Bolder, faster, together poses the question: How can we all take responsibility for the past, navigate a turbulent present and co-operate to protect future generations? Follow along as this series, co-ordinated by the Transition Innovation Group at Community Foundations of Canada, explores the deep societal transformation already underway and accelerating in Canada and around the world.

There’s an old joke that anyone who believes it’s possible to have infinite growth within a finite environment is either a madman or an economist. It’s no joke — that mad but pervasive economic belief has had us extracting, exploiting, producing, consuming, wasting and polluting for so long it’s brought us to the precipice of environmental and socio-economic disaster.

Can our assumptions about economic growth and our attachment to the systems that drive it be adapted, and where necessary, dismantled and replaced to prevent our multiple crises from worsening? What does it mean to create a “transition economy”?

In the first part of this two-part article, we’ll focus on the big things that need to happen — that are, in fact, beginning to happen — to create a sustainable finance system, one decoupled from the fossil fuel economy.

And let me declare at the outset that I’m not an economist — my direct experience with such matters includes co-founding a community-based business in Vancouver (Alma Street Café), working on new value chains in animal food products with the BC SPCA’s humane standards and labelling initiative, and overseeing the development of an impact investing portfolio and related innovations at the McConnell Foundation.

In 2006, the United Nations created the Principles of Responsible Investment organization, the world’s leading proponent of environmental, social and governance (ESG) principles in finance, with over 3,500 signatories. As a voluntary framework, it supports benchmarking, goal-setting and learning, but it doesn’t enforce anything.

The 2015 Task Force on Climate-Related Disclosures outlines how climate risk must become integral to financial reporting and economic planning. Companies and countries are beginning to implement its recommendations, though not yet at a pace consistent with the Paris Agreement targets.

The Mark Carney-led Glasgow Financial Alliance for Net Zero (GFANZ) that was announced last November during COP 26 was signed by more than 450 financial institutions, but as this article in the Financial Times asserts, signatories must act decisively to avoid accusations of greenwashing. Public pressure and regulatory mandates will help ensure banks, corporations, pension funds and other institutional investors decarbonize their Scope 1, 2 and 3 emissions by 2050. The newly established International Sustainability Standards Board also promises to bring greater rigour and transparency to the field.

The necessary measures are massive in scale and complex to implement, but a direction has been set and momentum is growing.

But is it happening quickly enough? In a paper under review by a leading scientific journal and shared with me personally, climate researcher Corey Lesk and co-authors analyze emissions scenarios for the coming transition, looking at both mitigation (prevention) and adaptation to climate-related changes already underway.

Opinion: Can our assumptions about economic growth & our attachment to the systems that drive it be adapted or dismantled and replaced to help save the planet? asks Stephen Huddart. #transformation #NetZero #JustTransition #ClimateJustice

Specifically, they assess the emissions resulting from decarbonizing energy systems, building coastal protection structures including dikes and wetlands, relocating communities away from rising water levels, and financing increased space cooling.

The paper concludes: “Emissions embedded in the transition are [...] strongly sensitive to the pace of decarbonization and, consequently, low climate ambition comes at a high transition emissions cost.” One could add high financial cost as well. In other words, the faster transition is accomplished, the safer and less costly it will be.

Decarbonizing the global energy system is essential, but it doesn’t end there. It extends to all those things that require affordable, readily available power — such as electricity generation, transportation, agriculture, construction and manufacturing.

Whole industries are now beginning to decarbonize. In Canada, the non-profit Transition Accelerator (full disclosure: I am a board member) is catalyzing the development of a hydrogen hub in Alberta, creating new supply chains in the zero-emission vehicle industry, and working on a pan-Canadian electrical grid. Corporate commitments to transition range from the Canadian Steel Producers Association’s goal of reaching net-zero emissions by 2050, to Maple Leaf Foods’ claim to have already done so.

What’s missing, according to the critics, is a plan to bring fossil fuel production to a halt. As Tzeporah Berman says in a widely-viewed TED talk, ‘“For decades, our countries have been negotiating [emissions] targets. But behind our backs, the fossil fuel industry has been growing production and locking in further emissions.”

According to the most recent report from Canada’s Environment Commissioner, Canada’s emissions have increased since the Paris Agreement was signed in 2015, making us the worst-performing of all G7 nations.

In books like Mission Economy: A Moonshot Guide to Changing Capitalism, London-based economist Mariana Mazzucato has been calling for the economy to be restructured in the service of societal “missions” whereby all sectors collaborate on goals that none can achieve alone. In November, the G7 Economic Resilience Panel, of which she was a member, released its remarkable final report — now referred to as the Cornwall Consensus. It states:

“A mission-oriented approach to innovation and investment means focusing less on sectors and more on problems (such as ones inspired by the UN Sustainable Development Goals) that require all sectors to work together. This might catalyze new partnerships focused on societal goals, like adaptation to climate change, climate-neutral and smart cities, and healthy oceans.”

