A Green New Deal Economics Essay

Published: 2021-06-28 15:45:05
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The term has been implied as the main concept for various cuts and retrenchments to public spending judged as necessary to recover debts, to finance bank bailouts and cause fiscal encouragement (MacLeavy 2011). For the UK government this has been enforced through cuts to public expenditure and raising taxation (Sawyer 2012).
The Green New Deal is a publication released by the new economic foundation in 2008 it was written to offers policies and monetary solutions; to tackle and stabilising the financial crisis, climate change and rising energy prices termed the ‘triple crunch’(Simms et al. 2008).
It was written by the Green New Deal Group a collection of ‘new economists’ with an environmental economist background, with many of their principals are based upon the theory of Herman Daly existing in a finite planet and society living within its means.
The report endorses ‘joined-up thinking’ linking the markets, the state, society and ecosystems. It cites the stabilisation of the economy in the short term; joined with longer-term reformation of the financial, taxation and energy systems deals with the ‘triple crunch’ (Simms et al. 2008).
With the fundamentals of the solution based upon development of low carbon economies; which offers high employment based upon segregated sources of energy, believed to provide a secure economic environment with high levels of regional production and greater nationwide security.
The current global recession began in 2008 after a period of dramatic economic growth over approximately 20 years (Convery 2009). The common belief is that growth of economic wealth secures the long-term welfare of the nation, however this is fundamentally wrong.
The graph 1 below illustrates the UK showing the development of growth and welfare over the last fifty years. Though Gross Domestic Product (GDP) has continued to rise since the 1950’s; the pattern for the Index of Sustainable Economic Welfare (ISEW) does not correlate, from 1975 onwards welfare has declined despite the economic growth (Jackson & Marks 1999).
Graph 1 GDP and ISEW pattern since 1950
Full-size image (17 K)
The graph illustrates that GDP is a poor measure of public wellbeing and the environment and that growth may even contribute to a poorer living standard (Stiglitz 2009). Simms & Woodward (2006) argues growth does not work; it supplies an unfair advantage to those who are wealthier.
In balance a period of non-growth can therefore be argued as having positive environmental effects Klitgaard & Krall (2012) states that growth in the economy utilises greater resources such as fossil fuels and degrades habitat, therefore a period of less growth would mean reduced carbon dioxide emissions; due to the reduction in consumption and demand for oil as a result of soaring prices (Miller 2013), besides less resource consumption and habitat destruction (Rockström et al. 2009). Conversely the economic decline may cause a weakened concern about important environmental issues, which are viewed as less consequential; such has been recorded with decrease in public concern on climate change (Scruggs & Benegal 2012).
Governments seek growth as an answer to social problems as absence of growth in economy amounts to accumulating debts; the breakdown of social welfare and high unemployment (Klitgaard & Krall 2012). Thus the economic downturn in the UK has caused the decreased percentage of output which has fallen by 6% (Faccini & Hackworth 2010), elevated rates of unemployment, recorded higher than any previous recession in the last 40 years; from the first quarter of 2008 unemployment rose to early 2010 from 5% to 8% (Elsby & Smith 2010).
The current Coalition government has undertaken steps to help recover the economy and improve the confidence in businesses. This has been implemented through the introduction of ‘Austerity’ measures; by raising levels of taxation and cutting spending (MacLeavy 2011) this is aimed to encourage economic growth and the GDP.
Austerity is the term which defines policies designed to reduce the government's deficit; the term derives from the Greek word ‘austẽros’ meaning harsh or bitter (Elmhirst 2010). At present there is no definition given by the UK government though the classic Oxford dictionary definition of austerity is:-
"…difficult economic conditions created by government measures to reduce public expenditure…"
(Oxford Dictionaries 2013)
However Austerity measures undertaken are not working, 2013 saw the UK credit rating drop from triple A to Aa1 (Meadway 2013) whilst the International Monetary Fund (IMF) has urged the UK government to drop the £130 billion ‘austerity measures’ as they are not assisting the economic recovery (Philip 2013).
