Our misunderstanding of public money can lead to environmental disaster – EnvironmentJournal


Jason Chamberlain, partner at international law firm Bryan Cave Leighton Paisner, explains why misinformation about how public money works may just mean that we end up putting the financial costs of doing enough before the environmental costs of not doing enough. not doing enough.

Earth Exceedance Day is a calculation of the day in each calendar year on which humanity consumes all the resources the planet can produce during that calendar year.

In 1970, the day of the overrun was December 30.

In 1997, when the Kyoto Protocol was signed, it was September 28. In 2015, the date of the signing of the Paris Agreement, the day of the overrun was August 3. This year, after a brief respite from the Covid, the day of the overrun was July 29.

The day always advances earlier because the demand that we place on the planet keeps increasing.

According to Climate Action Tracker, if all of the government’s climate promises are kept, could we keep global temperatures at 2.9? above pre-industrial levels by 2100.

But unfortunately, the promises made by the United Kingdom which earned us the leadership role at COP26 are not being kept. The Independent Committee on Climate Change (CCC) progress report in June 2021 said the UK government had failed to come up with sufficient policies to meet its own climate change targets.

CCC was particularly concerned about the Treasury’s delay in its review of how net zero will be funded and the falling costs.

Understanding public money can be the key to the fight against climate change

We agree with the narrative that the government has to budget like you or me. He can’t spend what he doesn’t have. And if it borrows to cover the deficit, the burden falls on today’s taxpayers or on future generations.

It starts with taxes. We are fed the idea that the government taxes us in order to be able to spend.

Parliament’s website says: “Without [taxes] it would be impossible to pay for the country’s defense services, health, social and social services, schools and universities, and transportation systems.

The first question a politician asks every time he suggests government spending is, “How are you going to pay for it?” “. That is, “What tax increases are you going to introduce to pay?” And we all seem to accept that tax increases are inevitable to pay for the Covid.

But take the leave scheme, the government has spent public money subsidizing people’s wages to keep them in employment, with no tax increase to pay for that or in fact anything else related to it. Covid.

So how did the government pay for it? Conventional thinking is that if a government is unable to pay taxes, it must borrow.

Go to the National Debt Clock website. It shows a pound sign followed by 15 digits (a trillion in other words). In fact, when you add it all up, it’s £ 5,000 billion.

It is advancing at an extraordinary speed – £ 5,170 per second. It looks scary. In fact, it’s meant to scare you, explaining that every man, woman and child in the country is each responsible for £ 78,000 of this debt.

The most common way a government borrows is by issuing bonds or gilts.

When a government issues a bond, it promises the buyer to pay an agreed interest rate over its term, plus, at maturity, the original value of the bond. In that sense, it looks like a loan. But that’s not what happens when a government issues a bond.

Back to Covid spending. When the government spent that money, it ended up in the economy, especially in private sector bank accounts.

For reasons that are not important here, too much money (reserves) in the banking system will lower interest rates to zero, and selling government bonds will push those rates up.

In ordinary times, governments look for a positive interest rate. When a government then sells bonds, it does so simply to induce the exchange of one form of currency (reserves) for another (a gilt) and thus drain excess reserves from the banking system in search of a positive interest rate.

So when in April 2020, the UK Debt Management Office (DMO) announced that it planned to issue more bonds over the next three months than it had previously planned for the entire ‘exercise, it was not doing it, as is often reported, to fund Covid spending, but instead to match the reserves the government would put in bank accounts as a result of those spending.

Now consider who owns the national debt and you might be even less afraid of this clock. The Bank of England (BoE), financial institutions and pension funds, as well as international governments, each hold about a third of the national debt.

The third held by the BoE was bought through quantitative easing (QE) – where the bank buys existing government bonds and other securities. Again, this is done for interest rate management purposes.

Although this third party has not been withdrawn, the BoE is carrying out the QE program fully in coordination with the Treasury, and the bank’s annual report and accounts show that the Treasury compensates all purchases of public debt by the bank, it is therefore inconceivable that the BoE will call any.

