at least. The talk is of leveraging private sector investment to fund a green transition. But the reality is a plan to extract yet more wealth from the rest of society while delaying real change.

he transition to a low carbon In response, a second, status-quo option economy can be organised in two is rapidly emerging from the financial Tdistinctive ways. The first way, widely sector. Let’s call it the Wall Street Climate known as the Green New Deal, outlines a Consensus. It promises that, with the right radical program of ecological and economic nudging, financial capitalism can deliver transformation led by the state. This involves a low-carbon transition without radical massive investments in low-carbon activities political or institutional changes. – green industrial policies backed by green fiscal and monetary policies - while ensuring The WSCC grows out of recent changes in that decarbonisation happens in a just international development discourse, as for manner. instance promoted by the World Bank in its “Maximising Finance for Development” partnerships in these sectors and deeper privatise gains for finance and push Critically, this calls for demolishing the agenda, whose mantra is “leveraging private local capital markets (or, as the World Bank losses onto low-income governments and political order of financial capitalism: undoing capital for development”. It promises puts it in a slick video, “to help private the poor. its ideological aversion to fiscal activism and institutional investors $12 trillion in “market finance tap into developing markets.”) They state intervention, its commitment to the opportunities” in transport, infrastructure, Now, along similar lines, carbon financiers are pushing risky and expensive ‘shadow ‘independence’ of central banks, and to the health, welfare, and education, to create are increasingly seeing the climate crisis not banking’ practices onto poorer countries, political power of carbon financiers. new investable assets via public-private as a threat, but as an opportunity to make likely to encourage privatisation and usher high profits, via “subsidised greenwashing.” in long-term austerity, ultimately threatening The idea is that states will subsidise and “The Wall Street Financial Consensus promises that, with the progress on the SDGs. Under this protect finance from climate risks. This is a consensus, nation states are supposed to right nudging, financial capitalism can deliver a low-carbon great opportunity for finance – and poses protect the financial sector from the risks of great dangers to the wider public and to transition without radical political or institutional changes.” investing in developing markets. This would the environment.

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Private ESG frameworks are fertile terrain for greenwashing. For one thing, the various different frameworks offer confusing2 and conflicting assessments of environmental performance, making it easier for borrowers to mislead investors about the greenness of the assets they purchase. For example, in February 2019 the ESG index run by MSCI, a big ratings agency, contained JP Morgan Chase in its top 10 constituents – in the Source: World Bank video same year that the bank was ranked (by the Rainforest Action Network) as the biggest Source: MSCI The Wall Street Climate Consensus involves financier of fossil fuels. a two-step strategy to promote the creation of apparently ‘green’ asset classes, while also The multiplicity of private ESG frameworks preventing the state from getting too heavily also allows investors to shop around for the involved in reducing carbon-intensive activities. ESG ratings most favourable to themselves – and there is a wide divergence, allowing Step 1: Promote metrics plenty of choice. (At one point, for instance, and “taxonomies” to enable the FTSE’s ESG scored the car company greenwashing Tesla at the bottom of its global auto The Wall Street Climate Consensus sees it ESG ratings, while MSCI ranked it as the as essential to define metrics and standards best.)3 Making matters worse, ESG rating that assess the environmental performance of companies face perverse incentives to award economic activities and companies – and thus Source: Rainforest Action Network, Fossil Fuel Finance Report card, 2019 high ratings to firms. of the “green-ness” of loans and securities that finance them. Strategically, they are For these reasons public ratings, by contrast, substantial contribution to at least one of pushing for public and private taxonomies are potentially more effective than private (classification systems) to allow a broad six environmental objectives, and which ratings. However, carbon financiers have been 4 interpretations of what ‘green’ means. cause no significant harm to the others, successfully lobbying to water down one of using quantitative thresholds.5 But after ELSEWHERE IN The most popular approach, pioneered the main public classification systems, the THIS EDITION, by the private sector, relies on private European Commission’s Sustainable Finance 4 These are: Climate Change Mitigation; Climate Peter Bofinger outlines how Environment, Social and Governance taxonomy. Originally, it identified “sustainable” Change Adaptation; Sustainable Use and Protection of Water and Marine Resources; Transition to necessary public borrowing (ESG) ratings, to evaluate companies economic activities as those that make a and governments. Private ESG ratings are a Circular Economy; Pollution Prevention and is for tackling the challenges Control; Protection and Restoration of Biodiversity expanding fast, and are expected to apply to 2 Moret, J. (2017). ‘An integrated approach to managing and Ecosystems. See more https://ec.europa.eu/ on the scale that is required. half of some $69 trillion assets managed in ESG risks and opportunities’, Franklin Templeton, 1 commission/presscorner/detail/en/ip_19_6793 1 April 2017. the US by 2025. 5 The Technical Expert Group is in the process of 3 Financial Times (2018). ‘Lies, damned lies and ESG identifying the list of activities and the attending 1 https://www.ft.com/content/cad307d6-583a-11ea- rating methodologies’, 6 December 2018. quantitative standards across the six objectives. a528-dd0f971febbc

