Swift death of the 'Green Consensus'

Countries across the world are scaling back their climate ambitions from the high points of the past few years

Will we look back on the years between 2020 and 2023 as the high point of the “green growth” consensus? As the pandemic struck three years ago, a cohort of like-minded leaders across the world used the extraordinary cash that they were able to squeeze out of their treasuries for revival and recovery packages that leant heavily into a greener recovery. This reflected an apparent consensus across much of the world of the importance of climate change as an existential issue; that future growth could and would be less carbon-intensive than before; and that governments could and should put a finger on the scale to ensure that green growth arrived sooner rather than later.

This consensus was aided by one or two fortuitous events. The defeat of Donald Trump in the United States’ presidential elections was perhaps the most important; the Democrats were, at least in theory, committed to climate action while Mr Trump occasionally flirted with climate change denial, saying in 2012 that climate change was “created by and for the Chinese in order to make US manufacturing non-competitive”. When Joe Biden took office, the progressive and moderate elements within his party found that they could reach a consensus on giant public financing for industrial policy that had a “green” element. Mr Biden, who seems to think he owed his election to winning back de-industrialising states in the Midwest that the previous Democratic candidate had lost to Mr Trump, agreed with any policy that let him claim that he was creating new factory jobs in the Rust Belt. And so the Inflation Reduction Act (IRA), which includes almost $370 billion of subsidies for clean energy, was born.

Meanwhile, in Beijing, President Xi Jinping determined that the Chinese economy could gain an edge over the West if it committed fully and quickly to newer, less carbon-intensive sectors; and so he raised support for sectors like batteries and storage and electric vehicles (EVs), and announced in 2020 that China’s carbon emissions would “peak before 2030”. The Chinese economy jumped to fulfil Mr Xi’s wishes: in 2023, China accounted for almost half of the world’s total low-carbon spending, according to Bloomberg. More than half a trillion dollars went into renewable energy, batteries, and EVs.

The European Union responded to the pandemic by coalescing quickly around a previously controversial $1.2 trillion roadmap for green investments in the coming decade, of which half would come from the Commission’s own finances and a further tenth from national budgets of various member states. Tax revenue would be raised from, among other measures, a new carbon tariff on imported goods.

Developing countries, including India, also managed to move towards difficult reforms. South Africa, Indonesia, and Vietnam took on the task of transitioning their complicated and politically sensitive energy sectors with some external financing. India committed to carbon neutrality by 2070 — but, in addition, quietly agreed to stop planning any new coal-fired thermal power plants. More publicly, the government said that renewable energy capacity within the country would be tripled by 2030.

Within the private sector, meanwhile, finance was mobilised for projects and instruments that boasted high scores on environmental, social and governance (ESG) scales; companies developed their own decarbonisation or net zero plans; and activist investors pushed financial institutions towards disinvestment from high-emission sectors.

In late 2023, however, there are good reasons to worry that this consensus is breaking down. In fact, much of this progress may now turn out to be illusory, or subject to reversal.

The weakest link is, as always, the United States. The problem is not just its turbulent politics; there is an even chance that Mr Trump or another climate-sceptic in the Republican Party will occupy the White House in 2025, and set about reversing whatever Mr Biden has done. At least one Republican, Vivek Ramaswamy, rose into contention by arguing that ESG considerations in finance were themselves a problem, and a symptom of “woke capital”. But even the IRA itself will likely be revealed to be based on a set of overoptimistic assumptions. The compromises made to get it passed have weakened its actual climate component disastrously. The US has no tax on carbon, and its path for future emissions reduction depends on investment leading to the scaling of technological solutions that do not exist today and may never exist at all.

Europe, meanwhile, is running into various problems of implementation. The Russian invasion has led to Germany reopening coalfields and raising its emissions rather than cutting them. The European Commission has opened an investigation of Chinese-made EVs, although cheap EVs are exactly what Europe needs to scale up the decarbonisation of its mobility sector. Many other provisions of the Green Deal are being delayed as politically powerful segments of industry and agriculture object.

The United Kingdom, meanwhile, an erstwhile leader in the green race, has attempted a spectacular U-turn following a narrow victory for the ruling Conservative Party in a bye-election in Uxbridge, a London suburb angry about new city rules that imposed a fee on older cars. The insurgent Labour Party lost in a government stronghold by only 500 votes; but the embattled Tories were so relieved to have found an issue that rallied some of their traditional voters that they have reversed many of their own policies. Prime Minister Rishi Sunak said that he would not put into place many requirements that consumers might find burdensome, including requirements for more energy-efficient heating of homes.

And China may not have jettisoned its investment in new and greener sectors, but geopolitics and a series of power shortages in 2022 have forced it into re-evaluating its move away from coal plants; it is approving new coal power plants at the rate of two a week.

The fact is that the optimism that many felt in the 2020-23 period was based on a misconception. Governments were given an opportunity to spend money, and they took it. This is not a surprise. But most politicians did not do so in order principally to green their economies. Their actual motivations were different: to obtain a competitive edge in growth, to achieve economic security, to finance reindustrialisation, or to pay off regions and interest groups that had lost out over two decades of globalisation. The green consensus was remarkably shallow; it was the “growth” part of “green growth” that they cared about, and the “jobs” part of “green jobs”. At the first sign that they may be required to choose between the two, it is clear what politicians will choose. The notion that climate action will require a few sacrifices is still political anathema, even in 2023.

The writer is director, Centre for the Economy and Growth, Observer Research Foundation, New Delhi