Wanted: a green 'new deal'

Economies in crisis: The downturn could help to stimulate investment in a low-carbon future
    • theguardian.com,
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Joseph Stiglitz was right when he wrote on Cif earlier this week that the present economic downturn could be the worst since the Depression.

In the coverage of the causes and likely future effects of the credit crunch, such grim parallels are becoming commonplace. But it's now time to move from problems to solutions, and here too the Depression can form a useful reference point. Franklin Roosevelt's action programme for dealing with the aftermath of the late 1920s credit crunch was threefold: first, strictly regulate the cause of the problem - the greedy and feckless finance sector; second, get people back to work, and generate business opportunities by a New Deal. This invested billions of dollars in training, better working conditions and a huge range of infrastructural projects such as highways, dams and bridges. Finally, fund this in part by an increase in taxes on big business and the rich - a measure which also had the positive effect of dramatically decreasing inequality.

Today the re-regulation of finance is even being discussed among consenting free market adults in the columns of the Financial Times. My colleague, environmentalist Colin Hines, has fleshed out the details of a Green New Deal which could help re-boot the economy after the credit crash, while putting serious money into addressing climate change.

A report to be released this summer will show how the seriousness of the credit crunch is being grossly under-estimated, and will also demonstrate how public and private funds can be used in a massive nationwide investment programme resulting in substantially less energy use. Given that the reduction of carbon emissions will become an ever more urgent government priority, investing in such programmes will provide a safer haven for pensions and savings.

As in the Roosevelt case, this too would be partly paid for by increased taxation of big business and the rich, but would today also require the elimination of tax havens.

In addition to state money, the Green New Deal would encourage the use of savings in banks and building societies to fund measures to cut carbon emissions. These savings are at present guaranteed up to £35,000, and such a guarantee could be extended to a Green New Deal investment. This would carry the proviso that such funds would be earmarked solely for investments that reduce carbon use through energy efficiency and renewables. Savers could also be exempt from taxes on gains for investment in carbon-reducing infrastructure, as is the case for infrastructural investment in the US municipal bonds market.

Governments like to steer clear of the constraints put upon them by such hypothecation, but the Stern Report showed the level of serious economic constraints that inadequately-checked climate change will pose for the economy. There is a significant amount of money in pensions and other savings, plus a recognised need by the government for people to save much more. Guaranteed investments via a Green New Deal programme will help provide the upfront funding needed for the low-carbon future, and should therefore be the way to square this circle.

Local authority bonds could be the major vehicle for the funds raised for this programme. In the US there is a trillion dollar Municipal Bond market. Apart from Transport for London's recently successful £600 million bond issues for improving the capital's transport infrastructure, such an option is virtually non-existent in the UK. Yet this source of funding - and local democracy - could be promoted relatively easily if the net returns on the money saved from the low-carbon investments were used to repay the bonds.

Such an approach is being called for by the Birmingham-based group, Localise West Midlands. It has proposed the floating of "Brummie Bonds" to initially improve the energy efficiency of the more than 80,000 council dwellings in need of refurbishment. The city is the biggest public sector landlord in Europe, but has a housing stock that requires major investment and energy efficiency measures to comply with UK and EU law and combat fuel poverty. Part of such a programme would ensure both high standards of insulation and extensive use of combined heat and power programmes, and encourage the use of renewables to meet a new goal of "every building a power station".

Another important advantage emphasised by Localise West Midlands is that the vast majority of jobs created will be located where people actually live. Bonds could therefore help develop the local skills, technologies and enterprises that will be needed for the new, low-carbon economy. A "carbon army", recruited from those in the region who are at present unemployed or wanting to improve their existing skills, could be trained for the low to high skilled jobs required. To reduce carbon dramatically will require skills ranging from energy analysis, design and production of hi-tech renewable alternatives, large-scale engineering projects such as combined heat and power and offshore wind, through to work in making every building "energy tight", fitting more efficient energy systems in homes, offices and factories.

For recently laid-off bankers, a carbon finance sector will also be needed to publicise, advise and put into practice the range of funding packages inherent in the Green New Deal. The immediate economic advantages of this energy transition will be that hundreds of thousands of jobs can be created, a large number of new and existing businesses and services can benefit, and a large increase in tax revenue can be generated from this new economic activity.

Finally, looking beyond Britain, Stiglitz is right that there is at present, a leadership deficit in the US, unlike the case in the 1930s. However, as Europe's economy slows in the wake of the US-initiated credit crunch, the EU could take a much-needed lead. The Green Alliance recently proposed a European budget for climate security that would involve Brussels re-orienting its public investment programme to set up a dedicated low-carbon fund for energy and transport infrastructure, an investment fund to help move China and India towards low-carbon economies, and a budget to help the poorest countries adapt to climate change.

As the credit crunch fells the Anglo-American economic model, it's time for "sclerotic" Europe to provide the answer via the championing of a Green New Deal for everyone.

The global financial system is in a fix. Read more debate about it here.

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The global financial system is in a fix. How did we get here, how bad could it get, and how can the worst be avoided?