8 SECOND QUARTER 2020, VOLUME 11 ISSUE 3 TAX JUSTICE FOCUS heavy lobbying, the EU taxonomy has now holding green assets. Central banks, which are “Rapid decarbonisation can only happen if central banks and regulators expanded this to three separate categories: pioneers in the policy world in the climate convert to penalising brown rather than subsidising green, and use a 6 7 sustainable, “enabling” and “transition” change fight because of the financial-stability credible definition of brown that minimises greenwashing.” activities. The two extra categories are implications of extreme climate events, are supposed to encourage high-emitting also considering preferential treatment of For instance, Mark Carney’s speech for the the transformative power of green companies to shift from ‘brown’ (polluting) green securities in their monetary policy COP26 hosted by the UK, and the COP26 macroeconomic policies. This involves activities to ‘green’ ones, by ensuring that operations (in their so-called “collateral private finance strategy, framed in the key of massive public investments in green sectors enough financing is available. But in reality they frameworks”). These may turn out to be very the Wall Street Climate Consensus, envisages financed via ‘green’ coordination between open the door to greenwashing by introducing expensive for states and the wider public. a “3 R” approach to leverage private finance fiscal and monetary policies. It should also new complexities in setting and monitoring the for the climate fight: mandatory Reporting include green safety nets to ensure a just quantitative thresholds, and also by restricting This nudging for green finance also seems of climate risks, nudge private finance to transition, one that does not put the burden the scope for identifying “brown” (or polluting) to be accompanied by a low appetite improve climate Risk management via stress of decarbonisation on poor people. for targeting “brown” finance, even activities. tests, and provide a better picture of Return though penalties (via tougher regulatory opportunities from the transition to net zero, Furthermore, should governments fail to Step 2: Subsidies for “green” requirements or via certain central bank by moving from problematic ESG approaches to secure the cooperation of central banks for products without penalties operations) could rapidly accelerate the encourage investments in 50 shades of green.8 green macroeconomic policies, they could for brown decarbonisation of the financial system, introduce a Green Financial Transaction Tax The financiers’ push to shape public and and shift capital flows away from polluting While the nods to mandatory reporting and on brown assets. This would be calibrated private classifications systems is not only activities towards greener ones. ESG weaknesses are commendable steps to (a) target brown assets and (b) remain in about greenwashing. It is also about boosting forward, the COP26 private finance strategy place until an adequately brown-penalising The success of carbon financiers in opposing profits, by channelling the growing political falls short on the truly transformative framework is wired into the operations “brown penalties” is partly a result of a will to address the climate crisis into measures such as brown penalties or greening of central banks and broader regulatory long-running de-facto alliance between subsidies for green assets. For example, the the operations of central banks. frameworks. Together with a , this private financial sector players and central European Commission is considering relaxing would ensure adequate financing for green banks. The latter invoke “transitions risks” capital requirements for financial institutions Make no mistake: the Wall Street Climate public investments while simultaneously to justify an incremental, green-subsidising Consensus will not turbocharge the climate re-orienting private capital towards private 6 Enabling activities are defined as those activities approach, in line with what the Wall Street agenda. It is designed to protect the status quo green investments. that enable other activities to make a substantial Climate Consensus wants. When they say of financial globalisation. contribution to one or more of the objectives, and Daniela Gabor is Professor of Economics where that activity: i) does not lead to a lock-in of “transition risks”, what they mean is that assets that undermine long-term environmental goals, strictly regulating and curbing brown finance Rapid decarbonisation can only happen if and Macro-Finance at the University of West considering the economic lifetime of those assets; might result in stranded carbon assets which central banks and regulators convert to England. She blogs at criticalfinance.org and ii) has a substantial positive environmental impact penalising brown rather than subsidising based on life-cycle considerations. pose risks to financial stability. Although green, and use a credible definition of This article was written before the COVID-19 7 Transition activities are defined as those ‘activities for central banks do not have the conceptual which there are no technologically and economically tools to adequately capture the mechanisms brown that minimises greenwashing. And outbreak. feasible low-carbon alternatives, but that support through which transitions risks may morph states everywhere must take seriously the transition to a climate-neutral economy in a manner that is consistent with a pathway to limit the into financial stability risks, their emphasis on temperature increase to 1.5 degrees Celsius above transition risks renders them critical allies for 8 https://www.bankofengland.co.uk/-/media/boe/files/ pre-industrial levels, for example by phasing out speech/2020/the-road-to-glasgow-speech-by-mark- greenhouse gas emissions.’ See https://ec.europa.eu/ carbon financiers in the construction of the carney.pdf?la=en&hash=DCA8689207770DCBBB179 commission/presscorner/detail/en/QANDA_19_6804 Wall Street Climate Consensus. CBADBE3296F7982FDF5

