Feel the Heat: Why Capitalism Trumps Climate Change

By Ishani Mookherjee

With the rise of global capitalism, international trade has played an important role in economic development. Most trade transactions involve a production process, leading to increasing greenhouse-gas emissions, thereby intensifying environmental disruptions, including climate change. While international trade has grown substantially, the environment movement has also gained momentum since the 1980s. The most recent agreement within the UNFCCC is the Paris Agreement, which aims to respond to global climate change, by reducing the rise in the world’s average temperature.

This paper, while enumerating the inherent contradictions between neo-liberal trade economists and environmentalists, argues that the efforts to respond to environmental crisis are futile owing to the non-binding character of climate negotiations and the limited role of government. Further, the abdication of Common but Differentiated Responsibility and the possibility of withdrawal of developed countries like the United States of America (USA) from such agreements raise questions about their effectiveness.

Even though most of the countries are signatories to such climate change agreements, Free Trade Agreements (FTA) and the World Trade Organization (WTO) Rules continues to overpower climate negotiations. The WTO Rules are legally-binding treaties, with considerable normative value, incorporated within the wider corpus of international law, the violation of which can lead to sanctions against the defaulter. In contrast, the commitments in climate negotiations function on an honor system, with a weak mechanism to penalize defaulting countries. For instance, the Rio Summit provided that “measures shouldn’t constitute … a disguised restriction on international trade”. Similarly, the Paris Agreement is ‘a voluntary accord’ to reduce emissions, emphasizing on consensus-building. The non-mandatory “Nationally Determined Contributions” (NDCs) are not a part of international law, due to lack of specificity. Though the Agreement provides for an “enhanced transparency framework” and the parties are legally bound to have their progress tracked by a technical expert, this is only to “facilitate implementation” and “promote compliance”. Such clauses clearly illustrate how the climate negotiations function on “name and shame” system, with no enforcement mechanism or penalty to discourage failure and punish violators.

Most of the climate change negotiations require the states to provide subsidies and incentivize indigenous local developers to invest in ‘green environment-friendly’ products and renewable energy and benefit from a minimum-guaranteed price. However, such environmental policies are seen as a violation of free international trade and the legally-binding WTO Rules, which prohibit trade barriers and discrimination between local and foreign goods. So, if the government tries to subsidize local green products or ban polluting fossil-fuels, the WTO Rules become a way to challenge such policies.

The friction between international trade and climate change can be understood in light of the inherent ideological regarding the role of the government. The capitalists and trade economists focus on the increased role of the profit-making private sector and condemn government interventions, like protectionism, as they create distortions in the self-correcting market and harm the welfare of economic agents. In contrast, environmentalists deal with “missing markets”, like dumping carcinogens into rivers without paying for the pollution. They view government intervention through environment-friendly policies like pollution-pay taxes, as correcting a distortion. They recognize that maximizing profit and saving the planet are intrinsically conflicting. This seems quite similar to the Keynesian Theory, which emphasizes on the role of government in correcting market disequilibrium and unemployment, improving public infrastructure and encouraging investment.

However, international financial organizations like the World Bank and International Monetary Fund always encourage austerity policies, emphasizing on the privatization of the public sphere, based on the premise that private sector services were superior to public sector ones. However, the environmentalists recognize that the logic of austerity is untenable for climate change, as the development of renewable energy requires an active role for government and public sector utilities. Yet, climate change treaties themselves don’t focus on the role of the government. They focus on the role of a country as a whole, requiring action from the government, powerful industrialists and private-sector corporations. Abdicating the principle of ‘Common but Differentiated Responsibilities’, since 2011, there has been a shift towards ‘bottom-up’ architecture wherein all countries were required to contribute. Though despite economic development in developing countries, the developed countries contribute to a greater proportion of emission, the Paris Agreement ignored the context of historical responsibility. It recognized the principle in elements like technology, capacity building and transparency, but it did not provide a specific division between developed and developing nations. Moreover, the Paris Agreement envisaged a limited government role. Following the ideology of ‘green capitalism’, it wanted to encourage “the markets, the private sector” to invest and attain the goal of a low-carbon, low-emissions world, by investing in green technology, low-carbon ventures and financial assistance, irrespective of whether the government takes such steps.

Such an emphasis on the private sector completely violates the argument of environmentalists who consider the private sector to be ill-suited for such investments. Even though ‘green capitalists’ promote low-carbon green technology, they ignore the ecological contradiction of capitalism that still remains – profit-making and environmental conservation can’t be complementary. Preventing global climate change would require a radical decrease in fossil-fuel consumption, but the private sector isn’t likely to sacrifice its profits for this. Thus, green capitalism is not a solution.

Response to climate crisis requires immediate sacrifices and a pro-active role by the government, cities and public sector undertakings in the form of subsidies and investment in environment-friendly infrastructure. Carbon pricing should be encouraged to internalize the external cost of climate change and encourage transition into a decarbonized economy. In compliance with the Keynesian Theory, there is a need for bold long-term planning at every level of government, national and local, to encourage sustainable economy and resistance against the powerful cooperation and polluters.

In addition to the lack of a legal mechanism to enforce climate change treaties, some of the agreements allow parties to withdraw without any penalty. The Paris Agreement enables a party to withdraw after a notification, three years after the agreement comes into force in that country. In 2017, the USA-Government led by Donald Trump officially notified its withdrawal from the Paris Agreement. The USA has been the highest historic contributor to carbon emissions. The USA was also a notable exception to the Kyoto Protocol. Since the Kyoto Protocol specifically depended on the developed countries, without the USA becoming a part, the agreement was considered ineffective. However, under the Paris Agreement, the principle of Common but Differentiated Responsibility is less important. Other powerful countries like China and the EU have affirmed their support to the Agreement. Further, since the cost of renewable energy is at an all-time-low, developing countries, like India, are more capable of meeting their target.

Despite such factors, the withdrawal will undermine the universality of the Paris Agreement and by setting a bad precedent and impair other countries’ confidence. It might pressurize developing countries to reduce their emissions and raise their costs. It would also lead to a reduction in climate aid to developing countries. If the USA abdicates its responsibility, the efforts of the rest of the world might not be enough to prevent global climate change. Given the priority accorded to economic growth and international trade, the developing countries might themselves forgo their own commitments to the Paris Agreement.  

Therefore, it is evident that owing to the non-binding nature of the environmental treaties and minimized role of the Government, economic development and international trade become weapons to trump environmental damage and climate change. Further, elimination of Common but Differentiated Responsibility and withdrawal of developed countries from such agreements impairs their effectiveness and pressurizes developing countries to reduce emissions.

To ensure that trade and climate change are mutually supportive, there should be structural changes in trade laws to allow countries to re-localize their economies, incentivize local producers of green products and expand trade in green products. Also, developing countries must be assisted in ‘greening’ their productive capacities. Further, the climate change treaties must be binding, with strict penalties in case of default or withdrawal.

Ishani Mookherjee, is a third-year law student, pursuing the BA LLB program at Jindal Global Law School, O.P. Jindal Global University, Sonipat.


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  22. Image Source: Yesmagazine

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