How can we afford it? Ever since Representative Alexandria Ocasio-Cortez released her Green New Deal legislation last month, that’s been the question on the mind of establishment politicians and pundits everywhere. But the real question, of course, is how can we afford not to address the cataclysmic impacts of runaway global warming?
Capitalism is not particularly well suited to weighing long-term benefits against short-term costs. It is inherently unstable, prone to crises. And as the financial crisis ten years ago demonstrated, the sheer size and global interconnectedness of modern financialized capitalism make it increasingly difficult to save capitalism when it veers into crisis.
Capitalism’s structural cracks have been papered over for too long. Only a new model of public finance will allow us to move money quickly and effectively enough to decarbonize our economy. We need to expand public banking and democratize the Federal Reserve — enabling us to accelerate the energy transition with a focus on jobs and equality, through bold moves like nationalizing the fossil fuel industry, taking utilities into public hands, and establishing a national Green Investment Bank.
In any economic system, capital allocation determines which sectors and approaches are resourced, and which are not. Under capitalism, this is achieved largely through the private banking and finance sector. The ultimate measure of business success is shareholder value and profit maximization.
In recent decades, this dynamic has produced increased financialization, yawning income and wealth inequality, and heightened economic volatility. It’s also deepened environmental degradation as investors continue to favor the short-term financial returns from conventional, dirty, climate-altering fossil fuels over renewable energy and other green infrastructure.
Asserting public control over the financial system is therefore essential if we want to prevent catastrophic climate change. The Green New Deal aims to transform industry, water, food, and energy sectors with an ambition that matches the scale and pace of the problem. For that to happen, however, we need public control over capital so Green New Deal projects aren’t held hostage to the whims of private finance.
Banking and Finance
Increasing public control over the financial system requires at least two separate, intersecting interventions. The first is a large-scale expansion of public and cooperative banking. The second is democratizing the Federal Reserve. Together, these moves would take the processes of creating and allocating money out of the hands of elite private interests and make it possible to put them to work funding the Green New Deal.
Public banks are financial institutions operated by some government agency, body, or company acting on behalf of all people in a given geographic area. They have specific mandates, such as supporting community banks and farmers (as with the Bank of North Dakota). Returns from public banks are distributed broadly — in the form of investments in public services, lower costs for consumers, and increased economic stability — rather than building the fortunes of a few wealthy individuals.
Already, public banks are being used around the world to finance renewable energy infrastructure, public transportation, and other ecologically important initiatives. Public banks in Germany and Costa Rica, for instance, have been instrumental in funding green projects, and the UK’s publicly owned Green Investment Bank (one of the first of its kind in the world) had an impressive record before the Conservative government privatized it in 2017.
Fighting climate change is a prime motivator of many public banking campaigns around the world, especially in the vibrant and growing US movement. Public banks are specifically mentioned in AOC’s Green New Deal legislation. Even private investors and neoliberal institutions are warming up to public banks, seeing them as partners that can take on the risks of green infrastructure investment while they reap the rewards. While cynical and self-interested, support from such unlikely quarters shows that public banks are and can be effective when it comes to green lending.
The second component of increasing public control is democratizing the Federal Reserve, the US’s central bank. The Fed, which has the power to create money, set interest rates, and craft monetary policy, is structured quite differently than its counterparts in other countries. Regional Federal Reserve banks are actually owned by large private commercial banks, and regional bank presidents serve on the Fed’s powerful Open Markets Committee. Fiercely independent, the Fed’s Board of Governors has traditionally been hostile to any attempts at government oversight, including legislation aimed at auditing the Fed (a cause that in recent years has attracted bipartisan support from the likes of Bernie Sanders and Rand Paul).
The Fed’s structure has made it exceedingly pro-banker, at the expense of workers. A limited audit of the central bank’s activities during the financial crisis — conducted in 2011 due to an amendment Sanders added to the Dodd-Frank financial reform bill — revealed, in Sanders’s words, how “an institution that was created to serve all Americans had been hijacked by the very bankers it regulates.” The Fed pulled out all the stops to save the major Wall Street banks, while abandoning millions of Americans to foreclosure, bankruptcy, and unemployment.
A truly publicly owned, transparent, and democratically accountable central bank would change that — and could become a powerful weapon in the fight against climate change. As Fed expert William Greider puts it, we need to “create a new public institution that truly understands that its obligation is to society, not money markets.” Congressional action to reform the Fed could “harness the Fed’s money creation and lending powers to help finance major public objectives.”
Reform would likely need to include a new structure that radically reduces the role of private commercial banks, a new Fed charter that prioritizes social benefits and ecological sustainability, heightened transparency and accountability standards, integration with other fiscal policy decision-makers in the federal government, and robust processes for stakeholder and community participation.
Around the world, countries are leveraging the power and authority of central banks to defund fossil fuel infrastructure and finance climate sustainability. For instance, The Central Banks and Supervisors Network for Greening the Financial System (NGFS) now consists of twenty-eight members, including the People’s Bank of China, the Bank of England, and Deutsche Bundesbank. The notable exception: the United States Federal Reserve.
One of the sectors we need to transition most rapidly is energy.