9 SECOND QUARTER 2020, VOLUME 11 ISSUE 3 TAX JUSTICE FOCUS SURVIVING DEMOCRACY – MITIGATING CLIMATE CHANGE IN A feature NEOLIBERALISED WORLD Chien-Yi Lu Neoliberalism insists that only individuals in free markets can be trusted to “The great ‘debate’ between make wise decisions. It is a rejection of politics that continues to entrance the Hayek and Keynes was not a political class. If we do not break its grip soon it will be the death of us all. clash in the free competition of ideas, but instead akin to n their book, Merchants of Doubt—How transformed the way economics was studied the ‘debate’ between climate A Handful of Scientists Obscured the and taught, neoliberals then moved to deniers and genuine climate Truth on Issues from Tobacco Smoke to colonise neighbouring disciplines. I scientists.” Global Warming, Naomi Oreskes and Erik Conway laid bare the “Tobacco Strategy” However, this is not just a case of different to undermine a scientific consensus by “tobacco strategies” being deployed in creating doubt and controversy. This strategy different areas. It is doubtful that climate and freedom of choice. The “public choice” has been copied and successfully applied denialism could have happened had the revolution led by neoliberal economists Where all the trouble started: Trygve Hoff and Ludwig in an array of industries, from asbestos to economic counter-revolution against took “methodological individualism” as the von Mises at the first meeting of the Mont Pelerin Society in Switzerland in 1947. fossil fuels, especially in the climate denial Keynesianism never taken place to shape the dominant approach — even the implicit enterprise which has ridiculed, distorted, and collective consciousness in a way that was assumption — for understanding politics. undermined honest climate science. extremely susceptible to denialism. And the This approach took the “rational” (utilitarian, problem neoliberalism poses to the climate calculating, self-interest maximising) stealthy effort to undercut, bypass and Readers familiar with the rise of is broader than this. individual — as opposed to the community, override democracy, under the appearance neoliberalism might be struck by a feeling society, or the commons — as the starting of benefiting all individuals. It is, at heart, a of déjà vu. An army of what the neoliberal To understand how neoliberalism has point of inquiry. deceit. The great “debate” between Hayek theorist Friedrich Hayek called “second- damaged the fight against climate change, and Keynes was not a clash in the free hand dealers in ideas” – corporate funders, it is necessary to understand what it is. This shift in thinking came at the expense competition of ideas, but instead akin to exclusive clubs like the Mont Pelerin In my book I define neoliberalism as the of meaningful participation at abstract the “debate” between climate deniers and art (as in “con artist”) of exclusion through Society, research institutes, and think tanks and higher levels, where decisions about genuine climate scientists. – worked together to undermine and inclusion, with the upward redistribution of distribution and wider society are eventually replace Keynesian economic ideas power and wealth as its goal. The “inclusion” concerned. That is the exclusion part: Neoliberals needed the myth that the with newly-invented theories. And, having part is all about prioritising the individual, neoliberalism represents an organised but market was self-regulating in fair and

