Cop 21 : why not set up an “Externalities Stability Board”?

Xavier Lépine (pictured) is chairman of the board of La Française.

A first measure: partially indexing CEO bonuses to the results they achieve on SRI targets.

Faced with the financial and economic crisis of 2008, the G20 (governments and central banks) made a concerted and highly effective response with two components:

  • Immediate action: massive liquidity injections and budget deficits.
  • The establishment of a Financial Stability Board, whose role is to thoroughly review all of the financial sector’s operating rules: establishing clearing houses for derivatives in order to reduce counterparty risk (margin calls), increasing banks’ capital adequacy (CRD 4, systemically important banks, bail-ins), setting limits on banks’ trading and arbitrage activities, establishing Solvency II for insurance companies, more substantial (internal and external) controls and regulatory systems, establishing a regulatory framework for the compensation of «risk-takers».In other words, it is a framework that applies to all levels (from businesses to paid employees) of economic stakeholders in the private sector.

The Volkswagen case and the 2015 United Nations Climate Change Conference (COP 21) in Paris provide opportunities to change our thinking about the way the Economy works.

If we admit that have entered the Anthropocene era and that at the very least, even for climate sceptics, Pascal’s wager argues that externalities linked to human activity should be taken into account, the creation of an Externalities Stability Board with powers similar to those of the Financial Stability Board would be a robust approach, because it would provide concrete means to take action with respect to government assertions.

Carbon is clearly the critical topic and could be covered by its own separate Carbon Stability Board. It is time to adopt a vision that takes into account the carbon footprint of various human activities, especially the differences in emissions for the technologies we use.

We cannot make the community and future generations pay the long-term cost of reducing carbon intensity, especially when alternative methods of production exist.

It is clear that a carbon tax is a highly appealing solution, but we can also envision a system that provides incentives rather than penalties: the products of organic agriculture have a carbon footprint that is significantly better than that of conventional agriculture, but they cost more.

Why not implement a lower VAT on organic products? This is a logical choice given that a percentage of VAT will ultimately be used by the community to pay for measures reducing carbon intensity.

There are numerous examples but a highly effective, fast and cheap measure would involve simply applying what has been implemented in the realm of finance for “risk-takers” (i.e., traders) to CEOs of listed companies.

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