Joaquín Garralda. Professor. IE Business School
21 December 2015
The effects of climate change recently came under scrutiny at the Paris Summit. At last reasonable attitudes are starting to prevail when it comes to tackling the issue, the result of which will be much-needed rational behavior.
Temperatures during December of 2015 in Spain served to raise further concern about climate change and the terrible effects it may have. If, on an individual basis, we see clear indications that this change is really happening, it’s easy for our concerns to turn into fear when we hear statements like those issued recently by the leaders of the world’s major economies. If the agreement reached in Paris doesn’t work, will we have no protection against the catastrophes that in all likelihood lie ahead?
There are rational explanations for the difficulties involved in reaching an agreement. In light of subsequent statements, being rational would appear to carry more weight than being merely reasonable. But if the risk is as evident as scientists would have us believe, wouldn’t it be rational to make efforts that it is reasonable to expect given the circumstances?
Rational behavior could be described as that which pursues one’s own interest in a coherent manner. It is what forms the base of the market system, assigning scarce resources in an efficient manner without the need for coordination among agents. All that is necessary is that all those involved act in their own interests. Nevertheless, when external factors come into play (one of them being the environment issue), markets don’t work and the regulator has to intervene.
In the case of the environment, sovereign borders don’t exist when it comes to offsetting imbalances, and given that no international regulator exists, it is necessary to seek agreements based on another incentive that while it may not be rational, must be at least reasonable.
According to philosopher John Rawls, a society is expected to behave in a reasonable manner when there is a set of self-imposed restrictions aimed at attaining social cooperation in order to obtain benefits for all. He also considered it essential that two demands be met – reciprocity of efforts and an even distribution of burdens. And this is why it was so difficult to ensure that countries were reasonable during the negotiations in Paris. The different countries are not able to see the fair distribution of burdens or efforts.
Countries who feel they are not to blame – because they became industrialized relatively recently – demanded that the principle of shared, but differentiated, responsibilities be applied. The implication is that rich countries should contribute more toward funding the necessary investments, and should facilitate the transfer of technologies to southern countries, particularly technologies pertaining to solar-driven energy, given that solar power is in plentiful supply there.
The more industrialized countries, for their part, were concerned about ensuring that the agreements reached were legally binding, and it worried them that they couldn’t stipulate the conditions of the control systems needed to monitor that commitments are being met.
There is, however, light at the end of the tunnel. There are other agents that while they tend to be more rational than reasonable, could also boost emissions control. I’m talking about long-term business corporations and institutional investors. One example of this is the Caring for Climate initiative, whereby 115 large multinationals have requested that the price of carbon-based fuels be fixed in order to better gauge their investments, and another is the increase in the number of institutional investors who are divesting shares in energy companies with buried assets that they have no intention of ever extracting.
These agents are transforming long-term rational behavior into reasonable attitudes for today.