The Institute for Sustainable Finance’s Changing Gears report reviews progress here in implementing the landmark recommendations of the Expert Panel on Sustainable Finance. Mapping and supporting Canada’s zero-carbon commitment with a capital investment plan has advanced, but much work remains to connect Canadians’ personal savings, pensions and investments to climate objectives.

The report also asserts that sustainable finance must address more than climate. Growing gaps in people’s access to affordable housing, nutritious food, and a good life make it clear that to avoid climate chaos and avert social strife, the foundations of our economy must shift to enable what Mark Carney terms “the trinity of distributive justice, equality of opportunity and fairness across generations.”

Safely navigating these turbulent times requires a transition economy be socially conscious around three themes:

  • Adjustment: Fair treatment for workers, including retraining and where necessary, resettlement support; incentives for businesses to curtail emissions; and support for communities whose economies are no longer viable.
  • Inclusion: Continued commitment to Indigenous reconciliation and economic inclusion for equity- and sovereignty-seeking groups through access to credit, equitable procurement and corrective hiring policies. As this paper submitted by the Community Foundations of Canada to the National Infrastructure Assessment sets out, investment in social, physical and digital infrastructure should be considered together.
  • Innovation: Extensive social retrofitting and innovation at the community and broader systems levels.

In Part 2, we’ll explore the social context for financing transition as a source of capital, values-based innovation and civic engagement.

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How could we solve climate change and environmental problems without pricing things properly?

I am not an economist either (and proud of it), but this analysis falls short. The core issue is not belief in infinite growth. People can believe whatever they like. Reality is what matters.
When our economic system fails to correspond to reality -- when our accounting excludes certain realities -- our economic system fails.

The real issue is market failure. Specifically, the mispricing of goods, services, and paradigms. Externalizing health and environmental costs. Downloading those cost to the public purse, the environment, and future generations. Subsidizing our own destruction.

Fossil fuel producers and consumers use the sky as a free dump. The only way to end the fossil-fuel free-for-all is to price carbon properly.
As long as it is "profitable" to over-consume, pollute, and emit GHGs, that is what we will do. GHG emissions end when it is no longer profitable to emit.
The real cost of unsustainable consumption, goods and services, and paradigms is prohibitive. We can't afford them.
Sol'n? Price them out of existence.
Full-cost accounting prices infinite growth out of the market.

Sol'n: Solve the market failure. Price goods and services properly. Internalize all costs. Full-cost accounting. Unless we address the market failure, expect endless environmental disaster: over-consumption, pollution, destruction, and loss.

The Hydrogen Hub website does not say whether it is developing blue or green hydrogen. If it is the former, relying on natural gas, it is not a divorce from fossil fuel.

Unfortunately, the Hydrogen Hub states "The Edmonton Region is among the world’s lowest cost producers of low-carbon hydrogen, which can be made in the region for about half the wholesale price of diesel by upgrading low-cost natural gas. The region is also well suited... its existing experience... carbon capture and storage...". So, ya... Just another ruse to keep us hooked on fossil fuels.

I agree with the gist of the other comments to date.

I can't help but feel that all this frenetic activity -- navel-gazing, conferencing, flying to mass gatherings, railing against flying to mass gatherings, vowing, committing, uncommitting, protesting, arresting, injunctioning, target setting, target missing, punting, apologizing, mea culpa-ing, policy making, policy updating, book and report writing and the rest -- that is humanity's "response" to the problem at-hand which takes every possible path "around" the bush -- the bush being the causes of climate change, the source of the climate change problem (the source being emissions of various gases) is not being addressed.

(If the grammar holds together in that paragraph, I will be shocked.)

Undoubtedly this endlessness pleases, no end, the fossil fuel industry and its hangers-on who are only to happy to prolong this never-ending fiddle fest.

How about we let markets do what their proponents say they are good at, allocating resources, in response to governments (i.e. humanity, generally -- well, if only our representatives did their jobs) setting actual limits (i.e. caps) on emissions of GHGs. Let's stop making the "merely intractable" into "mind-bogglingly intractable" by someone's brilliant idea (sarcasm) which is trying to determine a priori how the entire global economy needs to shift in order to (we hope, on a wing and a prayer) bring emissions down. How can the current path possibly lead to a solution? It is so complicated that no one can possibly understand it. And a lot of (most?) of any proposals will likely change, in any event.

The solution? Cap the bloody emissions, plain and, well, simpler than what is being proposed now.

You want the fossil fuel industry to be a good dinosaur and die? Cap emissions. You want individuals to use less fossil fuel? Cap emissions. The rest of the economy will follow; business leaders will see the signals pretty darn fast and will scramble to profit -- er, I mean, be good corporate citizens in meeting the needs of society and lead the way to a net-zero economy -- by providing ways of air conditioning buildings without fossils; by reducing the need to condition the air by improved building materials; by providing transport options that do not require fossil fuels to operate; by rejigging supply chains, as needed, to remove fossil fuels; etc. Governments will respond by reforming building codes and other codes related to our built environment and the products that are created.

