Sustainability and prosperity in the age of ecological scarcity
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Welcome to the LSE Events podcast by the London School of Economics and Political Science. Get ready to hear from some of the most influential international figures in the social sciences. Great, thank you. So evening, my name is Larry Kramer. I'm the President and Vice Chancellor here at the London School of Economics and Political Science. And it's my very special privilege to welcome tonight's lecturer.

lecturer and to welcome you to tonight's lecture. The lecture is hosted by the Department of Geography and Environment and this is the second talk in their series, Sustainability Public Lecture Series.

So how nations choose to exploit natural resources is critical. It's critical to their economies, to their prosperity, to their politics, and of course to the sustainability of all of those things. For most of our history, the critical driving force behind global economic development has actually been the scarcity of key natural resources and how nations have responded to that scarcity.

The most obvious response has usually been to look for new frontiers from which you can extract the scarce resources. And at different times and at different ways, that has shaped trade. It's led to conflict. It's driven geopolitics. Scarcity also creates incentives to innovate and find substitutes. And that has likewise shaped the rising and falling of economies and nations over the centuries.

Today we face a different kind of threat from that approach. And it derives from a growing awareness that nature's bounty is not limitless or endless. That we now face a kind of ecological scarcity because some of the ways in which we've been exploiting nature risk harms on a scale that we've never seen before.

Growing ecological scarcity and global environmental risks are a defining challenge for all of our economies, and they've generated a new version of past resource competition, a kind of race to shape and lead a new green economy. And the outcome of that race is going to define a great deal of our future, not just whether humanity can continue to thrive on this planet, although it will do that, but also the economic and political terms on which we do.

So we're extremely lucky to have Professor Edward Barbier with us to help make sense of these issues. Edward is a university distinguished professor in the Department of Economics and senior scholar in the School of Global Environmental Sustainability at Colorado State University. He is also, I just learned, and the people who gathered the information from me are going to get a slap later, a master's student or graduate from the London School of Economics.

His areas of expertise are in envi- of course, because everybody good went to LSE. His areas of expertise are in environmental and resource economics and international environmental policy. In addition to having authored more than 350 peer-reviewed articles and book chapters and having written or edited 27 books, he's consulted for a variety of national, international, and non-governmental agencies including the World Bank,

the OECD and the United Nations Environmental Program, for whom he wrote an authoritative report that coined the now ubiquitous term Green New Deal. I can't think of anyone better to help us understand and think through the enormous challenges of achieving, to quote the title of tonight's talk, sustainability and prosperity in the age of ecological scarcity. And with that, it's my pleasure to invite our speaker to the podium.

Great. Thank you, President Kramer, for that wonderful introduction. And also thanks to the Department of Geography and Environment for inviting me to this event, and particularly to Professor Giles Atkinson who made this all possible.

So as President Cramer said, when I was 22 years old, I came to LSE to do a master's in economics and the experience changed my life completely. And so it's a great honor and privilege to be back here to give a public lecture.

The topic is a big one, sustainability and prosperity in the age of ecological scarcity. So I thought I'd start by giving you a brief overview of how I want to proceed with this.

As President Crame said, we have entered a new era of increasing ecological scarcity and rising environmental risks. Global warming, land use change and biodiversity loss, freshwater scarcity, deterring oceans and coasts, those are ever present with us around the world today. And that's why I refer to this as the age of ecological scarcity. But

How economies choose to respond to this scarcity challenge is critical both to their sustainability and their prosperity, which is the theme I really want to talk about. And in particular, I'll focus on two competing responses to this challenge. First, what we're seeing is the perpetuation of the fossil fuel era through various degrading economies.

And on the other hand, we're seeing an emerging green race for innovations, markets, and investment opportunities. And I'll explain what I mean by this green race. But also, I want to focus on some of the lessons from history and past energy transitions, which tell us that essentially the green race should ultimately prevail.

But the big question for us is if the green race does succeed, will it lead to greater prosperity and sustainability? So I want to start with some observations that came from my 2011 book, Scarcity and Frontiers. So the central question of this book was to look throughout history and see how has the exploitation of key natural resources shaped economic development?

And the main theme was that throughout history, the critical driving force behind global economic development in specific eras has been the response of society to the scarcity of key natural resources.

And increasing scarcity, as we know, raises the cost of exploiting existing natural resources and creates incentives to innovate and conserve these resources and find substitutes. In other words, we find newer and cheaper alternatives as substitutes for the resources that become increasingly scarce.

But we have also responded in our economies to increase scarcity by obtaining and finding more relatively abundant supplies. So we look for the new and cheaper sources of the same resource that we've been using and finding to become increasingly scarce.

How these two responses play out often determines who are the leading economies that are models for the pattern of first regional development and ultimately global development, and then second, long-term trends in productivity, wealth creation, prosperity, and inequality.

So in scarcity and frontiers, the focus is on relative scarcity and frontiers. What matters to economic development is both the relative scarcity and the relative abundance of land and natural resources.

And the frontiers are the areas or sources of unusually abundant natural resources and land relative to labor and capital. And throughout history there have been two fundamental frontiers: the horizontal frontiers of land, surface water, and ocean resources, and now more recently the vertical frontiers of mineral resources, fossil fuels, and groundwater.

And essentially, what we have found is that exploiting or converting new sources of relatively abundant resources for production purposes, the frontier expansion, often leads to new combinations of the means of production.

This is something that was recognized in early thinking on economic development. The famous Austrian economist Joseph Schupeter, well before he wrote about creative destruction, wrote a book on economic development, and he described this process of essentially finding new sources of resources or new sources of existing resources to be

critical to the carrying out of new combinations of the means of production otherwise known as development. So in my book Scarcity Frontiers, I identify eight key historical errors where you see this type of response to resource scarcity through frontier expansion. And this is all the way up to the contemporary era of 1950 to the present. At the end of the book,

I mentioned that we're at the end of this present era, embarking on this age of ecological scarcity. Since the late 20th century, our drive for particularly vertical frontiers, but also horizontal frontiers, has led to incredible alteration of the world's biosphere and increasing scarcity of ecosystems and increasing environmental risks.

Now, throughout these last parts of these eras, one type of development has been predominant, and that's the Industrial Revolution. And related to the Industrial Revolution has been the rise of the fossil fuel era.

But it's important to realize when you look at the Industrial Revolution that there are two distinct phases since 1750. And both phases are instrumental to eventually the rise of the fossil fuel era, and the fossil fuel era has been important to sustaining all the benefits we've seen from the Industrial Revolution.

So the first phase was from 1750 to 1830, and that centered on key inventions such as the steam engine, cotton spinning, railroads, and steamships. And the primary fuel that drove this was, of course, coal.

That led to lasting productivity boosts, first in Europe, first in the UK and then Europe, and then around the rest of the world as countries industrialized and adopted coal. And the leading economy that was the model for this global development was, of course, the United Kingdom.

The second phase of the Industrial Revolution occurred right on the heels of the first, and that was from 1870 to 1900. And that centered on key inventions such as electricity, the internal combustion engine, water and sanitation systems, refrigerated transport, and the oil and gas refining, which also led to petrochemicals.

