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May 5, 2021 Faculty Finance

Fullerton advises combating climate change ‘free-riders’ with technology and innovation

Gies College of Business finance professor Don Fullerton points to global ‘free-riders’ as the biggest hurdle to combating climate change and urges Illinois business leaders to begin to adapt now to its inevitable impact on the state.

“Too many countries are acting in their own self-interest. If a hundred economically strong nations would each kick in the money to reduce carbon emissions by 1% of the total cut needed, the benefits to the whole world would exceed the cost incurred by those countries,” said Fullerton, Gutgsell Professor of Finance and Institute of Government & Public Affairs Scholar at University of Illinois Urbana-Champaign. “The problem is if any one country prioritizes self-interest, they’ll let the other 99% do the work. So, many people claim to disbelieve the science, but it’s not about that.”

Fullerton was a featured speaker at a virtual roundtable discussion, Climate Change Effects on Innovation, Economy and Diplomacy, hosted in celebration of Earth Day by the Consulate General of Israel to the Midwest. He was joined by Ambassador Gideon Behar, Israel’s Special Envoy for Climate Change and Sustainability.

“Right now, each nation has incentive to focus on their own problems. They’ll decide they can’t afford to contribute the time, effort, and economic costs of mitigation to reduce greenhouse gas emissions,” said Fullerton. “I’m not optimistic there’s going to be a stringent, highly effective agreement among nations that’s binding, enforceable, and verifiable, where everybody incurs their share of the costs.”

Two days later, that prediction bore out during a Leaders Summit on Climate hosted by President Biden that aimed to underscore the urgency and economic benefits of stronger climate action. Among the 40 representatives, Australia, India, Indonesia, Mexico, and Russia made no new pledges to reduce oil, gas, or coal consumption, and China’s President Xi said it would participate only ‘”if the United States no longer interferes in China’s internal affairs.”

Fullerton said the Biden administration may have more influence at home. Most economists would agree it’s simple, he said. Impose a carbon tax and let firms and households alike find the cheapest way to avoid that tax by reducing their emissions. The rationale is that they choose whether to get a more efficient car or turn down the heat in their home. Firms could decide to use more solar power or other renewables instead of fossil fuels.

“But nobody likes taxes because they see it as a cost, not a benefit. President Biden wants to enact policies that can benefit people, like green jobs, subsidies for renewable power, and energy efficiency mandates,” he said.

If Biden’s $2 trillion infrastructure plan is signed into law, it would rank as one of the largest federal efforts to reduce planet-warming greenhouse gas emissions.  According to The New York Times, it would also reduce skepticism from world leaders who have watched US policies shift, based on who is sitting in the White House.

Fullerton warns that Illinois business and agriculture should not be lulled into thinking climate change won’t affect the state. He said he’s heard arguments that say, “It won’t have a big impact on us because we don’t have wildfires or need a sea wall. We can deal with the heat, and we can irrigate crops from plenty of rainfall.”

“That logic is ignoring huge impacts,” Fullerton rebutted. “First, heat waves are going to kill people. We’ll have more storms coming at the wrong time – in the spring – that will wash away agricultural seeding of the fields. Then droughts will come in the summer when we need rain. Illinois could face some of the worst problems in the country.”

This is where science and scientists can play a stronger role, according to Ambassador Behar. “We need them to speak in plain language and tell us exactly what will happen. Be very simple and pointed, with authority. Then we can translate what they say into languages around the world.”

“Every nation needs to adapt to prepare for the climate change that’s to come. In the US, we will need more health clinics, more air conditioned destination centers during heat spells for those without air conditioning, and more water storage to deal with drought,” said Fullerton.

Fullerton believes a US focus on innovation will quicken the pace, especially for solar panels, windmills, and cheaper battery technology. “Nations of the world can work together to achieve these technologies,” he said. “Then hand out the patents for free instead of trying to sell them to poorer countries. We’ll all benefit.”