Why do we need to consider the relationship between the public and private sector?

@BSzreter writes a three part series about climate change.

Part one considers the relationship between the public and private sector and their respective roles in tackling the climate emergency. 

Why do we need to consider the interaction between the public and private sector with respect to the climate crisis?

‘We face a direct existential threat’ - this is how the UN secretary general António Guterres referred to climate change in 2018. It is a powerful and fear-inducing statement and one that is supported by climate scientists. Climate change is both a problem of the long-term and a tragedy of the commons.

Public awareness of how large the threat from climate change is beginning to grow as we slowly see the effects in everyday life.

Government policy is generally seen by those on the left as important to tackling environmental damage. However, there is little agreement on how the public and private sectors could or should work together to tackle this issue. The ideological reduction of the role of the state to a regulator and a provider of a limited range of services, the trend in many countries over the last four decades, means insufficient attention has been given to the long-term. The fundamental shift we now need is to define what the respective roles of the public sector and private sector can be and what they should be in tackling the climate crisis.

From a theoretical point of view, climate change is both a collective action problem – requiring solutions that incentivise joint behaviour and prevent free-riding – and a deferred benefit problem – in which those taking action may not be the ones who directly benefit. We excessively discount the future which is pulling us towards global warming.

A significant barrier in tackling climate change is that previous technologies – developed through an interaction of government research and market forces – have taken economic development on a long-term, sub-optimal route. A route that leaves us dependent on using fossil fuel-based energy for production and consumption.

The (short-term) market incentives remain strongly in favour of carbon-based development as much of our physical energy infrastructure is reliant on it. Indeed, 30 per cent of the market value of the British stock exchange (FTSE 100) is from oil, gas and mining companies. This is ‘value’ that, if extracted, would enormously damage our environment. Correcting the path-dependent route we are on – which is leading us to climate destruction – could be costly, disruptive and potentially destabilising and is not in the short-term interests of shareholder-led companies. The government and others need to make it in their interests to adapt in the short-term and long-term.

Governments must also design and regulate markets in green technologies that the public sector and the private sector can invest in. This is not something that can be left solely to the private sector. It must go well beyond market solutions or market-based approaches. However, the private sector can provide innovation and useful investment when market structures are correct.

We can, and should, empower our governments so that they take on the role of safeguarding the long-term, securing the sustainability of our economy and our society. Part of this role is through shaping the role of the private sector in tackling the climate crisis. That is why both sectors must work together with their distinct roles made clear.

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