This had a lasting productivity boost until the 1970s, and of course it centered on the other two fossil fuels, first oil or petroleum, and then gas, natural gas. And the U.S. was the leading economy and the model for the rest of the world that is still in practice today. This

Second phase carried on into the contemporary eras in the post-war, and it's led to what we see today, global development based on carbon-intensive fossil fuels. And of course, it's led to the significant alteration in the world's biosphere, and that, of course, has led us to the current age of ecological scarcity since the late 20th century.

So, I think it's useful to see these as timelines. So, here's the same thing in a visual form. The first phase had this massive productivity boost, a leading economy was Great Britain, and it led to these initial inventions that Cole made available to us, and then

Spot on after that, you had the second phase, which had first the big inventions from 1870 to 1900, driven by oil and then natural gas. What's interesting is that we can say the fossil fuel era really started to happen in this second phase, because since 1890s, coal, oil, and gas have accounted for at least half, if not more, of global energy consumption.

And of course, along with the start of the fossil fuel era, we also seen this huge massive increase in global energy consumption. All uses of energy have increased, but particularly the use of fossil fuels, and today,

Even today, we still see about 80% of our energy consumption worldwide consists of coal, oil, and natural gas. And by the way, that hasn't really changed to 2025. We still are at 80% because both global energy consumption has increased while the growth of renewables has increased. So the share of fossil fuels still is about 80%, maybe 75% today. But still, the majority is fossil fuels.

One of the things that we often don't talk about in all this is that the growth of energy consumption coalesced with the growth of material use trends. Again, remember the United States is the model for this modern era, so what happens in the United States often is copied to the rest of the world, and what we see is from 1900

to turn of the century into the 21st century, this massive growth in material use in the United States and again in the rest of the world. But probably a more interesting thing and more relevant is that we've also seen a change in the composition of material use where it used to be that renewable materials was 40%

But now today we see 95% is non-renewables and only a little bit is renewables. Another important development was that what fossil fuels did was it displaced completely another source of energy, which was water.

that the spread of the steam engine and the use of coal resources and other fossil fuels basically supplanted the predominance of water power for industrial processes. Water used to be the driver of the Industrial Revolution. Fossil fuels took it over.

And then it's happened in transport and navigation too. Rivers and canals as the main transportation network for goods and people, internally in countries was displaced first by the steam locomotive and railroads, and then eventually, of course, by roads and the internal combustion engine. But the Industrial Revolution also turned water from a vital energy source into a commodity that we would use for everything.

And so the Industrial Revolution made it possible to access, extract, and divert fresh water resources more cheaply than ever. And then the fundamental relationship between development and harnessing more and more water resources meant, once again, exponential rise in water use as we have continued on into the 21st century.

And this is a process that started in the mid-19th century, carries on today. Where water is an industrial and consumption commodity to be pump-bought and sold, although it's not sold very well. And essentially we use fossil fuels to do all this.

Fossil fuels has also been the driver for land use change. So during this period from 1750 to today, we've seen that grazing and cropland around the world has grown significantly from 1 billion hectares to well over 4 billion today. And in the last decade,

we've seen a dramatic fall in the wildlife populations as shown by the Living Planet Index. Now we have a loss of 73% of wild populations that have been measured since the 70s.

So not surprisingly, we have what the scientists call the Anthropocene, a new geological era where now humans control the fate of the Earth's system.

And so human activity is now the dominant influence on the global environment. And that, of course, has led to where we are today with the age of ecological scarcity that since 1970, 75% of the terrestrial environment and 66% of the marine environment has been altered. 14%

Out of 18 global ecosystems, services have declined, and as I said, we've had this massive loss of wildlife populations. This is the age of ecological scarcity.

And of course it's the acceleration of these human impacts that have carried on in the late stages of the 20th and the first decades of the 21st century. Fisheries production, energy use, carbon dioxide emissions, population, fresh water use, agricultural land, and so on. This acceleration of impacts has continued and we're in the state where we have these possible global environmental risks that are getting quite serious.

So we know all this. This is the concern that we have. My concern as an economist, and something that I wanted to tackle in my 22 book, Economics for a Fragile Planet, is why do our economies continue to ignore the rising environmental economic costs of rising ecological scarcity? Why do we carry on with this?

And my answer is really straightforward. It's difficult to solve, but it's straightforward. What I write about in this book is we disregard these costs because we have the structural feature of our economies where we underprice and underinvest in nature. And that's across all of our major decisions, market, policy, and business decisions. Professor Partha Dasgupta,

in his famous 2021 Biodiversity Review, makes the same point. And I love this quote from him, which I use all the time. "The current structure of market prices work against our common future. The biosphere is precious, but priced cheaply, if it is priced at all."

Worse, owing to a wide range of government subsidies, some services come with a negative price.

Now, as economists, and many of you in the room who are my fellow economists and friends, know that underpricing fossil fuels has a large part to play with why we're not seeing a transition to more cleaner or low-carbon energy. Again, nice quote from Dieter Helm, who pointed this out in The Climate Crunch, basically saying

puts it very clearly. Cheap fossil fuels have blunted the need for change, the need for a transition at all. And I think that's an important barrier.

And of course many of you are familiar with the International Monetary Fund studies that have shown that the underpricing of fossil fuels, which includes both subsidies for fossil fuels production and consumption, as well as the environmental damages they do, have amounted to about $6 trillion a year. Only a small part, but a large part, a large amount in billions, over $450 billion are in explicit subsidies.

in the form of cost and tax breaks, but the environmental costs are staggering. One of the most interesting things, I think, is that global warming is significant, almost 1.7 trillion, but the costs of local air pollution, the health costs in particular and productivity costs are bigger than that, 2.5 trillion, and then there are other impacts, congestion, accidents, revenue losses.

Another interesting thing from the IMF studies is they actually calculate if you get rid of, if you move from underpricing to efficient fossil fuel pricing, internalizing these damages and getting rid of the substance, we would lower global carbon emissions by over a third, prevent almost a million air pollution deaths a year, and of course increase government revenues on average substantially.

Other studies have tried to look not just at fossil fuels, but the negative pricing or environmentally harmful subsidies across a whole range of sectors. Now, we can disagree with these numbers. I'm sure that they're different magnitudes. They're probably an underestimate.

But if you add up all these environmentally harmful subsidies, not just in fossil fuels, but agriculture, water, forestry, and so on, this particular study suggests they're about $1.8 trillion a year. And to put that into context, that is pretty much the GDP of Canada, the 15th largest economy.

So this is how much we are actually spending in our economies to actually do harm to the environment or putting a negative price on the environment. Well, there's a consequence for underpricing, which means that if you're underpricing an asset, which nature is, and I've made that case many times, then it's no longer treated as something that's valuable.

And that's particularly damaging for a valuable asset because we therefore don't think it needs to be maintained and enhanced. And the result is we see massive underinvestment in what we need in terms of protecting, restoring, conserving nature.