But, maybe Douglas Adams's "mice of science" are, in fact, running the show, in which case this is all understandable and we are merely waiting for the day the hyperspace bypass comes through!

Anything to take us out of this misery. :)

OK. Let's try markets once again. Please elucidate this at a practical level. Do we:
Cap GHG emissions at a national level? [Yes!]
How do we allocate the quantities between emitters (consumers)?
So much per capita? Based on average consumption?
Do we get a tax rebate if we are below average? [Yes!]
Do we get a fine if we are over our GHG quote? [Yes!]
Can we sell our surplus to those who are GHG hogs so they can pay us instead of paying a fine? [Yes!]
And ...
Looks suspiciously like a carbon market of the kinds already failing to do the job.

The carbon markets, to date, have been relatively tiny. Imagine the little Dutch boy, of yore, with his finger in the hole in the dike while the sea water pours over the top. That's not a bad analogy, I don't think. Of course, carbon markets have, to date, been failing to do the job.

I agree that allocation of a carbon budget would be contentious, at any and every scale from personal to international. At a very basic level, however, allocations can embody the grand notion of equity and justice that so much global lip-service continues to be paid. (To wit, is there any reason that I, as a Canadian, ought to have a higher share of the global carbon allowance than, say, the mother of a pastoral family in rural Africa?). Carbon taxes, in comparison are the exact opposite of just: as carbon taxes continue rising (by some a priori unknown degree necessary for the effect desired) -- which they must to force down the carbon emissions -- more and more of the offerings of an economy will be available to an ever-shrinking number of relatively wealthy who can continue to afford them, whether for driving to the cottage (buying gas or buying an expensive EV) or taking the superyacht to the South Pacific.

Personal carbon allocation has been studied going back to, at least, the 90s. Here's a recent article about it from Nature (check our its list of references). I'm sure one find others.

https://www.nature.com/articles/s41893-021-00756-w#ref-CR5

As for implementation, I'd like to see infrastructure put in place ahead of the cap enforcement to allow individuals to track their personal emissions (such as from purchases of gasoline, home heating fuels, etc.) so that they are aware, in advance, how the cap will affect them, once enforced and they can plan accordingly.

At this point, I believe that trading one's personal credits would be allowed and facilitated.

I, personally, dislike the notion of taxes and tax rebates related to emissions. Taxes are indirect (that is to say, one "hopes" that they work) and, for rebates, deferred (that is to say, the purchaser must front the cost of the tax and then wait for the rebate).

Nor am I a fan of (flat) fines which are another way that the economy benefits the rich (either rich individuals or rich businesses) who can afford the fine (and don't see a need to change behaviour) as a cost of doing business or as being worth the expense for the thrill of driving like Mario Andretti through rush hour traffic in one's Lamborghini.

But, ultimately, if one goes to buy gas for the SUV, one will need to have the necessary credits available in one's carbon account or they will need to buy them, at the point of sale (i.e. the gas pumps). (Just as one must have money in the bank, or a credit card, today when filling up.)

Or some mechanism vaguely similar.

Non-personal, i.e. commercial, carbon allocations would need to be treated differently.

Love the idea of people getting an equal amount (per person) of carbon credits at the beginning of each year, with no ability to buy more credits throughout the year. That should drive the right behaviour in an equitable manner. Applying similar logic to businesses would be ideal, but much more challenging.

I'd be inclined to make a couple of adjustments to that.

First, such a cap would necessarily require adoption of a new way of individual thinking, planning and habit-forming. Imagine allocating to any kind of addict, or spendthrift, a year's worth of whatever in one go and telling them "this has to last for an entire year." I don't think that would work well.

Depending on the system design, I could foresee it being assigned on a weekly basis. If one then blows it in one binge, one need wait only a few days for more rather than an entire year. This granularity would also facilitate gradual (i.e. every week-ish) reductions in one's allotment which would be necessary because the total national emissions cap must be constantly reduced.

Second, for a few reasons, I think one ought to be able to sell one's allotment and, consequently, also buy (through a single option crown corporation).

Also, though perhaps a seemingly bizarre notion at first glance, the allotments may need to be "use it or lose it".

In reply to Mark Freeman.

I'd be inclined to make a couple of adjustments to that.

First, such a cap would necessarily require adoption of a new way of individual thinking, planning and habit-forming. Imagine allocating to any kind of addict, or spendthrift, a year's worth of whatever in one go and telling them "this has to last for an entire year." I don't think that would work well.

Depending on the system design, I could foresee it being assigned on a weekly basis. If one then blows it in one binge, one need wait only a few days for more rather than an entire year. This granularity would also facilitate gradual (i.e. every week-ish) reductions in one's allotment which would be necessary because the total national emissions cap must be constantly reduced.

Second, for a few reasons, I think one ought to be able to sell one's allotment and, consequently, also buy (through a single option crown corporation).

Also, though perhaps a seemingly bizarre notion at first glance, the allotments may need to be "use it or lose it".