There’s good debt, and there’s bad debt. Good debt is a $465 million government loan for your fledgling electric-car company that helps it become the world’s biggest automaker. Bad debt is maxing out your credit cards to buy cartoon apes in 2022.
Depending on your politics, you might consider a government taking out loans to finance the clean-energy transition to be bad debt. But economists keep pointing out that a little bit of deficit spending to fight climate change today will save a whole lot of deficit spending tomorrow, to not only fight a rear-guard action against global heating but also to clean up the expensive mess it will make.
Unfortunately, the politics of green government spending aren’t exactly having a banner year. European parliamentary elections hit green parties particularly hard, the U.K.’s Labour Party has scaled back its climate plans, and the deeply climate-unfriendly Donald Trump stands a chance of winning a return to the White House in November.
A lot of this anti-green momentum comes down to popular anxiety about high living costs in the wake of the COVID pandemic. Though clean energy is on the whole cheaper than fossil fuels, the transition can be costly in the short term, and poorly designed plans can saddle lower- and middle-income people with the burden.
It’s become an effective wedge issue for right-wing politicians. Inflation has also forced central banks to boost interest rates, making green investments much more expensive and raising the costs of servicing government debt.
But none of this is happening in a vacuum. Whether voters or politicians care or not, the climate is changing, and the costs of that change are mounting. The U.S. alone suffered a record 28 climate-related disasters last year costing $1 billion or more each, according to the National Oceanographic and Atmospheric Administration.
It’s matching that pace so far this year, even before what will probably be an active Atlantic hurricane season.
Many of the costs of disaster cleanup are borne by, you guessed it, those cash-strapped governments.
Climate change’s biggest fiscal hit to governments may not be disaster clean-up and prevention but increased health care spending. Most of the estimated 2.2 percent boost to annual government spending triggered by unabated climate change will be chalked up to higher health care costs, according to an estimate by ETH Zurich climate economist Lint Barrage. Hotter weather exacerbates heart disease, diabetes, asthma, mental illness and other chronic conditions, while encouraging the spread of infectious diseases from dengue fever to toxic mushrooms.
Hotter weather also saps worker productivity and cognitive development in children. Throw that in with all the other climate-fueled nightmares, and economic activity will suffer. A heating planet could leave global GDP 20 percent lower by mid-century, according to one study.
The net result is that delaying climate spending now will lead to even more climate spending in the future, when prices will be even higher and the need will be even more dire.
“Kicking the fiscal can down the road on measures that could accelerate the green transition will probably lead to greater macroeconomic and fiscal adjustments further down the line,” Capital Economics economist Hamad Hussain wrote in a report.
Zeroing out global emissions by 2050 to avoid the worst climate outcomes will cost $215 trillion, Bloomberg recently estimated, a 10 percent increase over its estimate just a year earlier. That’s a bargain relative to the costs of inaction, but much of it will be borne by governments. Given that the benefits won’t immediately fill up a gas tank or a cereal bowl, it won’t be an easy political sell.
As it stands, green spending is losing the race against global heating. Failing to make these investments now is the fiscal equivalent of maxing out our credit cards on cartoon apes and then making only the minimum monthly payments, racking up huge interest charges in the process. It’s a great way to go bankrupt.
Mark Gongloff is a Bloomberg Opinion columnist covering climate change.