And I've done various estimates of myself, but I'm actually going to quote one from the Paulson Institute, who basically looked at how much are we financing biodiversity from all public and private sources. That includes NGOs and philanthropy. And we spend about $120 to $140 billion per year on protecting, restoring, and enhancing nature.

But the actual investment needs when you add up what various estimates suggest, what we need to actually protect and restore nature, is more than the magnitude of almost a trillion dollars per year. So that means there's a huge funding gap each year of about 600 to 800 plus billion dollars per year.

And of course, the gap is even bigger when you look at the private sector. So there was this famous World Economic Forum study that basically said that $44 trillion of global value added, over 50% of the world GDP, across 163 industry sectors and their supply chains is moderately or highly dependent on nature and its services.

The Paulson Institute study said that corporate sustainable supply chains globally allocate only about $5 to $8 billion annually for actually doing something about protecting the services that their supply chain, services from nature that their supply chains require. So that's a huge gap. Now, I want to switch gears a bit and now turn our attention to what's

also happening, the second trend in our economy, which is the emerging green transition. So despite the pervasive underpricing and underinvestment that is in our economy, some businesses and economies are actually on their way to exploiting the competitive and technological advantage they have in becoming greener.

I would argue what I see is that there are two principal reasons for this happening, despite the underpricing and underinvestment of nature. First of all, there are greater investment opportunities and returns in the emerging green sectors and markets, and some of them, compared to the rest of the economy.

And the second is in our economy itself, we're seeing a slowdown in productivity growth and increasing costs of the primarily fossil-based, fossil fuel-based economy that is dominant in the world today. And these two things have led to this emerging grease rates or competition for leading global sectors and markets that are somewhat green. And I want to spend some time talking about this.

And in particular, I want to point to two things. If you look at this race, yes, it's over green innovation, structural change towards more low-carbon energy or cleaner energy. But this change is starting to happen, not just a few sectors, and it will increase and eventually affect the product mix and production processes of the whole economy.

But there's another aspect of this competition that gets less attention that should also be included in the green race, and that's the environmental markets, creating the environmental markets, investing in nature-based assets, and mitigating environmental risks. So let's first look our attention at what's going on in the economy with long-run productivity growth.

So various studies that have looked at this, one here from the World Bank, one that was published last year, Journal of Economic Literature, point to the same thing, and other studies too, have pointed to the same thing. Since the 1980s, global productivity growth has been largely stagnant. I'm not surprised by this, because remember what I said, the biggest, last biggest boost from the second phase of the Industrial Revolution pretty much ended in the 1970s.

And in this fossil fuel-based economy, what we've seen is since the 1980s generally a slowdown in global productivity. Now, it continued to rise a little bit in emerging market and developing economies, but

Since the Great Recession of 2010, we've seen slowing down in growth in those economies as well. And definitely, as you see on the right-hand side, you see that there's been this pretty much continuous decline in major advanced economies until it's about half of what it was in the 1980s. That's the productivity growth. So why does this happen?

The studies that looked into this, as well as the two I mentioned, their conventional explanations are investment weakness, working age population growth has decelerated, educational attainment has stabilized, there's only so much education people should have, although don't spread that around LSE, you know, you want more students, not less. Educational attainment has stabilized,

and innovation slowdown has occurred. Despite the new technologies that are coming, the innovation wide across sectors has actually slowed down.

That's the conventional explanations. But I would suggest that there's another factor that's going on that needs to be taken into account, which is the diminishing returns and rising costs of the fossil fuel-based economy. Those types of ecological scarcities and increasing global environmental risk, even though we don't price them in our markets and we don't see them explicitly and we hide them through negative pricing or environmentally harmful subsidies,

We basically are still feeling those costs somewhere in our economy, including those costs that were identified by the IMF from fossil fuel use. So there's got to be this impact on our economy. And I actually pointed that out when I was at the end of Scarcity Frontiers, when I was talking about the age of ecological scarcity, the possibility that we're starting to see diminishing returns

from the ecological impacts. And interestingly enough, the World Bank study on long-run productivity actually points to some of this effect. They noted that natural disasters, wars, and major economic disruptions such as financial crisis and of course deep recessions

tend to be responsible for large and very protracted declines in labor productivity. But they note that natural disasters, 70%, which are climate related, account for the vast majority of these adverse events. Of course, this study was published in 2021, and we've had a few interesting large scale natural disasters, climate related since then. Spain last year.

Los Angeles and California just recently and so on and there's many others. So as I said there is that side that's going on which is what's happening in our wider economy which is mainly still fossil fuel based. Meanwhile

we have this growing competitive race to green our economies. And I want to spend some time on this. Sam Finkhouser, who many of you know at the Grantham Institute when he was here, he and some colleagues from Grantham started to investigate the green competitive potential of 110 manufacturing sectors in eight countries, China, Germany, France, Italy, Japan, South Korea,

UK and the United States, and they discovered quite strong evidence of green competition among these economies. That is, they were trying to all start greening these various sectors.

More recently, Paul Le Mele and Alex Tetelbaum showed that countries that are able to export complex green products competitively are more likely to have higher environmental patenting rates, lower carbon dioxide emissions, and more stringent environmental policies, even after controlling for GDP per capita.

There are now more evidence of, first of all, an emerging global green economy as well as which economies are involved in it. So one of the interesting studies, I think, does it by looking at green market capitalization. So what this study does, it basically says, okay, out of market capitalization of shares, how much of it could be considered green capitalization?

And they find on average across major markets that the global average is 9%. So out of all market capitalization, around 9% could be considered green.

Now, if you look on the diagram on the left, if you look across the world, the United States has the largest share of the green market capital around the world, about 60%. Surprisingly, Taiwan has the next largest. And then you have then China, Japan, Canada, France, Germany, the UK, India, Hong Kong, and then the rest of the world.

But what's also very interesting is that which country has a higher than the global average share? Remember, it's 9% per country.

sorry, on average across the world. When you look at the average, you get a very different story. Well, Taiwan is still high, has the highest share, then Germany, then Canada, Japan, China, France. The U.S. is way down at 6%. So what you see is that there's clearly something going on in the world economy where you have different economies that are

are moving in the direction of green markets, but they're doing it at different rates, and it's not obvious which countries are the head of this. There are obviously some advanced market economies, some of the big ones, the usual suspects, and then there's others that are also emerging as well.

Now, Paul Amelie and Pierre Andres here at LSE have put together something called the Green Transition Navigator. And what they've done is carried on the work that Paula did with Alex Teitelbaum to actually

look at trends of green competitiveness and they used something called the Green Complexity Index to show not just what products are green being produced by countries, but how competitive are they compared to their industrial rivals.