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“The EU Emissions Trading System (ETS), a system weak exclusively to the needs of transnational corporations, with the power to override on cutting emissions but strong on transferring wealth national executive, legislative, and judicial upward toward big polluters, emerged as the EU’s flagship decisions. It not only removes market climate policy after elites steeped in the neoliberal world risks for reckless anti-climate investments, punishes life- and planet-saving legislations, view successfully sabotaged a legislative proposal for a but also deters governments from Union-wide carbon tax.” contemplating necessary mitigating measures for fear of being sued by foreign investors at ISDS tribunals. impartial ways, in order to be able to conceal key figure in the establishment of the EU The root cause of the climate emergency the reality that large corporations were rising and a co-founder of the powerful European is not the burning of fossil fuels but the not only above the market, but also above Roundtable of Industrialists, a permanent success of global elites in undercutting democracy, with the state playing an active elite network representing large European democracy and building a global structure enabling role. (I call this SCAMD – States multinationals which has played a formal role whose inner logic is the upward and Corporations sitting above Markets and engaging with the European Commission concentration of wealth. Democracy.) If corporate activity is placed since 1983. above and beyond democracy, then citizens The more widely this is recognised, the The Treaty of Maastricht functions, in part, and leaders who want to tackle the climate more chances we will have in tackling or as a system of locks and bolts protecting the crisis do not have the power to do so. surviving the climate emergency. neoliberal order from democracy. Honest, Examples of SCAMD abound. The extent of timely, and effective climate mitigation Chien-Yi Lu is an associate research fellow corporate monopoly in the United States is profoundly contradicts this unstated at the Institute of European and American purpose. For example, the EU Emissions by now widely accepted. Across the Atlantic, Studies at Academia Sinica, Taipei, Taiwan. She is Trading System (ETS), a system weak on the state-market-society relationship has author of Surviving Democracy—Mitigating cutting emissions but strong on transferring been shaped to favour large corporations. Climate Change in A Neoliberalized World wealth upward toward big polluters, (Routledge, 2020). The construction of the European Union, emerged as the EU’s flagship climate policy notwithstanding its founding principles to after elites steeped in the neoliberal world promote peace, was littered with special view successfully sabotaged a legislative interests from the start. Many of the key proposal for a Union-wide carbon tax. players in the transatlantic elite network who played crucial roles in discrediting The EU’s role in protecting big polluters Keynes’ inclusive economic theories were extends to its aggressive promotion of the same figures who initiated and designed the investor arbitration system, which is “The root cause of the climate emergency is not the burning the institutions and operating principles of detrimental to both democracy and the of fossil fuels but the success of global elites in undercutting the EU. These include the owners or top planet. The system, also known as “Investor- managers of Fiat, Volvo, Shell, Unilever and State Dispute Settlement” (ISDS), is an democracy and building a global structure whose inner logic Phillips, and Viscount Etienne Davignon, a international arbitration regime that caters is the upward concentration of wealth.”

11 SECOND QUARTER 2020, VOLUME 11 ISSUE 3 TAX JUSTICE FOCUS CARBON TAXES CAN BE PROGRESSIVE: MYTH-BUSTING AND MAINSTREAMING feature CARBON TAXES Jacqueline Cottrell

Carbon taxes were once at the centre of discussions about addressing the climate emergency. Fossil fuel lobbyists have fought hard against them, arguing that they are regressive and will hit the world’s poorest hardest. Jacqueline Cottrell here calls for embedding them in a broader progressive agenda.

