First, this crisis has been 20 years in the making and shows very clearly that the longer risk is ignored the bigger will be the consequences; second, we shall face an extended period of recession in the rich countries and low growth for the world as a whole.
Let us learn the lessons and take the opportunity of the coincidence of the crisis and the deepening awareness of the great danger of unmanaged climate change: now is the time to lay the foundations for a world of low-carbon growth. High-carbon growth - business as usual - will by mid-century have taken greenhouse gas concentrations to a point where a major climate disaster is very likely.
We risk a transformation of the planet so radical that it would involve huge population movements and widespread conflict. Put simply, high-carbon growth will choke off growth. To manage the climate, we must cut world emissions by at least 50% by 2050, as recognised by the G8 earlier this year. Given that rich countries' emissions are far above the world average, their cuts should be at least 80%, acknowledged in Europe and the UK, with the adoption of that target last week. In recent days, Bank of England governor Mervyn King and Gordon Brown have indicated that Britain is heading into recession. We do not know how long it will last, but it is unlikely to be short. The relevant policies are being put in place to avoid plunging the UK further into crisis and to start constructing a more robust financial system. But as banks rebuild balance sheets and look for higher capital ratios they will have to restrict lending.
Monetary policy alone, important though it is, is unlikely to pull us out of the recession quickly: fiscal policy to expand demand must play a role. But increased government spending should be focused not just on boosting short-term demand. We must promote growth that can be sustained. The coming period of growth can be firmly based in the low-carbon infrastructure and investments that will not only be profitable, with the right policies, but also allow for a safer, cleaner and quieter economy and society.
Posted on 23rd October 2008
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