And the figure on the left is their measure of green complexity index in the economies today from just 1999 to 2022. Germany's at the top, and then you have Italy hanging in there. You've had this tremendous rise by China to be in third place. The U.S.,

was number two and now it's fourth place, and then further on down the line. And you see the usual suspects here, and that's very encouraging. But they also go on to do something very interesting, which they look at what's the potential

of these economies developing even more green competitiveness. And that's their green complexity potential. And what you see is that those countries that are most competitive in green products today in production processes are not necessarily the same that are going to be the head in the future. And already you see, for example, China today.

coming to the top where Germany falls down and so forth. What you also don't see from this, I've looked at the same countries in both graphs, but when you actually look at their work, there's some other countries that are surprisingly have got very strong green complexity potential, not the ones you would usually think about like Denmark and Turkey and Latvia and so forth.

So there's competition going on and it's not clear who is the leading economy and who is going to be the emerging economies going forward.

You see the same thing with green innovation. Now, let's again look at the graph on the left first. Now, looking at this again related on the environment related patents as a proxy for innovation. This is from the OECD. And when you look at the percentage of environmentally related worldwide inventions, if you go back

to the beginning of this period, you see that it used to be totally dominated by three countries, Japan, Germany, and the United States. The United States was second in

And that was at the beginning, over 70% were those three countries. But what we've seen closer to the present day is a rapid rise in China and South Korea. And so now China is ahead. And of course, Germany is way falling down to the level of other advanced economies and so forth. And so you see this remarkable change.

But also, looking towards the future, the OECD looks at the relative technological advantage in these technologies. Again, on the far right, you see the world average is, in this index, the average for the world is the baseline, which is one. And when you see those that are higher than one, you see a range of countries that are not the usual suspects.

Latvia up ahead, United Arab Emirates, Denmark, Chile, Saudi Arabia, South Korea finally pops in, and then you have some of the others, China right behind, and some others. So you have a mix of advanced economies that are big and some that are less. And so that's a very interesting picture that again shows innovation, green innovation is very competitive and it's getting more competitive.

Now, accompanying all this has been a major shift in global public policy. We've been seeing this for a number of years and we're going to see more of it. And I mean, we're seeing obviously a big shift in global public policy in general towards trade and cooperation. We're seeing it mirrored in the environmental sphere.

So the biggest shift is away from global cooperation. And that's definitely true in the environment.

Combating climate change and other global environmental risks, yes, there have been some success stories, but in general, we're going to see less cooperation on this, and I see that going into the future, and that's directly related to the growing competition over green sectors just as much as it is over the general deterioration of international climate and politics. We're also seeing more

We used to see lowering of trade barriers, but we're moving away from greater cooperation on lowering trade barriers to green products and technology transfers. And we're also seeing move away from global cooperation on using economic instruments such as carbon pricing to reduce environmental bads.

Yes, countries are still using carbon pricing and they're doing it at the sub-national level, but one country agreeing with another country both to employ it is increasingly reducing. But we're also starting to see the shift move, at least in the environmental sector, towards winning the green transition. That's what we're seeing in recent years, that's what we're going to see in the coming decades.

more of a shift towards national policies, particularly on green industrial policies that target financial support and subsidies for what an economy or a government feels are the key domestic green sectors and industries. And going along with that, we're seeing more protection of emerging domestic green sectors and industries from international competition. And then finally,

In addition to a general move away from economic instruments in terms of cooperation across countries, we're going to see again more domestic environmental regulations being used where regulations are used and they're being used as a way to restrict imports and promote exports. What's going to be a very interesting thing is what's going to happen with green innovation.

I actually think this is an area where we're going to suddenly see a shift in global public policy. Again, a national policy where suddenly countries realize, hey, we've got these sectors that we want to promote. So along with our green industrial policies of financial support and subsidies for our key domestic green sectors and industry, we're going to start boosting green innovation.

And that's going to be an important development. I think that's going to happen pretty quickly because right now what we've seen is that actually government investment in green tech research and development is actually flagging relative to general R&D in many nations, particularly advanced economies, just when it's needed the most.

And one statistic that shows this is that renewable share of energy public R&D spending in major economies, particularly among the G7, has fallen from 15 to 30 percent right after the Great Recession to 10 to 15 percent where it's been pretty much at since.

So what does this mean? Well, what we could be seeing to complement this green race for global sectors and processes and products is what could be called the rise of green mercantilism.

Basically, policies that support your industries and your sectors to win the green, to become that leading economy that wins or becomes one of the winners of the green transition. I think elements of that are here and it's going to intensify as this competition increases.

Now, as I said, that gets a lot of the headlines, is what's happening with the green transition. So some of you may be familiar with these trends. I think we also have to understand that the green race is also about the growth in environmental markets. That's another aspect of what's going on here. And I think I want to remind you that by environmental markets, I'm going to be talking about three different things.

One of the things we're very familiar with, particularly environmental economists, which is pricing the environmental bads in existing markets. Pricing pollution and carbon, charging for plastic and other wastes, paying for land degradation, deforestation, habit loss, accounting for water scarcity.

That's going to be done still by some countries domestically, and it's going to be an important part of their policies. It's not particularly what I think about as being the major growth area. Instead, I see the growth in environmental markets occurring in two other types of markets. One is...

environmental markets that value the goods produced by environmental capital. Paying for ecosystem services, funding nature-based solutions, credits for carbon and biodiversity offsets, creating nature reserves, conserving in-stream water flows and sources. We're going to find a way to capture and use those values in our market system.

And then the third thing that isn't often thought of as an environmental market, but it should, is the inclusion of environmental risks in financial and business decisions. And that's so that investors, producers, and consumers will incorporate environmental risks in their current and future market decisions.

Now the first market is important, but I'm not going to talk about it. I think the two real growth areas that are going to be part of this green race are the next two. So I want to spend a little time talking about those before I wrap up. Let's start with the one environmental market that's getting a lot of attention, or has been getting a lot of attention for good reasons, which is carbon markets.

So, there's essentially two types of carbon markets. There's trade and regulatory compliance credits, otherwise known as carbon allowances, and then there's the voluntary carbon offset credit market, or the voluntary carbon market. An interesting thing that I think is incredibly important in this story is that the voluntary carbon market has really boomed in recent years, and a major...

and growing component of this market has been for nature-based solutions which are actions to conserve sustainably manage and restore natural modified ecosystems thus enhancing their ability to reduce or remove carbon emissions over one-third of voluntary credits in terms of tonnage issued are from nature-based solutions and in 2021 at the peak of the market

in terms of value terms, 1.3 billion of the nature-based solution credits are transacted, and that was two-thirds of the value of all voluntary credits, so it's a large segment. And many people writing at the time, 2021 and even recently, have suggested that we should expect

high growth in demand from private sector to offset carbon and that's really going to have a boost particularly for nature-based solutions. And some estimates suggest that we could see nature-based solutions removing up to 10 billion tons of carbon per year from now until 2050 and that's more than the emissions produced from the global transport sector.

But what we've seen actually is that since the peak of 2021, market growth for the voluntary credit market, particularly nature-based solution credits, have slowed with concerns over verification. And that verification has to do with concerns over additionality leakage.

and permanence, and I know some of you have written about this too. So additionality is of course the concern that will nature-based solutions actually create additional carbon offsets or are we double counting? Leakages, if we do a nature-based solution project here, will actually lead to more carbon emissions elsewhere.