Myth-busting are unfair and inequitable and have a t is an old story of neoclassical disproportionately negative impact on economics that policymakers must lower income groups. The reality is more be prepared to off positive complex. To understand it, we need to take I a closer look at the different dimensions environmental outcomes and GDP growth. of inequity relevant to climate policy and Today, in the European Union at least, this A citizens’ assembly preceded important changes to Ireland’s constitution in 2018. Could a similar carbon taxation. myth has been overcome; policymakers now approach build a popular consensus in favour of carbon taxes and other measures to address the climate emergency? (Picture Credit: mtms via CC BY-NC-SA 2.0) refer to green taxes as “growth-friendly” Let us look first at policy outcomes. and are supportive of a European green deal. Without additional welfare spending, Myth-busting has been relatively successful carbon taxes may lead to price increases raise dwarf current spending on health, The second dimension pertains to inequity – and for good reason. None of the huge that have negative impacts on lower-income education or welfare. Carbon taxes have of contributions to the climate crisis. In body of scientific research conducted to households. On the other hand, carbon the potential to act as a hugely powerful 2015, Lucas Chancel and Thomas Piketty examine the impacts of carbon taxation have taxes can raise really substantial amounts engine for change, reducing inequality and found that just 10% of the global population produced any evidence that it has a negative – amongst the world’s wealthiest – emit of revenue. A tax of US$70/tCO2 has the establishing targeted welfare programmes 45% of global CO emissions. The bottom impact on GDP growth. Instead, research potential to raise revenues worth 1–3% of and free health and education systems, as 2 50% of emitters, almost exclusively from has indicated that a carbon price is the most GDP in most countries, or 2–4% of GDP in well as funding the transformative changes developing countries, are responsible for efficient and effective instrument to reduce major developing economies such as China necessary to tackle and adapt to the climate just 13% of global emissions. If we do not GHG emissions, whether implemented by or India. This implies that in low- emergency. means of taxes or trading. and middle-income economies, with an implement a carbon tax for social equity average tax-to-GDP ratio of just 12%, When it comes to carbon taxation and carbon taxes can raise 25% more revenue. social equity, however, many myths persist. In most of these countries, the revenues “Carbon taxes have the potential to act as a hugely powerful It is received wisdom that carbon taxes a carbon tax of US$70/ tCO could 2 engine for change.”