According to a 2017 study by the Carbon Disclosure Project, over half of all global emissions since 1998 can be traced back to just twenty-five fossil fuel production corporations. Fossil fuel companies have built strong political machines that oppose anything that jeopardizes their business model and short-term shareholder returns. They remain thoroughly committed to extracting and burning as many fossil fuels as possible, regardless of the danger. US production of oil and gas shot up 85 percent between 2010 and 2018, making it the top oil and gas producing country in the world.
Nationalizing the fossil fuel industry is the most effective — and at this point, perhaps the only — way to cut through corporate opposition and manage a timely and orderly decline of fossil fuels.
What would this look like? One option would be for the federal government to buy out the top US fossil fuel corporations through “quantitative easing” — the tool the Fed used to rescue Wall Street during the last financial crisis, when it created over $3.5 trillion in new money.
By enacting robust regulations and eliminating subsidies early in the Green New Deal, government action would cause fossil fuel companies’ share values to plummet. The state could then purchase these firms at a relatively low price — one that actually reflected their value given the unburnable reserves.
The explicit goal would be to use public ownership to plan the sector for obsolescence: stopping all new exploration, closing shop before already-in-use reserves were fully exploited, and eliminating fossil fuel exports from the US. The phaseout would include a series of programs and investments that ensured a just transition for workers and communities that currently rely on fossil fuel extraction.
In addition, a publicly owned Green Investment Bank (or banks) could be established — perhaps by nationalizing an existing Wall Street bank and converting it — and fossil fuel company investors, especially public and worker pension funds, could be incentivized to roll over their investments to its bonds. The Green Investment Bank would play an integral role in making the substantial investments in renewable energy that would accompany the fossil fuel company drawdown in order to maintain an adequate supply of energy to meet demand. In this way, the public money used to buy out the fossil fuel industry would be deployed to foster a new, clean energy system rather than simply line the pockets of investors.
Another imperative for the Green New Deal is to shift ownership of the generation, transport, and distribution of energy — a considerable amount of which is currently under the control of monopoly, investor-owned energy utilities. Much like fossil fuel corporations, private utilities have operated with short-term bottom lines in mind, warped energy policy, and undermined regulations in order to subsidize their money-making and shore up a business model that presumes ever-increasing energy demand and centralized fossil-based production.
Traditional market-based climate strategies such as deregulating monopoly utilities have been insufficient, and in some cases, counterproductive. While deregulation has in some situations made renewable energy more competitive, few customers move off the historical utility, and deregulated markets often trend back towards consolidation and corporate control. Overall, patterns of capital accumulation, wealth extraction, and elite control continue unaltered. Piecemeal incentives, deregulated markets, and easily rolled-back regulations just won’t cut it for the timescale we need — let alone advance justice, equity, and democracy.
By taking energy utilities into public ownership, we can catalyze renewable energy deployment at the same time we redistribute wealth and power. Publicly owned utilities don’t have the same imperatives for growing shareholder returns, reinvest profits back into their community, and, critically, are accountable to their customer-owners rather than wealthy owners.
The Green New Deal could provide cities, counties, states, and tribal nations the legal authority, technical capacity, and a suite of patient financing and funding mechanisms through a Community Ownership of Power Administration (COPA), akin to the New Deal’s Rural Electrification Administration (REA) — which helped communities start public utilities and electric cooperatives and led to a massive, and rapid, rise in rural electrification — and a network of local, state, and national public banks.
While REA never intended to address legacies of discrimination, COPA would be designed to lift up communities struggling under the weight of structural injustice. Poor communities and people of color tend to bear the brunt of our existing dirty and extractive energy system. COPA would focus on strategies that build community wealth (for example, localized procurement processes, robust workforce development for a just transition, and worker-centered labor agreements) in such communities — while still leaving room for local design. The program could also include training, guidelines, and incentives for setting up institutions that allow for community empowerment and democratic participation (multi-stakeholder boards, neighborhood assemblies, participatory planning/budgeting processes, and online/digital tools for engagement and transparency).
COPA would inject new vigor into public ownership, but doing so would require access to large amounts of capital. This could come not only from grant and loan programs that COPA would directly run (like most federal agencies do today), but also through public banks at the local, state, and federal level that could finance municipalization campaigns, purchase public utility bonds, and offer low-cost banking and other financial services. These new utilities could also coordinate with local public banks to determine the additional needs of the local community and its energy transition — for example, identifying and financing key interventions for energy efficiency, infrastructure modernization, or climate resiliency.
Green New Deal and Public Ownership
Finance and energy are the engines of a modern society. Currently run for the benefit of a privileged few, however, they are driving us down the road to ruin.
That road has a rapidly approaching fork. On the one side is the looming climate catastrophe; on the other is the prospect of another financial crisis as our fossil fuel energy infrastructure is rendered worthless.
Our task is to avoid both outcomes — and forge a new path to ecological and economic sustainability. Under public control, we could use money and electricity to power a better, healthier life for all, to protect the natural world, and to build a more equitable and democratic economic system.
Radically transforming two of the most powerful sectors of the capitalist economy, finance and energy, may seem insurmountable. But a Green New Deal won’t get far otherwise.