Of the other two-thirds, for financial institutions, pension funds and international governments, gilts are simply a form of investment, not a loan.

For all of these investors, holding interest-bearing and marketable gilts will be preferable to holding reserves.

The government is not like you or me

So how does a government pay for things if it doesn’t do so by using tax revenues or by borrowing?

The answer to this question is to ask yourself another: which government that has the power to issue its own currency (like ours) must either tax or borrow that currency from its citizens to pay for anything?

We are trained to believe that the government is like you or me. This is not the case. When government is an issuer of currency, we are currency users. The government can print that currency, or in today’s modern world, get the same by typing keys on a keyboard. We can not. The government can never run out of money. We can.

Tax and bond receipts don’t sit in a safe somewhere or even on a computer, waiting to be spent by the government. For all intents and purposes, receipts are extinguished the moment they’re paid – not recycled by the government for spending.

All government spending is done with new money. This is how the government paid for Covid, how the DMO can boast of never defaulting on a bond and how we can pay to fight climate change.

The constraint on public spending is therefore not affordability. The money will always be there.

A really scary clock

Instead of focusing on the national debt clock, we should focus on the one that is really scary.

The climate clock is a version of the doomsday clock and at the time of writing it read six years, [165] days.

Is it the time that is supposedly left in the world (around 2028) to achieve 100% renewable energy production to stay below the Paris 1.5? tipping point. We are a long way from achieving this.

Except it might not even be 2028. The climate clock was set last year before unprecedented storms hit Central Europe, China’s Henan Province had a three-year rainy year. days, the Arctic saw the lowest sea ice level on record, and parts of North America’s Pacific coast were on fire.

black and white round analog alarm clock

The UN-leaked climate report, due out next year, summed it up by warning that parts of the earth will now face unbearable heat, collapsing ecosystems and rising tides, and the worst is yet to come.

Normally, just because our government can spend what it wants does not mean it should. There must be a reason for spending because all spending uses real world resources.

But we are beyond these considerations when it comes to climate change. We should be more worried about the collapsing sky, rather than the economy. We should be more inclined to risk rising inflation than sea levels.

The Office for Budget Responsibility recently said that taking early action to meet UK climate targets would have a lower net impact on UK finances than Covid or the Great Recession. The impact, however, would be twice as great if the government were to delay taking action to reduce emissions. But is the will there now?

Most of the 50% of the progress made on emissions since 1990 levels is due to the decarbonization of the electricity sector. The CCC report says, “If progress does not extend beyond the power sector, the sixth carbon budget will be largely missed.

The money is there to do more

Three months after pledging to double public investments to help the poorest countries adapt to climate change, we decided to cut the budget for overseas aid “until the budget situation calls for it.” allow ”.

It is exasperating when you realize that the tax situation does not require this kind of compromise. Imagine the leadership capital to be gained by spending significant public capital in the fight against climate change. Even in a world as turbulent as this has become, it would be difficult for other countries to resist as there is now real global public support for decisive leadership to carry out meaningful climate action.

In addition to regulating our own behavior, we must encourage our politicians and the media to regulate theirs when it comes to discourse about public money. We should no longer accept accessibility arguments to justify a spending commitment of 0.01% of GDP. The only way for politicians and the media to recognize that more can be done is if they are clear that we are clear, their arguments will no longer know that government is like you and that it needs to budget. Consequently.

If we recognize that the money is always there to meet or even exceed our climate change goals, we could, for example, make the transition as soon as possible:

  • more environmentally friendly domestic heating methods;
  • back to public transport and out of our cars;
  • from non-environmentally friendly agricultural practices and products;
  • technological solutions to combat climate change, including compensation for IPR holders for sharing these technologies with the rest of the world.

If we don’t, how tragic will it be to look back (assuming we can) from a 3? hotter world, and realizing that the only reason for this result was because we didn’t spend enough on a completely made up thing for a completely made up reason. I wish you couldn’t make it up. Fortunately, there is still time for this thought to remain constituted. But only fair.

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