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debate, while the voices of the world’s poor Unfortunately, in reality carbon taxes world, street protests are putting climate “Sweden has the mother and vulnerable are hardly represented. In generally hit the headlines when they action centre stage: schoolchildren and of all carbon taxes.” contrast to big business, which spends billions are perceived as being too high, unfair, or students are participating in “Fridays for lobbying governments every year, punitive. Articles in favour often cite policy Future” strikes, while citizens old and young is underfunded and poorly organised in wonks arguing about “externalities”, “the are joining the Extinction Rebellion’s calls reasons, we are letting these 10% of polluters comparison, and up until now, has tended not social cost of carbon” and “market failures”. for decarbonisation. In October 2019, 400 get away without paying for the impact of to focus on . Even if this jargon means something to tax scientists joined protests on the streets of their excesses on the global climate. Seen in justice campaigners and climate activists, it London, several of them contributors to these terms, and assuming that appropriate The joy of tax? does not serve well as a call to arms for the IPCC reports on climate change. redistributive mechanisms are in place – free Some citizens are passionately interested typical wo/man on the street. How can we Yet to go further and achieve installation of small-scale renewable energy in taxes and recognise their potential to change this? decarbonisation, these movements need such as rooftop solar, solar water heating or shape our societies, looking to Scandinavian to identify and articulate specific policy biogas, distribution of clean energy-efficient countries as an example. All Scandinavian Mainstreaming demands. Policy wonks contend that the stoves, cash transfers, or a carbon dividend as countries have a carbon tax: Sweden has In the past, we did not take the climate crisis best carbon tax would be a global one – to proposed by James Boyce in the last issue – the mother of all carbon taxes, at a rate of seriously enough. Initial responses to “global prevent distortions between countries and a high carbon tax, of which 45% is paid by US$127/tCO . Nevertheless, life in Sweden warming” were not proportionate to a threat 2 keep decarbonisation as efficient as possible. the top 10% of polluters, has an air of is relatively normal: there are no blackouts, to our continued existence on the planet. In The question is: How might a global carbon “Robin Hood” about it. The final dimension people still drive Volvos, dance to Abba and the Northern hemisphere, many joked about tax be achieved? of inequity relates to climate change shop at IKEA, while Sweden moves towards warming sounding quite promising. In the outcomes: the devastating impact of the crisis decarbonising electricity, heating and global South, governments prioritised GDP Extinction Rebellion in the UK is calling will be most felt by the poor and vulnerable transport. growth, calling on high-income governments for a citizen’s assembly. Taking a global groups, as they will be least able to adapt to tackle climate change given their historical approach and creating a number of citizen’s or respond. On the whole, however, interest in tax policy responsibility. Climate scientists were assemblies, one for each continent, or part is limited, including carbon taxes. Josephine rightly cautious about drawing a causal of a continent, would take the instrument So, why have we not reached agreement Public does not know much about carbon tax, link between individual extreme weather debate out of clandestine meetings between on a global carbon tax? The answer to this and certainly does not appreciate its potential events – hurricanes, typhoons, droughts, big business and policymakers and move it question is way beyond the scope of this to raise revenue worth between 1–4% of desertification, devastating floods – and the into the public domain, to a place where article. But at least one of the reasons is GDP. Neither does Josephine know that these climate crisis, a reticence which has served as evidence is public and subject to scrutiny. also linked to inequity: in this case, inequity revenues could be redistributed in whatever ammunition to climate deniers. These assemblies would put the evidence of representation in policymaking. Many way governments see fit, or that they have in favour of carbon taxation, alongside industries and individuals have a strong the potential to transform our societies and Today, our vocabulary and our understanding other instruments, before a wide audience. financial interest in the status quo: oil and economies through redistributive mechanisms, has changed. Where public discourse once It would give experts the opportunity to mining companies, energy-intensive industry, increasing investment in health, education, referred to “climate change” or “global explain why carbon taxes are a good thing, wealthy consumers (let me remind you: jobs, low-carbon industries, and access to warming”, we now talk about the “climate that they can be effective, fair and equitable, around 10% of the global population are sustainable energy for all. Josephine also crisis” or the “climate emergency”. The and that their revenues can be used to responsible for 45% of GHG emissions), doesn’t know the best news of all: carbon good news is that this reflects a growing reshape the societies and economies we live to name but a few. These groups exert taxes are fair, as the wealthiest and the biggest shared understanding of the seriousness in. I believe that under such circumstances, a great deal of influence in global policy polluters pay the most. and immediacy of the problem. All over the the case for a carbon tax would win out.

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“Carbon taxes are fair, as the wealthiest and the FUNDING A JUST TRANSITION biggest polluters pay the most.”

