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Environmental Regulation

With the absence of a global entity to regulate human anthropogenic activities in protecting the environment, the challenge international economies face is the rewiring of the economy to provide incentives and opportunities to encourage sustainable development.


Even though the deadliest wildfire season spreads across the globe and endless European flooding on top of other worsening events like the surge of red tide across Florida, there’s still enormous resistance for policy directed to decouple fossil fuels from economic growth.

This resistance primarily comes from large corporations such as those in the oil industry, republican parties opposed to environmental regulation. What triggers this? The argument is that regulation kills jobs, creates massive unemployment, makes the economy inefficient, and leaves everyone worse off. De-regulation, in fact, is one of the principles within trickle-down economics. The idea embedded in neoliberalism is that any constraint on the powerful corporations will harm economic efficiency in general.


“We can afford to save the planet” - Pitchfork Economics.


The main idea to keep in mind is that the climate crisis was created by our own modern, industrialized economy, dependent on fossil fuels. Fossil fuels have been essential for the history of economic growth; however, they also created this climate crisis. This means that just as the climate crisis was designed by our economic system, the problem should be targeted by it too.


Yet, the economy will not automatically act upon the climate crisis; intervention of the public interest is required. Environmental and financial regulation plays a vital role in encouraging good economic activity and discouraging harmful economic activity.


Sarah Bloom Rasking, former deputy secretary of the U.S. Department of the Treasury, professor of the practice at Duke University’s Law School, and member of the Regenerative Crisis Response Committee, has been working on how financial regulation can address today's climate crisis. She claims that although most environmental regulation known within the field of environmental economics comes from the EIA or EPA, financial regulators at the Federal Reserve, SEC, the controller of the currency, or the regulator of derivatives and agricultural futures can also have an immense impact by adopting specialized financial regulation.


For Instance, disclosure: Providing harmonized disclosure requirements for investment products. Such regulation can be focused upon sustainability-related issues. The SEC may require publicly traded companies to disclose their carbon footprint to reveal their impact on the environment. However, this is a very market-related regulatory tool; will it immediately improve the environmental issue? Probably not. However, it works by encouraging better decision-making by investors and so fixes a modest market failure arising from dis-information within the financial markets.

Another financial regulatory tool that could be used is the Stress Test, introduced between 2008-2009 in response to the financial crisis. International financial authorities required all banks of a specific size to undergo testing. They would assess how banks would be impacted in adverse shocks or drastic economic scenarios and publish the results. Today, some financial institutions like the Bank of England or the European Central Bank are trying to adapt this risk-gauging tool to evaluate whether our banks and financial system can withstand an economic show triggered by an environmental disaster. Such would represent a regulatory tool deployed in a precautionary way, which would disrupt our current emergency-based approach. We can’t wait for the shock to occur to act upon it and spend heaps of money on the collateral social costs. This was the exact scenario in the 2008 financial crisis, which lead to social costs such as the exacerbation of economic injustice. We humans need to learn from our previous history, shifting to a more precautionary approach.


We must encourage the view that climate and weather patterns must be considered a particular stressor producing economic costs. For this, regulation directed towards developing a decarbonized economy is necessary to avoid expensive future costs or even the destruction of our planet. Leaving behind the view of regulation as a constraint to the economy is crucial under this scenario. The costs involved in adopting such essential regulation are likely to be much less than the costs involved in letting climate change take over our lives.


“In a biological sense, unregulated growth is cancer. We want regulated growth in the economy to prevent a climate disaster.”