And the other one is permanent, how much can we trust how much carbon is actually contained in the nature-based solutions and is it permanently sequestered as far enough into the future to make it a viable credit today. And what you can see is the trends in the market.

And as I pointed out, the volume of NBS credits, nature-based solution credits, rose substantially from 2010 to 2021. But since then, it's declined recently because of these verification concerns.

But nonetheless, it's been significant. Since 2010, over 800 million credits for nature-based solutions have been issued and over 400 million tons have been retired. And that's around, just over a third of all issued and retired credits in the voluntary carbon market. So it's still an important market, it has declined.

But I think it's important to realize much of the tension when people talk about environmental markets, they focus on the carbon market and is indeed important and of course nature-based solutions. But what we're seeing is a whole range of expanding environmental markets, particularly if you take those, that broad view of markets that I outlined for you a minute ago. So the full scope of environmental markets is both widening and expanding.

So we have these additional markets for biodiversity credits and water, particularly water has taken off, but biodiversity is starting to.

We also see sustainably produced carbon - sorry, sustainably produced commodities that depend directly on nature such as in agriculture products, seafood, timber, wildlife based products. We're seeing trading in rights to specific natural resources, again, fresh water markets are big. You see it particularly in North America and the western United States as well as in Australia and many other parts of the world. And of course, land itself.

We're now seeing something new, which are nature-based derivative markets and other financial products directly related to ecosystem assets or services. Companies are also expanding their nature-related targets and investments beyond carbon to include water, chemicals, plastics,

biodiversity, forests and nutrients. One estimate, and this may be wildly optimistic, but I still think it's indicative, that the whole bioeconomy and environmental markets may be worth as much as 4 to 5 trillion today, and could grow to 30 trillion. Maybe unrealistic, but nonetheless it's indicative.

This study by McKinsey shows what's happening with the targets. I mean, so one reason we might see more demand for all sorts of markets is because more and more top corporations are, while carbon demand, targets for carbon and acknowledgement of the need to control carbon has declined, that's the right hand, the left hand column, so targets is the dark blue and the lighter blue is acknowledgements,

You can see that with water, chemicals and plastics, biodiversity, forests, nutrients already there's increasing targets. That's going to possibly lead to more demand. I mentioned nature-based assets. We're seeing the start of the emerging asset class of derivatives and other financial products directly related to ecosystem assets or services.

This is facilitated by the new IT revolution, including artificial intelligence and environmental monitoring. One example of this is the Maluku Token Project that's been launched recently in Indonesia in the eastern islands of Maluku and Oru, which is using tokenization to invest in conservation and local communities to cover about 71 million hectares of ecosystems.

We're also seeing the development of more and more private funds, both non-profit and venture capital, investing in conservation, indigenous communities, and climate initiatives. And they're lumping them together. So you have Patagonia's Home Planet Fund that involves investing in indigenous communities, but also indigenous communities that in turn want to invest in climate-friendly activities.

activities. Natives Rising invests in women from indigenous communities, but many of them are involved in protecting the environment. So there's that win-win there. And Velveteen Ventures is a new venture capitalist that again invests both in children and climate, seeing them as joint products in indigenous communities, which I think is very interesting.

What we also have been seeing is that many industries that are directly dependent on nature-based assets are starting to invest back into sustainable production. One of the most well-known activities here is the seafood business for ocean stewardship, otherwise known as CBOS. And this is an industry science partnership for sustainable food production where

Eight companies representing 10% of global seafood output is working with trying to do science-based targets for conserving the oceans and the fisheries that are the source of the seafood of their industries. And then the last thing I want to talk briefly about is environmental and business risks. As we're seeing greater global environmental risks and the spread of these risks,

Businesses are recognizing that climate and environmental risks are business risks. And all the major risks that are concerned to many companies are related to climate and environmental risks. A recent study by PwC, otherwise Price, Waterhouse, Cooper, in Strategy and Business, looked at

19 major stock exchanges, and they saw that the market value of the companies listed on these major stock exchanges in the world, more than half of them are exposed to financial risk through high or moderate dependence on nature.

So this is the threat of environmental risk is catching the corporate world's attention. And essentially what we're seeing is a greater awareness that environmental risk management along the entire supply chain will reduce the overall cost of capital and improve the attractiveness of businesses to potential investors, financial institutions, etc.

shareholders and consumers. So more investors and financial institutions in turn are requiring assurances that firms are managing their environmental risks, mitigating climate change and other damages, and incorporating those assessments directly into their business strategy and investment choices.

Mandatory environmental risk management measures are on the rise and we shall see more of that carrying on as environmental risks become more prevalent. And what we're seeing is, I think, an emerging global market, a big-time market of environmental risk management services and strategies, which is greater competition over across the world. So let me just summarize. I've covered a lot of ground. I want to summarize my key point here.

is that what I'm trying to detail to you is that we're in this very, very uncertain and quite frightening time of rising global environmental risks. And what we're seeing is two major responses in the world today to ecological scarcity and risks. One, we're seeing the perpetuation of the fossil fuel era through various degreeing economies, in particular the underpricing and undervaluing of nature.

But we're also seeing emerging green innovations, markets, and investment opportunities, and there's a fierce competition over these opportunities. And

I would argue that because of the long run stagnation and growth that we're seeing, along with the greater returns and opportunities that are emerging in these green areas, including environmental markets and environmental risk management, we're going to see that the green race will finally start to take over the fossil fuel perpetuation.

And if that does happen, it'll produce winners and losers in the global economy. That's what we've seen in the past. It will happen again.

The economies that lag behind will face loss of investment opportunities, less innovation and lower long-run productivity growth. Those countries and economies that lead the race and businesses will benefit from boost to innovation, long-run productivity and prosperity, hence why it's going to be a very competitive time. It's not going to be one of cooperation. Who will win the green race? I don't know.

Beats me. Pick your winner. If you want to, I won't. I don't know. And again, it's not just about the green competition for sectors and products, it's also about all sorts of markets, financial as well as capital, as well as markets, environmental markets broadly defined. What are the implications for sustainability?

Well, supposing I'm right, and supposing this merging green innovation markets and investments coalesce eventually into a green transition. The problem is that it may take way too long to avert global environmental risk. This race has a momentum of its own. It's not being driven by governments. It's being led by this competition for what are the most productive, profitable, and higher returns.

And the lessons from history tell us this is what's happened in the past. And we also know that it takes a long time. As this wonderful quote from Roger Fouquet and Pearson show us, energy transitions have tended to be relatively rare, but when they have happened, they're complex, long drawn-out processes which could take decades or even centuries.

And let's also be clear, the barriers to a green transition are still formidable and supported by powerful economic interests that oppose such a transition, both within economies and with specific economies in the world that have a huge stake in maintaining the status quo.