The budget of 2010 included £ 7 billion cut to welfare which included alterations to incapacity and housing benefits (BBC 2010) with chid benefits rates being frozen (Browne & Levell 2010) plus a 7% cut put in place upon local councils (BBC 2010). The result of these measures has had a large impact upon the UK population; households of a working age on a low income suffered the most due to cuts in welfare spending (Browne & Levell 2010). Overall social consequences include a rise in poverty, which effects the population disproportionately, females and young adults suffer higher unemployment (MacLeavy 2011) as well as over 65s which in the UK was recorded to have the fourth highest levels of unemployment in Europe (Dunkley 2009).
Cuts undertaken by the UK Government has had severe impacts on the Welsh government, in 2010 the government cut public spending by £81 billion in addition to tax rises of £29 billion; this saw the Welsh Assembly Government having its budget cut by £1.8 billion until 2014 (BBC 2010). A recent example of cuts impacting the environmental sector seen within Wales includes the merging of the Environmental Agency (EA), Forestry Commissions (FC) and Countryside Council for Wales, into the Natural Resource Wales (NRW) which occurred in April 2013, this amalgamation has been estimated to save £158 million for the Welsh Government over a period of ten years (BBC 2011).
The 2013 Budget implemented cuts to Departmental Expenditure Limits (DEL) by 1.1 billion 2013-14 this effects the Department for environmental food and rural affairs (DEFRA) as well as the Department of energy and climate change. In a press release by the chief executive of the Chartered Institution of Waste Management (CIWM) Steve Lee commented that the cuts shall impact the waste sector, but also places doubts upon the government’s promise to create a green economy (CIWM 2013).
An example of extreme Austerity measures in the EU has occurred in Cyprus, tax increases and spending cuts in the public sector have failed (Persianis 2013) thus consequently drastic measures to accumulate funds for the European bailout has meant, the restructure of the banking system and any bank deposits over $100 000 euros being utilised by the government as a contribution to the bailout (BBC 2013).
A Green New Deal
The report is split into two main sections looking at the ‘triple crunch’ and the New Green Deal, it offers numerous policies which aim to combat the measures of ‘Austerity’ however this assignment shall look specifically at policies and financing of energy as the key principal to offer solution of Austerity measures.
The report policy aims for a rise in carbon tax and traded carbon, aimed for drop carbon emissions (Simms et al. 2008) as it has been cited as a cost-effective strategy for the reduction in emissions (Baranzini et al. 2000). Environmental tax reform (ETR) can reallocate tax from employment and income onto pollution; the theory provides a ‘double dividend’ where the environment is protected and the tax generated economic benefits (Bosquet 2000).
In Denmark, energy tax saw 10% reduction in energy consumption from 1993-1997 due to the tax revolution (Bjørner & Jensen 2002) however there is numerous literature upon failure of the carbon taxes. Carbon tax can increases the price of products and weakens the competiveness in the energy sector, whilst most revenue from tax is kept by the government and not reinvested into the energy sector (Lin & Li 2011) or to technological development (Gerlagh & Lise 2005).
Bohlin (1998) found in Sweden carbon tax impacted different sectors unevenly, with the tax showing little impact upon transport, housing and the service sector as other costs to these systems are higher. Another example of tax failure is that from Norway which implemented ambitious carbon taxes; no direct impact has been seen in carbon emission reduction (Bruvoll & Larsen 2004).
The renovation of the tax system is a strong proposal by the report. It calls for the reformation of the corporation tax, so smaller firms do not have the same tax burdens as larger companies (Simms et al. 2008). The generation of smaller businesses is a positive economic measure as Research undertaken by Robinson & Stubberud (2012) in Germany found that smaller businesses that have to compete against large ones showed more environmental and had the ability to deliver products more efficiently and sustainably.
The policy for higher carbon tax is unlikely to resolve the effects of austerity, as the tax is unlikely to encourage any change to the energy sector, though the tax renovation to allow smaller businesses to flourish is an effective action as t not only generates employment but also encourages more sustainable economic growth.
