Rethinking the economy

If we want to avoid losing the basis of our existence on earth, we humans must take action. But which political measures would be effective in protecting our planet’s climate, soils and biodiversity? And what is it that prevents decision-makers from enacting such measures? These are some of the questions explored by the team at FutureLab CERES, a newly established research unit at the Potsdam Institute for Climate Impact Research that is being financed by the Werner Siemens Foundation from 2022 to 2031.

Simple questions are often the best—and frequently the most difficult to answer. This observation also holds true for the fundamental question pursued at FutureLab CERES: why are we so slow to take climate-related action? The earth is warming at a rapid pace. Deforestation is rampant. Biodiversity is vanishing. And still: politicians are reluctant to adopt effective measures to protect our planet.

People tend to give two explanations for this unwillingness to act, says Ottmar Edenhofer, Co-Director and Chief Economist at the Potsdam Institute for Climate Impact Research (PIK) in Potsdam, southwest of Berlin. “Some say politicians lack the necessary moral compass to take tough decisions, while others adopt a fatalistic stance and say it’s too late anyway.” The real reasons, however, lie much deeper. Governments are not only charged with promoting their countries’ general welfare: they must also accommodate a wide range of interest groups, and they often quite simply lack the necessary authority to implement measures. Every nation faces its own challenges and must deal with conflicting interests and complex power structures. “At present, researchers only poorly understand the interrelationships between decision-makers and existing circumstances or the barriers that prevent nations from taking action,” Edenhofer says.

New economic system

This is the starting point for research conducted at the PIK FutureLab CERES, which has received a ten-year grant from the Werner Siemens Foundation, starting in 2022. CERES stands for Political economy for inclusive wealth and sustainability, and the goal is nothing less than to fully realign our economic system according to new priorities. Today, gross domestic product (GDP) is considered a key indicator for a nation’s wealth and the health of its economy. But the GDP doesn’t account for the value of nature, and nations also subsidise activities that further the excessive exploitation of natural resources—in agriculture and forestry, for example, or the extraction of fossil fuels.

“Natural capital” dwindling

It’s estimated that the earth’s natural resources—its “natural capital”— have shrunk by forty percent in the past thirty years. “We humans are already living from the substrate, as it were, which means we’re undermining the livelihoods of future generations,” says Ottmar Edenhofer. “To protect and ensure the sustainable use of oceans, the biosphere and atmosphere, these global commons must be included in future standard of living calculations.” Carbon taxes are one instrument that can quantify—and steer—the effects that burning coal, oil and gas have on the atmosphere.

Democracies tend to be more ambitious

Diverse factors influence a nation’s sustainability efforts. “Although it’s often said that the mills of a democracy grind slowly,” Edenhofer says, “we see that democracies generally pursue more ambitious climate policies than nations governed by autocrats.” There are various reasons for this, he explains, including the fact that democratically legitimised governments have a greater capacity to act: the trust citizens have in democratic governments is relatively high, making it easier to enact laws and levy taxes. Edenhofer adds that we must also better understand the consequences of taxes, subsidies and technology standards. Do they actually bring about a reduction in emissions, or are there unwanted side effects?

Fair management of the global commons

In its four research programmes, FutureLab CERES investigates how nations can succeed in managing the global commons in a fair and sustainable manner.

• The first programme is dedicated to examining the political-economic realities in selected countries. The researchers in this area study how political decisions are taken, who pursues which interests and what dependencies exist. For the case studies conducted, countries like Brazil, Indonesia, Colombia and the Democratic Republic of the Congo are of particular interest, as they have a central role in the protection of natural resources: biodiversity is exceptional in these nations and climate-related damage poses a major threat. In addition, the extraction of fossil fuels or rare earth elements generates high revenues, and the governments are either unable or unwilling to implement measures to protect their natural resources. The researchers want to identify the obstacles hindering sustainable action in such nations.
   

• The second research programme aims to pinpoint which sustainability measures work and which fall short of their objective. “Current research methodologies generally only evaluate the efficacy of individual measures,” Ottmar Edenhofer explains. In practice, however, governments generally introduce entire sets of measures that include bans, taxes, subsidies, dialogue and many other instruments. The researchers at FutureLab CERES plan to investigate these complex interconnections by processing massive data sets with the help of machine learning.
   

• The third programme explores the relationship between national capacity to act and inclusive wealth. Governments in developing and emerging countries in particular often lack the means to enforce taxes and bans—or to introduce financial compensation measures to make the consequences of such policies more acceptable. At the same time, these countries have already been severely impacted by the negative effects of climate change. Building on findings from the first two programmes, the researchers aim to find promising solutions for how nations in these complex situations can protect the global commons.
   

• The fourth research programme focuses on the international dimension of climate and environmental protection. This includes examining how nations position themselves strategically in various contexts—at climate conferences, for instance. Researchers in this area also seek political instruments that can contribute to realising an ambitious, cross-border sustainability policy.

New professorship

To lead FutureLab CERES, a new professorial chair is planned for 2023. Until the professorial appointment is made, Ottmar Edenhofer is leading the project. To ensure that the research can proceed as soon as possible, postdoctoral researchers and PhD students are already being hired to work in the four programmes.

Advising policy makers

Findings from FutureLab CERES are not solely for academic purposes—they will also benefit policy makers: PIK has years of experience in providing politicians with advice that draws on high-quality research findings. Decision-makers are presented with transparent political options together with the potential impact, thus enabling them to identify the key actuators for more sustainable policies—and to take corresponding action.

Self-imposed restraints

The overarching aim of FutureLab CERES is to help accelerate climate and environmental protection. It will be no walk in the park. “It’s the first time in human history that we’re being asked to voluntarily give something up,” says Ottmar Edenhofer. As former co-chair of one of the three Working Groups of the Intergovernmental Panel on Climate Change, Edenhofer is well aware of the difficulties surrounding negotiations on voluntary carbon reduction programmes and other restrictions. Nevertheless, he says, it must be done: the value of our forests, soils and bodies of water and the importance of an intact climate cannot be overstated. “If we destroy nature, we destroy the basis of our existence.”

 

 

Facts and figures

Funding from the Werner Siemens Foundation

10 million euros over 10 years

Project duration

2022 to 2031

Interim project leader

Prof. Dr Ottmar Edenhofer, Co-Director and Chief Economist at the Potsdam Institute for Climate Impact Research (PIK), Potsdam, near Berlin, Germany

Project partner

Mercator Research Institute on Global Commons and Climate Change (MCC), Berlin, Germany