I'm not saying governments and public policy don't matter. They do, but they're changing. And they're changing in a way where it's hard to know how effective they will be in speeding up the green transition. Right now we're seeing a schizophrenic approach in public policy.

supporting fossil fuels, perpetuating the fossil fuel era, refusing to deal with the underlying problem of underpricing and undervaluing nature, except around the edges, and at the same time wanting to promote through green industrial policy key sectors that they think are going to win the green race.

And what we are seeing, I think, is the emergence of a new age of green mercantilism in terms of public policies. We're going to see economies for the next few years and possibly decades competing over lucrative new market and business opportunities that are green. And although this is inevitable, it may not necessarily be sustainable. It may depend on how long it takes, but it also may depend on which economies actually emerge on top

how they do it, and how they become the models for the other economies that essentially follow their model of development, just as in the United Kingdom and the U.S. in the first two phases of the Industrial Revolution. So with that sobering thought, I'll leave you. Thank you very much. I really appreciate it.

So thank you. We're going to open the floor for questions from the audience and online, I believe. Yes? Yes. So for those of you who are here in the audience, just raise your hand. Someone will bring your microphone.

state your name and affiliation and ask a short question if you can. Well, I'm sure you can. So ask a short question. If you're online, just type your questions into the Q&A box. Also include your name and affiliation. And if everybody can say one question, we'll get to as many as possible. Although I'm going to ask a first one. I don't know how to ask the question exactly. That was like such an optimistic talk.

So I think the timing question matters, I guess. So maybe just say a little bit about, like, we don't have centuries or even decades. And then how this unfolds, you know, if the tipping points are reached and a lot of the cataclysmic effects that seem to be happening faster and more, the models are all way understating everything, right? So just say a little bit about how that affects what you think plays out.

Well, I think timing is everything with this because as I'm trying to outline here is that there is this momentum called the green race I see going on, this great competition, and it will produce eventually a transformation. How quickly it happens depends

I'm not encouraged that it's going to happen in the same timeframe that allows us to stay within the boundaries we need to manage some of these global environmental risks. We knew about the consequences, environmental consequences. We've known about it for decades. We've been warning about it. We're scientists mainly. And...

There's always this concern that if we allow our market system and business decisions to be the ones that drive things, which is what essentially we've done, that the timeframe won't be right. Again, it's a decentralized decision by businesses and even by certain economies to go green or become greener. It may not be what, as economists call, optimal from a global perspective.

but that's the world we're living in today great so much for the optimism yeah yeah um okay um did you saw the question here bring your mic hang on hi thank you i'm michael from maiden bloomsbury we're a startup focus actually speak up a little bit hi i'm michael from maiden bloomsbury we're an environmental markets uh startup provide analytics in carbon and biodiversity i really like the green transition

you coined the green mercantilism, which is really, really cool. I was just wondering what you think about global cooperation. You know, the EU and China signed a memorandum of understanding back in 2024. So I was wondering what you feel about cooperation going forward, 'cause you said it was going backwards.

I don't think cooperation is going backwards. What I'm thinking is a general movement away from cooperation towards competition is what I observe. And it's happening in all aspects of economic policy, international, but it's also happening in the environment.

So that's what concerns me. And there's huge incentives for whether it's the EU or the UK, the United States, India, China, all the major players to push a nation-first approach, particularly when there's so much at stake in this competition. And that's true for environmental markets too. I don't think it's just about the production processes. So we're over here. Hi, my name is Rishikesh.

What do you think about the loss and damage fund and how do you see the future of climate justice in this era of green capitalism and green mercantilism that you've just mentioned?

Yeah, that's a great question. My concern is that one of the things that I didn't talk about-- because this is a long enough talk as it is-- but I didn't talk about the inequality aspect. So what we've also seen-- and I wrote about it in another book called Nature and Wealth-- about inequality also rising and how it's related to ecological scarcity.

And so, and that was about the time when Thomas Piketty was writing his book, Capital in the 21st Century. And essentially the point that he made is that when you see lower growth and productivity and rising returns to capital, you see great increase in inequality. And he particularly observes that since the period of 1970. And I do believe that's true, but you add ecological scarcity,

including climate impacts, disproportionately always affects the poor, whether you're talking within a rich country or, of course, developing countries in general. That's where the poor are. They're clustered into the areas with the poorest quality of services, both public and also natural. And poor quality lands, urban areas with terrible environments and pollution,

exposure to risks from flooding, droughts and everything like that. So we're going to see it get worse until we address it. What will this green competition do? I actually think it's going to make inequality a little worse for a while until

productivity increases because we're not addressing exactly what you're talking about, the impacts on the poorest of the world and also within countries. And that's part of the downside of a competition that is between industries, countries and economies is that we don't focus on the distributional side of it. It's all left to the business driven models that we're seeing.

Right down here. Hi, I'm Izzy from the UK Sustainable Investment and Finance Association. It's an NGO. We're a membership organization. I just thought, I hadn't heard it before, but the way you talked about pricing the bad, I wonder what your thoughts were on divestment instead, and do you believe in mandating sudden changes in policy, or do you think by using pricing the bad, it's better to do a gradual divestment?

That's a really good question. I'm not quite sure how that's going to play out. What I have seen is that our refusal, our economies and major economies, refusal to deal with environmentally harmful subsidies, allowing them to continue pretty much.

while at the same time heavily subsidizing and supporting financially greener sectors. So you have this kind of two things going on. And I could see the same thing happen where it's like, well, we're not going to divest from, we can't afford to divest from our brown sectors or our unethical sectors or investments, but we're going to promote what we think are the greener or the more sustainable and perhaps even more equitable sectors.

So I think this is going to be part and parcel of what we see moving forward. Let's take a question from online. We have a question from Susan Wolf, who's a social historian from Wyoming, USA, now living in London. She says, Trump promises to change the whole green economy, and part of that, for instance, is the effort to sell public lands in Wyoming, starting with Grand Teton National Park.

What do you think or feel or want to say about Trumpism and its effect? Well, at some point I've got to return to the United States. So, well, you know, it's a huge...

It's a huge change, but in some ways what is going on with the new administration coming in is more of what was happening in the first administration, but on steroids. And what I mean by that is that

I think what we see, I mean, what I'm talking about, these trends, are something that started, really started to emerge everywhere in the world, or in certain places in the world, right after the Great Recession. We had this interest in cooperation, particularly on green issues, but at the same time, we saw this underlying move towards nationalism and nationalist policies and pushing the agenda. I think in the United States, there's always been this kind of double-edged

that I mentioned a minute ago of let's support fossil fuels because they're so vital to American security, but at the same time, let's support the green industries. And I think that just like so many other things such as...

foreign policy, aid, cooperation on the international side. We're seeing a change of that in the Trump administration. It's early days to know how whether this is going to, that particular policy is going to be carried through. It does matter to Wyoming. It's one of the states...

that's very dear to me. And Wyoming has a lot of public lands, so it would have a huge effect on the United States if a whole approach to national parks, public lands, and nature, if that does go ahead. - But can I say, if I understood your talk, basically it won't affect this at all except it could possibly slow it down and increase the chances that the US ends up on bottom.