Mainstreaming climate policy discussions Jacqueline Cottrell is an environmental This special Climate Edition of Tax Justice Focus is the second in a through citizen’s assemblies would create fiscal policy consultant active in the field series of outputs Tax Justice Network is developing as part of a new a platform for the planet’s inhabitants all of development cooperation for numerous workstream focused on the linkages between tax justice and climate to be vocal in our support of ambitious international organisations. She is a Senior climate policy in general and carbon taxes Associate at Green Budget Germany and crisis issues. The first, Tax Justice Focus: Funding a Just Transition was in particular. The results could be fed into a member of the international programme published in April and examined how the money could be found to fund UNFCCC negotiations and drive the step committee of the Global Conference on the transition away from fossil fuels. change in climate policy which is both Environmental Taxation. urgently necessary and sadly lacking. It contains five articles: Fossil Fuel Subsidies and Taxation: Two Sides of the Her publications include a study on fiscal Ultimately, we have to recognise that one policies to address the health impacts of Same Carbon Coin, by Laura Merrill, Still a Burning Question: Fossil Fuel way or another, we are all going to have the transport sector in Jakarta, Indonesia Subsidies in Australia, by Rod Campbell, Carbon Dividends as Tax Justice, by to deal with the climate crisis. We can (UNEP, forthcoming), A Climate of Fairness: James K. Boyce; Who are the Real Extremists Here? by Gail Bradbrook choose to address it now with a carbon tax, Environmental Taxation and Tax Justice in (Extinction Rebellion,) and What’s Your Score? The Case for Sustainable Cost reducing GHG emissions and using revenues Developing Countries (VIDC 2018), and as an engine for enhancing social equity and Environmental in Developing, Reporting, by Richard Murphy. transforming our economies and societies Emerging and Transition Economies (German according to our democratic wishes. Development Institute, 2016). It can be found online at: Alternatively, we can pass the problem on to https://www.taxjustice.net/tax-justice-focus/ future generations and leave them to look This article was written before the COVID-19 on, powerless, as the climate emergency outbreak. transforms our societies and economies in Over the months ahead TJN, in collaboration with our allies in the ways that we cannot imagine. Putting this tax justice, sustainable de-velopment, and environmental choice in the hands of global citizens now is spheres, will deliver new research and comple-mentary audiovisual the only equitable way forward. outputs bridging the divide that still exists between these two intimately enmeshed struggles.

To be kept informed about our work on climate and tax justice, please sign up for updates at: https://www.subscribepage.com/climateandtax

14 SECOND QUARTER 2020, VOLUME 11 ISSUE 3 TAX JUSTICE FOCUS news in brief…

“We are all embarking on the Offshore Entities and the Politics of Time for an Bailout for the unthinkable” Bailouts ? Fossil Fuel Sector?

The pandemic has brought sudden disaster In the week before the publication of to many economic sectors. But some this edition of the Focus, Global Witness companies have made massive profits from reported that the Independent Petroleum the dislocation, prompting some economists Association of America (IPAA) had lobbied to wonder aloud whether it might be time the Federal Reserve for chang-es to its to bring back an excess profits tax. Reuven bailout programme that would make several S. Avi-Yonah of the University of Michigan large fossil fuel companies eligible for bailout argues along these lines in a draft article money. There has been much hopeful talk published at the end of March. Avi-Yonah about how the COVID-19 outbreak will Emanuel Macron: “We are all embarking on the Are the privileges enjoyed by tax havens about to be unthinkable.” (Picture credit: Remi Jouen via CC BY 4.0) swept away? points out that excess profits taxes were prompt a re-think in economic policy. But used extensively during Two the old regime isn’t giving up without a The French President Emmanuel Macron So far the governments of France, Poland and into the postwar era, and were vital in fight. Global Witness’ article can be found gave a wideranging interview in the Financial and Denmark have announced that they will ensuring that the state was able to manage online at https://www.globalwitness.org/en/ Times in April, in which he argued that the refuse to give state aid to companies based resources efficiently. His piece can be found campaigns/oil-gas-and-mining/occidental- current pandemic highlights the need to in offshore tax havens. As ever the definition online at https://papers.ssrn.com/sol3/ lobbying-pays-off-stands-to-benefit-from- move away from a “hyper-financialised” of a tax haven is a cause for concern; major papers.cfm?abstract_id=3560806 coronavirus-bailout/ world order and to address the climate “onshore” jurisdictions including the United emergency. Kingdom, the United States, the Republic of Ireland and the Netherlands all provide Macron, whose election in 2017 was companies and individuals with the means to seen by some as a vindication of centrist escape the intent of legislation elsewhere. liberalism, has struggled with massive civil disobedience sparked by attempts to raise “environmentally friendly” taxes. His commitment to a new approach to is perhaps a sign Western leaders are feeling pressure to change course.

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