This is what the world needs to do to save itself from disastrous climate change

The COP-21 Paris Agreement limiting greenhouse gas emissions was a major achievement on the road to meeting the threat of climate change. But as the evidence becomes increasingly unambiguous that human activity is destabilizing the Earth’s climate and biosphere, policymakers will need to do more. The inherently shared nature of the threat underlines the need for closer and more comprehensive international cooperation to preserve the habitat in which human life has thrived.

William Nordhaus, to be honored next week (10 December) with the Nobel Prize for his work on environmental economics, wrote in 1977:

"In contemplating the future course of economic growth in the West, scientists are divided between one group crying “wolf” and another which denies that species’ existence. One persistent concern has been that man’s economic activities would reach a scale where the global climate would be significantly affected. Unlike many of the wolf cries, this one, in my opinion, should be taken very seriously."

A little over four decades later, the wolf is at the door.

Looking back, 2018 has seen more intense heat waves, wildfires, and storms. Seventeen of the 18 warmest years on record have occurred since 2000. 2018 is on track to join these ranks. Meanwhile, greenhouse gas emissions keep rising.

Visible signs of pressure on the natural environment from human activity go far beyond these weather-related events, however. Other key aspects of Earth’s climate and biosphere are under high stress. Rain forests are shrinking. Polar icecaps are retreating as the ocean warms, and coral reefs are disappearing as the ocean acidifies. Fertilizer runoff injects excessive phosphorous and nitrogen into watersheds, damaging freshwater and coastal ecosystems. Microplastics are entering food and drinking water. Our planet’s biodiversity is imploding. The World Wildlife Fund estimates that sixty percent of vertebrate animals have been wiped out since 1970, and insect density is declining in some areas at alarming rates.

Scientists tell us that we risk crossing key planetary boundaries that define the environmental limits within which human civilization has been able to develop. Potential tipping points mean that those boundaries could be breached unexpectedly, abruptly, and irreversibly. And time is of the essence. The UN Intergovernmental Panel on Climate Change warns we have very little time left to act to avert climate disaster. The risks are underscored by the latest U.S. National Climate Assessment, as well as the U.K. government’s new climate projections.

From the economist’s perspective, these planetary disruptions arise because businesses and households do not take account of how their activities harm the environment—in technical language, economic activity often comes with negative externalities. In principle, taxes that force households and businesses to pay the costs of their collateral damage to the environment can offset these externalities. Yet global environmental externalities are complex, suggesting a role for a wider array of policies—regulatory and financial policies, for example.

A key point is that, because climate and biosphere externalities do not respect national boundaries, policies should reflect global, not just local, damages. This makes it unlikely that unilateral national policy actions would be enough—even assuming they could overcome domestic political obstacles. Multilateral cooperation is also essential.

Multilateralism helps countries account for the wellbeing of those outside their borders, knowing that other countries are doing the same. It was this spirit that motivated the breakthrough at COP-21 in 2015—whereby countries committed under the Paris Agreement to contain the increase in global temperatures above pre-industrial levels to well below 2 degrees Celsius. And this spirit underlies ongoing efforts to implement and strengthen that agreement, which requires a shift to a zero-carbon economy over the next few decades.

There is reason for optimism: multilateralism has notable successes to draw upon. The Bretton Woods financial institutions and the OECD, together with successive rounds of trade liberalization under the GATT and then the WTO, supported seven decades of prosperity featuring substantial income convergence by poorer countries. International cooperation on financial stability through the Basel process and the Financial Stability Board (FSB) illustrates how “soft law” can be effective. International cooperation on health has brought major successes, such as the eradication of smallpox (achieved in 1980) and more recently, further significant health improvements in many low-income countries under the banner of the Millennium Development Goals. Agreements to limit the testing and spread of nuclear weapons rest on the same principle of avoiding lose-lose outcomes.

There have also been important multilateral successes in the environment realm, even before the historic Paris Agreement. An early example was the 1979 Convention on Long-Range Transboundary Air Pollution, extended by a series of protocols, including on sulfur and nitrogen oxides emissions. In 1987, 46 countries agreed in the Montreal Protocol to phase out ozone-depleting substances. The agreement, which now covers 197 parties, helped reverse the fall in atmospheric ozone concentrations over Antarctica.

How can the global community move forward to address the environmental crisis, especially when unanimity among countries may be increasingly hard to attain? One option would be through “coalitions of the willing” or clubs, which mutually extend benefits (for example, easier intra-club movement of people) in return for stronger agreed environmental action.

This approach could even be based on existing mechanisms of economic multilateralism. Several trade agreements—such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the United States-Mexico-Canada Agreement (USMCA)—already contain chapters that require countries to enforce their own environmental laws. Extending that approach could help promote stronger domestic environmental measures. For example, plurilateral or critical mass agreements within the WTO could require members to take more ambitious action to reduce greenhouse-gas emissions. In that spirit, the EU-Japan trade deal announced in July 2018 was the first to commit its signers to uphold the Paris Agreement.

A further example, the FSB Task Force on Climate-Related Financial Disclosures—set up in 2015 at the request of G20 leaders—aims to increase the visibility of climate-related financial risks, thereby allowing markets to price those risks and financial investors to manage them. This is another way to bring environmental externalities into prices.

Finally, it falls within the remit of the IMF, given the available staff resources, to expand its work on surveillance and mitigation of environmental damages. Potentially, the Fund could even monitor compliance with aspects of international environmental agreements.

The planet is at risk, which means we need much more out-of-the box thinking. As Professor Nordhaus deservedly receives a Nobel for his contributions next week concurrently with COP-24, we should reflect on his prescient warnings and his clear vision on the need for a multilateral way forward.