A Green New Deal for our times

Independent experts reveal a radical vision for energy, climate change and Britain's financial system
Andrew Simms
The Observer,
Sunday August 3 2008

Banks wobbling, massive fuel price rises, the vulnerability of the food supply chain... it looks like a long, uncomfortable and shaky summer. Then there is an even more threatening problem: a biosphere threatened by potentially irreversible global warming.
Britain faces a 'triple crunch,' a combination of a credit-fuelled financial crisis, accelerating climate change and soaring energy prices underpinned by an encroaching peak in oil production. These threaten to develop into a perfect storm, the like of which has not been seen since Great Depression.
To help prevent this, a group of specialists in finance, energy and the environment has been meeting since early 2007. Something along the lines of our Green New Deal can, we believe, begin to stabilise the crisis. And we can also lay the foundations for low-carbon economies, rich in jobs and more based on independent sources of energy.
With food and energy insecurity set to rise, this will create a more stable economic environment in which there is likely to be a lot more local production and distribution, but will fit a pattern of global reform, where the goals of international poverty reduction and 'one-planet living' become more viable.
The deal combines economic stabilisation in the short term with longer-term restructuring of the financial, taxation and energy systems. It is a massive environmental transformation whose economic boost will insulate us against recession, while delivering the rapid transition needed if we are to play our role in averting runaway climate change.
First is a focus on the specific needs of the UK. This includes a vision for a low-carbon energy system that will include making 'every building a power station'. Involving tens of millions of properties, their energy efficiency will be maximised, as will the use of renewables to generate electricity. This will require a £50bn-plus a year crash programme.
Linked to this is the creation of an 'carbon army' of workers. The plan envisions hundreds of thousands of high- and lower-skilled jobs created in the UK. This will be part of a wider shift from an economy narrowly focused on financial services and shopping to one that is an engine of environmental transformation. Germany is already employing 250,000 in renewable energy alone.
Next, we need to ensure more realistic fossil fuel prices that include the cost to the environment, and are high enough to tackle climate change by creating the economic incentive to drive efficiency and bring alternative fuels to market.
At $10 a barrel, oil companies were in profit; at around $130, they are rolling in unearned cash. We advocate a version of the Norwegian approach, establishing an Oil Legacy Fund, paid for by a windfall tax on the profits of energy companies. The monies raised would help deal with the effects of climate change and smooth the transition to a low-carbon economy. Norway built up its oil surpluses to weave a safety net that at the last count was worth around £198bn.
But we need wide-ranging financial innovations and incentives if we are to assemble the billions that need to be spent. The focus should be on investments and regulations that not only finance the development of efficient energy infrastructure but also help to reduce demand for energy.
Vitally, we need much tighter controls on lending and the generation of credit. Very large banks make very large mistakes. Instead of institutions that are 'too big to fail', we need those small enough to fail without creating problems for depositors and the wider public.
Because of the banking system's growing inherent instability, we need to break up discredited financial institutions that have relied on huge amounts of public money to prop them up in the credit crunch. The Green New Deal calls for the forced demerger of large banking and finance groups. We need to return finance to its role as servant, not master, of the global economy. This means, in part, the restoration of policy autonomy to democratic government, and implies the reintroduction of capital controls.
Recent months have revealed how thin is the ice upon which our economic livelihoods depend. Highly abstract and complex derivative products and other exotic financial instruments have finally divorced the finance sector not just from the productive and social, core economies, but from any recognisable reality.
Behind collateralised debt obligations, is only thin air, wishful thinking and greed. All such exotic instruments should be subject to official inspection. Only those approved should be permitted to be traded.
Our proposal is a first word, not the last. If you can enhance the Green New Deal's response, please tell us.
· Andrew Simms is policy director and head of the climate change programme at the new economics foundation. This article is adapted from the report 'A Green New Deal: joined-up policies to solve the triple crunch of the credit crisis, climate change and high oil prices' available at www.neweconomics.org.