Moisés Naím / World Energy & Oil

Friends of the earth warned that the world had lost valuable time in the race to stave off climate change.” “U.N. Secretary-General expresses disappointment at the inconclusive outcome of the climate change conference.” “South criticizes north for not fulfilling climate commitments.” “Low targets, goals dropped, the meeting ends in failure.” “The text went from weak to weaker to weakest and it’s very weak indeed.” “Even if we meet every target, we will only get to the part of where we need to go.” Reactions to Glasgow 2021? Think again. These headlines followed the climate summits in Buenos Aires in 1998; The Hague, 2000; Bali, 2005; Copenhagen, 2009; Lima, 2014 and Paris, 2015. Glasgow headlines echoed similar sentiments: “It is not a secret that COP26 is a failure,” said activist Greta Thunberg, adding that “It should be obvious that we cannot solve the crisis…this was a two-week-long celebration of business as usual and blah, blah, blah.”

THE ULTIMATE PUBLIC GOOD
Explain the exasperating paradox: why, if everyone agrees that something big needs to be done—and soon!—to keep the planet livable, has it been impossible to overcome the obstacles on the path to the obvious? Despite commitments made by virtually all countries since the first meeting took place in Rio in 1992, carbon emissions have increased by 60 percent. Of the twenty-six climate summits, just a few have made important progress. The 2005 Kyoto Protocol, for example, established emission-cut targets for the richest countries, but none for the less developed countries—a group that, at the time, included China. Paris 2015 brought specific targets designed to limit the increase in the average temperature of the planet to no more than 1.5 degrees Celsius. But they were voluntary, and they didn’t work.

Considering all this, expectations for Glasgow were modest. And yet, three positive and practical developments that preceded the meeting might have given room for hope. The first was the pledge by the U.S. government to double its climate change budget to USD 11.5—a move already passed into law by the American Congress. The second was China’s announcement that it would be halting the construction of coal-fired power plants in other countries. Finally, there was a pledge by more than 100 countries to lower 2020 methane emissions by 30 percent by 2030. Even so, the Secretary General of the United Nations called the final document signed in Glasgow “an important but insufficient step, reflecting the interests, contradictions and the state of the political will in the world today.”

Why? Because a stable climate is the ultimate public good. And ensuring the adequate provision of public goods on a global scale is a wicked problem—a problem uniquely resistant to solutions due to its inherent complexity and characteristics. Indeed, fighting global climate change may be the wickedest problem humanity has ever confronted.

WHO WILL PAY THE BILL?
U.S. Treasury Secretary Janet L. Yellen has said “the price tag to address climate change is of the order of 100 trillion dollars plus.” Yellen adds that investment on such a titanic scale will necessitate both a public and a private component. The public sector has dragged its feet on the matter, but its problems are nothing compared to the challenges of mobilizing private investment for this purpose.

Despite many attempts, few businesses have found a way to turn a profit on investment to curb global temperature rises. Such investments would benefit all members of society, and no one can be prevented from enjoying their fruits. What’s more, the supply of a stable climate doesn’t dwindle as more people enjoy it. A stable global climate is, in other words, the textbook definition of global public good.

Economists have long known public goods are provided mostly by governments because it’s not usually possible for a business to profit from a good whose enjoyment flows equally to those who pay for it and those who don’t—the famous “free rider” problem. And so, while Secretary Yellen is surely right that private sector involvement is a must if the problem is to be solved, we’re still far from providing private capital with a good reason to invest in finding solutions. Sadly, if a way exists for the private sector to turn a flood control project in Bangladesh into a money-making proposition, it has not been discovered yet.

The consequence is an increasing imbalance between the supply and demand for global public goods required to fight climate change, a gap that claims a growing number of victims from extreme weather events every year. So far, conventional economic strategies have been unable to resolve this dilemma. Despite modest progress being made through measures such as carbon credits and pollution taxes, the involvement of the private sector has lagged. Economists know this as “the tragedy of the commons,” the tendency to overexploit unregulated goods without clear ownership, such as international fish stock, common lands, or clean air. Not that it takes a modern economic theory to understand this: 2,300 years ago, Aristotle wrote that “what is common to many is taken least care of.”

THE DIFFICULT JOB OF CONVINCING THE RICH COUNTRIES
To make things worse, many of the projects that would disproportionately benefit today’s less developed countries would need to be financed by taxpayers in the richer countries. It is difficult to persuade taxpayers in Europe or the United States to open their wallets to fund massive investments aimed at preventing droughts in Botswana, the disappearance of glaciers in Central Asia, deforestation in Ethiopia or the Democratic Republic of Congo, or coastal flooding in Africa and Latin America, even if it was their ways of producing and consuming energy that caused these problems. Limited private financing has gone to mitigation projects that seek to blunt the impact of harms already done since such projects are often at least partially rivalrous or excludable. But it’s not enough. Richer countries will need to take decisive coordinated action to make investments that benefit the entire planet, not just their taxpayers. In fact, these governments will need to use taxpayer money to finance public goods which benefit everyone on the planet.

The central strategy in the mitigation of climate change, curbing CO2 emissions, will require the largest investment in public goods in our history. This will be difficult not only due to the tragedy of the commons but, also, due to growing geopolitical polarization, which prevents a proper, unbiased consideration of global mitigation and adaptation projects all over the globe. Although the path ahead is far from clear, there are reasons for cautious optimism in the struggle to bring climate change under control. The largest oil and gas corporations are already beginning the energy transition in earnest through carbon capture and storage initiatives, renewable energy schemes, and hydrogen generation projects across the planet. Governments and multilateral institutions, like the World Bank, are developing financial instruments, such as green bonds, dedicated to climate change adaptation. Momentum in the right direction is mounting. Ongoing mitigation and adaptation efforts will be needed, and if vigorously pursued the result will likely be a less healthy but still livable planet.