That seems to me the obvious thing. So the US falls way behind in this particular race, which may be better or worse for the world, and it could, to some extent, slow down the global... It's possible. Again, we're in the first few weeks. We don't know how long or sustained it will be. But there are other parts of the green race, the environmental market side...

and the environmental risks side. Where in the United States you can see where there's a lot of leadership going on in those sectors, but that's in the private sector. Government is not really doing much there to either facilitate it or hold it back yet. But certainly in terms of the first part, the competition over sectors, innovation and stuff, yeah, this could have

damaging long-term effects on the United States. And Trump tried pretty hard the first time to slow it down, and my guess is we'll try as much or more this time. Possibly, but keep in mind he's got a lot of support from the tech industry, and a lot of the tech people, including his main advisor, has a stake in the green sector too. So it'll be interesting to see what happens. I don't know the answer to that question, to be honest. There's a mic.

Hi, I'm Anna. I'm a master's student in environmental economics here. So I was wondering if this green race is kind of winning forward. What do you think? Or will that solve our ecological scarcity challenges? Because a lot of the green technologies are like battery, energy storage and minerals, land change use. Yeah, that's really huge. I think that's really, really important. That's why I wanted to emphasize the material use.

And also, one of the things I didn't mention is that one of the things that energy transitions have not done is slow down overall energy consumption.

So energy consumption continues to grow. Now, I don't know whether this particular green race, and if it does lead to transition to more cleaner energy, whether it will slow down overall energy consumption. So we managed to consume less energy in general, as well as change the composition of what we consume. And that's the same with materials. We're on the verge of battery breakthroughs.

So it's not obvious that the battery technology breakthrough that we're going to have, and which we will need in order to move towards more clean electricity production, whether that will lead to reliance on scarce and really...

difficult mineral, rare minerals, which will lead to all sorts of additional environmental problems if they're exploited in an unsustainable way and in a massive way. So I don't know the issue, but it is an important one to look at. So let's go all the way to the back. We haven't had anybody from back there, right in the middle of the back. Hi, I'm interrupting this event to tell you about another awesome LSE podcast that we think you'd enjoy.

LSE IQ asks social scientists and other experts to answer one intelligent question, like why do people believe in conspiracy theories? Or can we afford the super rich? Come check us out. Just search for LSE IQ wherever you get your podcasts. Now back to the event. Hi, my name is Sahi. I'm studying environmental policy. I'm doing my master's here.

And I just had a question on the fact that essentially this green race seems to kind of just be another vehicle for economic growth and kind of fundamentally being driven by that. And my question is more of a broad one in the sense of what happens after that green race, right? What happens when there's no more kind of...

value to be extracted from like this green transition and do you think that like getting to this green transition via like consumption patterns and economic growth could actually hinder us in the future?

Great question. I don't know the answer to that. I mean, I'm having a hard time even predicting or thinking about what the Green Race will lead to. You want me to answer what will happen after the Green Race. So I'm not quite sure. I mean, I'm back to President Cramer's question. That's the one that worries me the most, is will the green transition be...

quick enough, soon enough, happen enough so that we can avoid some of these catastrophic environmental risks or that, or the viral risk can lead to some catastrophe. I don't know the answer to that. I'm a little worried about that. So I'm more focused on that because maybe my timeline's a little shorter. But, uh, uh, uh, uh,

But at the same time, I think you asked some very good questions. I don't know what it will mean for the pattern. I would like to think that we could do the green transition in a way in which it leads to prosperity but less overall impact on the environment and less material impact.

use and focus on material consumption. But I'm not sure what will happen. Equally, you know, we're having the same problem in another area with artificial intelligence. There's all this talk about artificial intelligence. We don't know what it's going to do to how we organize society. But even on basic things, what's it going to do to energy consumption? There are reports about how much

artificial intelligence is boosting the use of energy even more. And that's something that we have to think about. I guess my main point is that I can see these green transitions happening and this green race happening, but I can see it not being as sustainable as we'd like it and maybe not being in time. And I'm also a little bit concerned about the equality aspects too. That does worry me a little bit, the leaders and the losers.

Let's take another online question. We have a question from Charlie, who's a student from North London. He says, what is your opinion on how the green race will affect international relations between the UK and other countries? Oh, excellent question. Well, I think the...

I'm not an expert on UK politics or international relations from the perspective of this country, but I think if the UK is going to be involved in the green race, and I think it is involved, and it possibly...

will continue to be involved, that it's going to lead to a different approach by the UK to the rest of the world. And it may not necessarily see more cooperation. We may not see more cooperation between either the UK and

but also the UK and the United States. It may, the United Kingdom as a smaller country, although a major economy, but a smaller country, may make alliances and approaches that would surprise some of us. So I think it will be a situation where the UK has always looked on as a country that has promoted the current world order, the

promotion of trade as a global good and fostering international relations of a cooperative type. As the world starts to change and competitors start to change, I see the UK will probably become more competitive and go down the same route of pushing green industrial policies first and environmental markets and risks. Let's come down in the front. Actually, right here in the front. I've had your head up for quite some time. So let me...

No, no, no. Over here. Just because he's had his hand up for a long time. Frank Denmans from the Grantham Institute. I was wondering if you think that the green race will also apply to technologies that do not have the potential to become cheaper, such as hydrogen steel or cement with CCS technology.

And I ask this question because some of you say it's the high return that attracts or drives the green race, but we've seen, I think, investment in batteries and in renewables a decade before it was actually profitable, and so these investors counted on governments stepping in. So can we be optimistic about hydrogen steel?

This is where innovation is key, and particularly public support for innovation is key, is that one of the big issues we see as economists all the time, and through history as well as more recently, is that any major green innovation, or any innovation at all, it doesn't have to be green,

has this public spillover benefit, but that also reduces the private incentive for investing in it in the first place because the private entity that comes up with the new technology doesn't capture all the benefits of it. And they may, in fact, end up losing out

as we've seen in many industries. So that means there's a role for the governments to actually invest in green R&D and breakthrough technologies because there's this long lead time before we know there are going to be cost-effective breakthroughs, and there may not at all. So somebody has to support that.

But what we've seen in many major economies is an actually decline in the public share of the share of public funding of green technologies relative to all technologies. And that's a little worrisome because who's going to come up with the breakthrough technology and how is it going to be done? If you couple that with a competitive international atmosphere where countries are not cooperating together,

to fund

these innovations and these long lead times for breakthrough technologies that require a long learning term and a long time before they become cost effective, who's going to make that investment? And I think some countries are going to say, well, we're going to do it because the chances of coming up with this breakthrough technology is higher if we do it and we want to be the leader who does it because then we will have this edge over others in the world.

and this technology will be breakthrough. And I think that's going to happen in batteries and other things, including the use of hydrogen, green hydrogen, the use of low cost

low carbon uses of how we do low carbon of our major industries that are currently carbon intensive today like cement, steel, iron and so forth. That's all going to be an important part of this green race but it starts with innovation I think and who invests in that and how it's done. Just really quick, where do you fit nuclear in there? Where do I fit nuclear? Nuclear.