Interest Rates
A pinnacle element of the Green New Deal is the inclusion of low interest rates, so that investments are made more easily accessible and affordable; the concept behind this is the increase of investment into the renewable energy sector and of the development for properties that are more energy efficient. Such steps have been undertaken in Germany where the feed-in tariff plan guarantees an imbursement four times of the value market shares for electricity generated from renewable energies, this has been quoted to have generated 250,000 jobs (Simms et al. 2008).
However though the policy for low interest rates shall provide environmental benefits; they may not be the solution to ‘Austerity’, although they are meant to encourage borrowing and investment to boost the economy; countries such as Japan which has had a low interest rate since the mid 1990’s have shown no economic growth (Oi 2012). Research by Chang & Huang (2010) found low interest rate policies, are preventing the Japanese banking system to undertake economic growth. Therefore low interest rates for the energy sector may not encourage the growth which the Green New Deal and therefore possibly not be a practical measure to combat austerity.
The report calls for the adoption of carbon a reduction programme by the Institute for Public Policy Research (ippr) which cost between £50 billion and £70 billion annually, it is based upon the theory of serious investment into renewables to generate electricity (Simms et al. 2008).
Studies undertaken by Apergis et al. (2010) showed that the growth of the renewable energy sector; could reduce dependency on imported energy sources but also lessen the risk of price fluctuation attached to oil and gas supplies, and consequently us many countries have invest in these technologies (Toth & Rogner 2006). Whilst Madlener & Stagl (2005) state that the concept of renewable energy promotion is well liked across Europe and work by offering fixed guaranteed fees attached with a buy-back requirement for electricity fed into the grid.
Renewable energy consumption has been claimed to improve American standard of living through strengthening the economy and consequently generated more employment, approximately 40% of the current energy supply could be sourced from solar energy in the Unites States though negative environmental consequences through the loss of 20% land would be attached (Pimentel et al. 1994).
However not all renewable energy has positive effects, Solar energy is expensive and has an extended energy payback period, whilst wind energy is intermittent and located in rural areas of low population in preference to where demand is (Moriarty & Honnery 2007). Though it is possible to store the energy, this is linked with high capital and maintenance, costs penalty of technical failure and the loss of energy whilst standing or in transfer (Barton & Infield 2004).
Thought the government encouraged renewable energy in the 2013 budget, a more significant ‘austerity measure’ in the form of tax has been initiated to encourage more gas and oil extraction from the North Sea (BBC 2012) this is in conjunction with tax breaks to Fracking companies such as Cuadrilla Resources and financial incentives to local communities (Carrington 2012) though this form of energy comes with negative consequences, it is pursued for energy security and therefore political support for the government and encouraging financial growth.
Investment in Renewable energy allows society to live as efficiently, as possible giving future generation access to the same modern energy (Karlsson-Vinkhuyzen et al. 2012). Therefore the proposal for investment in renewable energy is a plausible concept to deal with ‘austerity’. It also coincides with the principal behind Tim Jackson, Prosperity without Growth which believes in the population prospering inside the ecological limit, this idea is against the present consensus that economic growth is only able to generate prosperity by increasing incomes creating a higher quality of life (Jackson 2009).
Generating and educating a ‘carbon army’ to produce thousands of new jobs in the UK is another policy in the New Green Deal, funding packages are needed to carry out this goal, (Simms et al. 2008) however where this funding shall come from is not outlined in the report though the principal of the idea is that millions of jobs would be formed, whilst thousands of businesses both new and existing will benefit by the increase in tax revenue as a result of economic activity.
According to FitzRoy and Papyrikis (2010) the government has missed out on an opportunity for investment in renewable energy to create new jobs termed a ‘green fiscal stimulus’. The recession could provide opportunities for ‘infant industries’, this is where government aid instigates the development in global industry such as in the renewable sector. This was taken advantage of by the Danish in the late 20th century which pioneered the development of wind mills and consequently now stands in the position of providing half the global demand (Hansen et al. 2003).
