Global financial and environmental crises Socialism collapsed because it did not allow the market to tell the economic truth. Capitalism may collapse because it does not allow the market to tell the ecological truth. sØystein Dahle, former vice president, ExxonMobil ’m writing this commentary before November 4 and the U.S. presidential election. But regardless of who wins the presidency, I’m already endorsing Øystein Dahle for Secretary of the Treasury because he seems to be the only one who “gets it”. Capitalism has already collapsed in the sense that government now owns much of the world’s financial business(es), and we are cruising toward environmental tipping points that have striking parallels to the current financial crisis. Let’s explore the similarities. The financial bubble. Analysts say the financial crisis was caused, in part, by too many subprime home mortgage loans, which were not backed adequately by real assets. Aggressive developers and lenders convinced people they could afford mortgages that were beyond their means. As a result of deregulation, it was easy to repackage the “bad” loans and to market them all over the world through investment banks. The increase in economic activity created the illusion of financial health, and stock markets soared. When it became clear that Bear Stearns, Fannie Mae, Freddie Mac, and others had too many of these loans on their books, and their solvency was questioned, a cascade of failures of banks and insurers started throughout the world. There was not enough liquidity in the global market because the U.S. and other countries had spent so profligately, creating such huge deficits and debt that available investment capital had already been claimed. Even the “best” investment bank, Goldman Sachs, which spawned the likes of Secretary of the Treasury Henry Paulson, had only $6 billion of equity to back assets valued at $1 trillion. A credit freeze and crisis of confidence in our markets ensued. The bubble burst. The environmental bubble. The environmental crisis was caused by overuse of nonrenewable resources (fossil fuels and minerals) and by consumption of renewable resources beyond their sustainable yield (fisheries, forests, land, air, and water supplies). The earth’s assimilative capacitysthe self-renewing capability of the planetsis overwhelmed. Somehow people believe that endless “getting and spending” are the means to a happy, successful life. Aggressive developers, industrialists, and consumers are convinced they can use the air, water, and soil and return them in a degraded state without any consequences. Because governments are afraid to regulate these activities, a growing environmental debt has been created with a time lag of decades that consumers ignore, deny, or fail to discern. Meanwhile, prosperity seems abundantswe have grown our global economy almost 7-fold and our
I
10.1021/es8030215
2008 American Chemical Society
Published on Web 12/01/2008
population more than 2-fold in the past 50 years. But the market price of our growth has not been reflected in the cost of goods and services. For example, the atmosphere is used freely, and it is returned laden with CO2 and other greenhouse gases. There is not enough environmental “liquidity” (assimilative capacity) to accommodate such growth, creating an enormous environmental debt with considerable inertia. When tipping points such as collapsing fisheries, dwindling water supplies, declining food production per capita, and dangerous interference with the climate system (causing more severe storms, increasing floods and droughts, breakup of polar ice shelves, and sea-level rise) are reached, the bubble will finally burst. The financial promise. We can learn from our mistakes and build a better global financial system with safeguards against the reoccurrence of such cascading debt. It requires the solemn wisdom of living within our means. Unfortunately, a global recession (or worse) is the apparent penalty we must now pay for our past profligacy. Perhaps the best outcome from the global financial crisis is that “regulate” is no longer a dirty word. Governments worldwide realize once again that loans require collateral. Hedge funds and investment banks require regulation, and it is the proper role of government to provide it. The environmental promise. We can learn from the financial crisis and avoid environmental tipping points if we begin within the next decade or so. Transitioning from the fossil fuel age to renewable energy is the central challenge of the 21st century, but it is also an enormous economic opportunity. Imagine a world of plug-in hybrid electric vehicles. Imagine wind, solar, geothermal, and tidal power with millions of energy producers operating on a distributed power system and nearly no air pollution. The health benefits are imponderable; energy security is ensured; and millions of green-collar, high-tech jobs will be created. We must rebuild the economy around protection of the environment. The financial crisis should serve as a powerful catalyst for rebuilding our energy infrastructure and solving the environmental crisis. Capitalism didn’t collapse completely as a result of the current financial crisis. Let’s make sure it doesn’t collapse from a future environmental crisis either.
Jerald L. Schnoor Editor
[email protected] December 1, 2008 / ENVIRONMENTAL SCIENCE & TECHNOLOGY 9 8615