Gen 4 modular? You can view nuclear as a low-carbon technology. And I think that some countries will

go into nuclear precisely for that reason, that they feel that it's a potential growth area, it's a potential market. If we do it, we will have the technology and control that, and we will have huge benefits to our economy to getting away from fossil fuel to this new growth area. So I think the green race, if it continues on, eventually nuclear will be part of the question. Yeah, just a question, please.

Hi, I'm Quinton, also a master's student in environmental economics here. I had a question. Do you think that the US losing the green race was a major reason to step out of the Paris Agreement? And if so, what role do you see for policies like CBAM to incentivize international cooperation? Oh, interesting question. Well, I...

I think that the decision to pull out of the Paris Agreement, because it was done in the first Trump administration and it's just done again, is purely on political grounds and it's part of, you know, very much nationalists first and turning back on international cooperation of all kinds.

whether it's military or whether it's environmental or whether it's even trade. So that's what is going on in U.S. policy as we speak. Will CBAM do anything? No, it won't. I don't think it will change that calculus. But it may be a policy that the European Union and possibly the U.K.,

if it follows, will adopt as part of the green race strategy for their own economies. Yeah, over here. The woman in the green sweater. Thanks. Hi, I'm Julia Pesce, and I work for a nature data provider startup. So working a lot with companies and thinking about integrating environmental risk into financial and business decisions. And what I see, generally speaking, is that

Until the risk is actually happening in the next six months or 12 months, it's never going to reach the bar of the enterprise risk management because it's just not material enough. So as much as we can do a lot of modeling, basically if it's not hitting profits in a pretty short term, it's just not going to be taken into account by companies. So my question is like,

How do you change that narrative? Because right now the competition is still about profit, right? It's still about gaining markets. It's still playing in that ground. What do you think about the right measures of success for that green race to be not only about, you know, growth and profit, but also like

actually leading to the right impacts and that's GHG emissions reductions but also a lot of other indicators that right now, I mean they are there, but people are not really competing about that. So like how do we move the competition towards that impact as well? I think that the competition will happen and I think that the move towards more environmental risk management is happening and it's going to continue. Look out for the insurance and reinsurance industry first.

That's where you see the signs of it. And then you're gonna see more financial institutions in general, because they're all ultimately connected, starting to ask for more. But you're gonna see more corporations and companies do with it too, with once, particularly those who really feel the vulnerability of their supply chains.

And I think that's what we're going to see increasingly more. And the growth market is going to be in this whole area of how do we manage risks and the services. You know, we're already consultancies, service and services side, financial services consultancy side, it's a huge part of our economies. And then environmental risk management, if that becomes a big feature, we're going to see some movement there. Let's take another online question.

Antonio, who's an Italian visitor to LSE, says, "Is the resistance to the green transition slowing down green R&D and tech innovation?" The short answer is yes. Yeah, I mean, I think it's very clear that the resistance to the green transition is coming from those that have a stake in

in the brown economy and or they have a stake in the world brown economy as major petro states and but I think within economies that are developing their green sectors and markets there is definitely a

disambivalence towards how much government should be putting money in. And I think in some ways what's happened is that most governments have been directly subsidizing green sectors by products and getting consumers to buy more and all this stuff. And that's been an important incentive. But sometimes all these subsidies are

are basically painted with the same brush. They're all picking winners and somehow green innovation or public support for green innovation has been also labeled as something that government should not do because it's giving favor to these green industries. But if you look at the history of innovation, you will see so much that's going on in terms of public support for a lot of fossil fuel and

back to nuclear, nuclear development that's come from governments, that it's interesting that now in some countries there's this backlash against public support for green innovation, which is actually, I think, eventually, as the green race intensifies, countries are going to realize, oh no, we have to start investing more in green innovation as part of our national strategy to push these sectors' policies. Great, thank you.

Hi, my name is Michael. I'm also studying policy, environmental policy. I want to follow up on your, on the PWC study that you mentioned and environmental risk management, because I think this narrative has been quite often mentioned recently. I assume that businesses will have the same problem that states had with free riding,

So I'm wondering actually when people put that much hope into this new wave of risk awareness in the markets. And yeah, that's why I would like to ask whether you think that this risk awareness will lead to actual mitigation or only to firms protecting their own supply chains and protecting their own markets.

firms like their own assets? That's a great question. I think they'll start with the latter. So I think your intuition is correct and that's sort of what I'm seeing is that the companies that feel most exposed, particularly with their supply chains and with their own assets,

are also the ones who are doing environmental risk management. But there's another aspect to risk management that we tend to forget, which is avoidance of regulatory risk. That as increasingly

governments start to say countries, we're gonna bring in more measures to control carbon emissions or water use, and particularly water use, and possibly biodiversity. Companies are saying, okay, well this is gonna be more regulations we have to deal with. To avoid that, we're going to reduce our exposure to regulatory risk. There's also uncertainty in general. It's not just risk.

And companies are having a hard time planning into the future when they are worried about insurance issues and liabilities. So there's that side of the risk. So I think we'll start with supply chains and these type of other risks, and then it will eventually gradually change.

become more widespread. The only thing I'll add to this is one of the interesting things is whether we're going to see more mandatory environmental risks and where that's going to come from. Is it going to come from governments or is it going to come from financial institutions and investors and major players in that area demanding it? When I speak to people involved in this area, they're saying mandatory risks

either quasi-mandatory, more and more movement towards mandatory is on the horizon. We'll see. So we have time for one more question, which is over here. Thank you, Professor. My question pertains to this green race and whether we're racing in the wrong direction.

that by creating new means of production in the energy sector by green energy, are we still under the scarcity realm and we should focus our resources on remediation instead. So is the green race driven by protecting the environment or is it driven by private interests? Because if it is driven only by private interests, then isn't the green race counterintuitive, like even exploitation of batteries, lithium batteries in a large scale might lead to more environmental damage

causations in the future which we don't even know at the moment. So do you not believe that rather than focusing just on green energy and promoting over consumption with the growing population we should focus on remediation efforts instead if the intention is environmental protection?

Yeah, well I have a lot of things that I would like to see done and I've written about what I'd say I'd like to see done. I've been focusing more on what I think I see is happening and why. And I think this green race is real. Whether, as I said all along, whether it actually is going to solve our environmental problems

I don't know and I'm concerned about both the timing of this, how long it will take, but also, again, as you point out, and I've mentioned and others have mentioned in this discussion, how it takes place and maybe some things will happen. We may see a switch to, let's say, electrical vehicles, but

batteries that end up leading to a second major environmental problem which is exploitation of rare earth minerals and their destructive environmental aspects there as well as their impacts on people. Maybe, I don't know the answer to that but what I do see is it's driven right now largely by the

market and business decisions today despite the underpricing and underinvestment in nature and that's starting to change a little bit too. So thank you. There's a lot of food for thought there and that was actually really, really great lecture so thank you so much. I'd like to thank everybody for joining us and for putting the show together and let's thank Mr. Keith. Thank you. Thank you.

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