Research development
A key component of the report is for investment research and development into new energy infrastructure which is more sufficient whilst also decreasing the demand for energy (Simms et al. 2008). Annual payment from US households has been suggested by Li et al. (2009) for increased Research and development into new energy to substitute for fossil fuels, whilst the development of more efficient energy could result in cutting energy costs (Hanley et al. 2009). Research by Popp (2002) found a positive relationship between energy prices and pioneering activity in the develop of new energy.
Though this policy is acceptable to tackling the impacts of austerity, again where the funding for the investment has not been specified.
As part of the policy no new nuclear power station are envisioned (Simms et al. 2008) this is in contrast to current government measures which have invested in ten new nuclear power stations by 2020, an example of such stations includes the approved Hinkley Point nuclear power station in Somerset, sanctioned in 2013 thus creating 25,000 jobs in the construction and later 1000 employed in running the plant (Steadman 2013). Though nuclear energy does provide a sustainable supply of energy and is less liable to cost fluctuation (Patel 2009) and work undertaken by Adamantiades & Kessides (2009) lists numerous advantages such as energy security, evasion of instability of volatile fossil fuel prices and a major contributor to the reduction of atmospheric pollution, there are still numerous disadvantages.
High costs of clean-up if a disaster occurred are attached, one large accident the size of Chernobyl would cost an approximate $38 billion, though the probability of a large accident occurring is very low (Proops 2001) and though Nuclear energy supplies 31% of Germany current electricity supply (Adamantiades & Kessides 2009) since Fukushima Germany has set to close its remaining 17 Nuclear reactors by 2022 (Jones 2011).
One could argue that nuclear energy though with numerous dangers would provide a sustainable energy source compared to finite, un-renewable energy sources.
Another recommendation though not directly linked to energy; is to enforce re-regulation and constraint to the global financial sector; this would be implemented through the breakup of large banking groups; demerging into small banks (Simms et al. 2008). This is a positive move to bank regulation smaller banks such as "community banks" offer social incorporation in the community (Harris 2013) and allows for a higher level of regulating (Fogel et al. 2011). Bostic & Robinson (2004) concluded that community banks prosper in a deregulated environment due to stronger awareness and knowledge in supply loans in local markets compared to distant larger banks.
Overall the New Green Deal gives numerous possible and plausible policies which may be undertaken by the government instead of Austerity measures, however many of the policies do not show how they would generate necessary funding to implement these ideas and some seem too idealistic.
Other possible policies which may be undertaken include financial and social aspects similar to the localised banking proposal (Seyfang & Longhurst 2013) conclude a similar theory for currency – "community currencies" (CC) the benefits include localising economic development and encouraging social wealth. The theory is based upon the idea that local money is only available to the specific community (Richey 2007) there are three types of community currencies Local currencies, Community barter currencies and Volunteer service credits (Seyfang & Pearson 2000) an example of Community barter currencies includes Local Exchange Trading Schemes (LETS) which is already a widely incorporated scheme used in the UK, in alone there were 31 LETS recorded (Aldridge 2002). It has been cited as a means of endorsing sustainable development, it encourages social inclusion and creates employment in local economies (Seyfang & Longhurst 2013).
The problem of intermitted energy and high financial cost as well as distribution issues, maybe solved by the adoption of a strategy such as that of the German, hamlet of Feldheim where approximately 100 inhabitants generate energy from 43 wind turbines in the surrounding area; use solar panels and convert manure into electricity (Carrington 2012). Though there is a clear environmental advantage other benefits include the village only having the need for one of the wind turbines, making them not only 100% reliant on renewable energy but they are able to sell the surplus energy generated from the 42 wind turbines back to the grid generating an economic profit, the village has also been able to employ local residents and on average pay 30% less for electricity than the general German population (Pauls 2013).
A study undertaken by Coote et al. (2010) concluded that by working a ’21 hour’ week; this would reduce societies ecological footprint, reduce the amount of consumption and increase social interaction, however negative consequences included risk of poverty and earning lost if a 21 hour week is introduced.
In conclusion Austerity measures being undertaken by governments globally are not working and there ‘Austerity’ should be abandoned. The report argues that undertaking low interest and implementing high carbon taxes however these policies may not be that successfully identification of other options must be made if the impacts of the Austerity measures are to be dealt with.

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