Topic: Article
Posted on 21st Dec 2023

Inclusive Wealth – The Antidote to (Deadly) Wrong Government Policy On Climate Change

King Charles read out the UK Conservative Government’s King’s Speech on the 7th of November 2023, and at times he must have wanted to pull his crown over his eyes and hope that people would not notice he was there. A man who spent much of his life campaigning for environmental protection was made to announce that the government intends to introduce legislation allowing oil and gas companies to bid for new licences to drill for fossil fuels in the North Sea. This in the face of advice to the contrary from the government’s own climate change body (the Climate Change Committee) that stated in its recent report on emissions that ‘expansion of fossil fuel production is not in line with Net Zero’.

This decision is particularly troubling after decades of evidence from the international climate science community that a reduction in greenhouse gas emissions was necessary to avoid critical damage associated with a 1.5oC increase in global temperature compared to pre-industrial levels. A few weeks after the King’s difficult day, most of the delegates at the annual UN meeting on climate change (COP28) agreed on the need to “transition away from fossil fuels in energy systems”. How is it possible that a policy like this can emanate from a group of politicians who not only should, but actually do know better?

There are many answers to this question. This policy (at this time) is probably due to short-term political gain, allied to short-term economic cycles. Of course, this type of policymaking ignores the searing evidence that bad decisions based on short-term considerations are a false economy in the medium and long term. But another contributing factor in poor decision-making is far less understood. This is the lack of economically diverse thinking at the top of government (including political parties and the civil service).

To explain this in more depth, it is helpful to turn to the adherents of Inclusive Wealth. Speaking at a recent RSA event called ‘What Could Go Right’, Professor Sir Partha Dasgupta said that it was ‘deadly wrong’ for countries to use Gross Domestic Product or GDP as a measure of economic wellbeing.  Using GDP as the measure of success encourages short-term thinking. This is because it did not consider the depreciation of assets. Dasgupta was particularly concerned about the decline of natural assets (natural capital) in his speech, but this also includes the decline in human capital, both of which are severely damaged by the impacts of climate change.

Dasgupta was one of the co-authors that produced the Inclusive Wealth Report which is a biennial study led by the United Nations Environment Programme (UNEP). The Report evaluates the capacity and performance of nations to maintain economic sustainability and the wellbeing of their populations. The overview of the Report explains that short-term income (from the exploitation of oil and gas) can be temporarily boosted by overconsuming capital, but this soon leads to a reduction of productive capacity. This is because the core ingredients of economic prosperity include human and natural capital.

The Report reminds us that in order to rebuild global economic resilience after the COVID-19 pandemic, there needed to be investment in the social infrastructure of society. It says that to ‘build back better’… requires building back differently’. Decisions like the one made by the UK Government on gas and oil exploration do not meet that description and ignore the consequences of maintaining the status quo. The Inclusive Wealth Report includes a depressing number of statistics on the decline of the natural world but also lists damaging trends for social issues such as the resurgence of populism and social unrest, spiralling inequalities in health, skills and opportunities and a growing sense of dissatisfaction with democracy. The report explains that these trends undermine more than a century’s worth of economic progress, but they also set up negative social trends that chip away at social cohesion and affect the poor and vulnerable disproportionately.

Dasgupta seemed to be encouraged that some countries are attempting to adopt ‘satellite accounts’ to measure progress on nature-based assets as capital assets. The UK (like other countries) also tracks its Happiness Index although it has not attempted to interpret this as a capital asset. Nor has the data acted as a constraint for damaging economic policy that undermines long-term happiness.

The 2023 UNDP Inclusive Wealth Report spells out the way forward for national policymakers, including the ones in the UK. It says that ‘investment in human capital affects the wellbeing of society, particularly for people living in poverty and other vulnerable groups’. It goes on to state that if the value of human capital is weighted too low, then this ‘fundamentally weakens incentives for countries to improve education levels and health conditions, and may result in investment being shifted to other capitals. The most obvious of these is easily obtained energy sources, regardless of longer-term consequences to society. The policy is akin to eating a chocolate bar when you are hungry. The sugar rush quickly wears off leaving the body in worse shape than it started.

This is a lesson that is not just limited to those formulating energy policy. It applies to those planning built-environment projects or any other form of intervention that affects people’s lives. Focussing on one part of the sustainability equation to the exclusion of others is harmful and, in the case of climate change, will ultimately cost lives. It is only by giving equal weight to social, environmental and economic factors that the ability to continue indefinitely (the definition of sustainability) can be guaranteed. King Charles should take some comfort in the knowledge that many people outside the current government understand this.

Crafted in Liverpool by Kaleidoscope