Bank of England Governor Mark Carney has predicted that climate change will lead to a financial catastrophe—unless corporate leaders start taking the risks of climate change and climate change policy into account in their decision making. As Terence Corcoran reports in a Financial Post article, the governor in a recent speech in Toronto urged corporate leaders to calculate and consider the long-term risks of man-made climate change and of government climate policy shifts that could leave oil, gas and coal assets “stranded” and “risk trillions of dollars.”
Governor Carney’s advice should be challenged because only one of those risks—the climate policy risk—is real and depends on accepting the premise of catastrophic man-made climate change as valid. The climate policy risk also depends on how government’s role is defined.
Is the premise that catastrophic man-made climate change is happening and that corporations, particularly those involved in producing fossil fuels, are largely culpable, valid? Climate is always changing, and human activity through carbon emissions probably has some effect on it. But there is no evidence of a catastrophic man-made climate change—quite the contrary, more CO2 in the atmosphere is good for plant growth and therefore good for humans. (For a thoroughly researched explanation of CO2’s impact on climate, read Alex Epstein’s The Moral Case for Fossil Fuels).
Carney’s warnings are based on unfounded climate alarmism, motivated by his desire to curtail and end fossil fuel production and consumption. But eliminating fossil fuels by government policy, before affordable, abundant and reliable alternative forms of energy are available, would make humans poorer and our lives harder.
By the standard of human flourishing, fossil fuels (and nuclear) are currently the best forms of energy available, in terms of affordability, abundance and reliability. There is no need by the corporate leaders in those industries or in others to seek climate change “salvation” by trying to eliminate their carbon emissions. They must, of course, respect the rights of others by controlling toxic emissions so as not to damage or pollute their property, including water and air. And of course it is also in the fossil fuel companies’ interest to continually invest in their productivity through more cost-efficient extraction and production technologies, and in the long term, even to develop alternative forms of energy.
Carney’s second premise, that it is the government’s role to develop and impose climate change policies—the unpredictability of which creates the risk of corporations’ assets getting “stranded”—is also invalid.
The government’s role is not to interfere with the economy, although in a mixed economy it does that to a larger or smaller extent, depending on the country. In a mixed economy, governments try to coordinate the economy through various fiscal and monetary policies, regulations and income ‘re-distribution’ schemes, with not very good results, as all the historical experience shows. Governments are notoriously poor at such coordination, leading to escalating costs, less wealth creation and thus less freedom for people to make their own decisions. As an example, consider the Ontario government’s recently proposed climate policy (which I discussed in another post) with its draconian measures. Such government interference as climate change policies do create real risks for companies, as they allow government to arbitrarily initiate force against companies through unpredictable restrictions, taxes and fines.
But the proper role of the government is not to create climate change policies, or any other policies, or to play any part in the economy. The government’s only role is to protect the rights of individuals (including corporations) against the initiation of physical force (through the law courts, the police and the military), leaving everyone free to trade with each other by mutual consent and for mutual benefit.
Such a system is not a mixed economy but capitalism—which recognizes individual rights and where all property is privately owned. Capitalism would not eliminate risks for corporations (humans are not omniscient). But it would eliminate risks imposed by the government and allow corporate leaders to focus on what they do best: creating wealth through producing and trading goods and services, without being distracted by welfare-diminishing pursuits such as “climate change salvation.”
As Ayn Rand observed, capitalism is “an unknown ideal.” But if we are to prevent financial or any other kinds of catastrophes plaguing the world today and to enhance human well-being, that is the system we should learn to know and adopt.