We need to rethink public debt
The world has embarked on a #racetozero. In order to win this race and meet the aspirations of the Paris Agreement, global greenhouse gas emissions need to be halved within the next 10 years. I believe the sheer magnitude of the task at hand ought to change our traditional view on public debt. Not any debt, of course, but a specific kind of debt — one which is dedicated to driving and accelerating a socially just transition to a climate neutral economy. Rather than being a burden for future generations, this kind of debt arguably reprecents a critical success factor for their wellbeing. It becomes especially compelling when considering that we are not only facing an existential threat, but at the same time perhaps the greatest economic opportunity of this century, with the potential to create millions of decent jobs amid a looming economic crisis, not to mention historically low interest rates.
Unfortunately, private capital markets are not well prepared to help humanity win the #racetozero, especially at today’s inadequate carbon pricing levels. On the contrary, they continue to fund fossil fuel infrastructure (which continues to be way more profitable than ever should be), and they fail to finance important decarbonization projects whenever the economics of an unprecedented market failure don’t allow for “market rates of financial return”. At the same time, the European Natural Gas Lobby is working hard at recklessly slowing down the green transition. Sadly, instead of vanishing, climate denialism has been replaced by “discourses of delay”. Moreover, there continues to be an immense cumulative financing gap of trillions of EUR by 2050, which are needed to rapidly accelerate the modernization of power grids, the decarbonization of public infrastructure and the “electrification of everything”. The financing gap persists even though the cost of capital has never been lower, especially for developed economies (while overly high capital costs in developing countries represent a tragic obstacle for clean energy’s cost advantage to materialize and replace coal power supply).
So what is stopping the EU from going “all in” and issuing massive amounts of long-term debt in order to “spend & invest its way out of this crisis” (including helping developing nations to accelerate their energy transition)? Private capital can and should of course join in whenever it can, but winning the #racetozreo will require strong economic incentives, a combination of adequate carbon pricing and subsidy shifts, as well as the leadership of governments to publicly commission large scale transformative projects in the first place. I believe we owe it to future generations, including our children, to rethink our view on public debt. We need to recognize the necessity for borrowing unprecedendet amounts of resources from the future, for investments into the future, for the future’s sake. Over the next 10 years we have basically one shot at getting this right. Let’s make it count.
