Capitalism and Environmentalism — can they co-exist?

11 min readSep 25, 2023

In my last blog post, I discussed the ecological footprint of feeding eight billion people. We must stop deforestation now and begin rewilding process of existing agricultural land. The best way to do that is by switching to a plant-based diet and by minimizing food wastage. Do check it out here.

In this post, I will delve into a more complex issue, one that is not easily quantifiable: the relationship between capitalism and climate change. I’ve had numerous debates with friends and family on this topic with no clear consensus. So, I decided to do more research and express my thoughts in this article. I welcome your feedback and thoughts in the comments section.

Capitalism and why it comes in the way of climate action

Capitalism is defined as an economic and political system in which a country’s trade and industry are controlled by private owners for profit. There are many forms of capitalism (e.g., laissez-faire capitalism vs. regulated capitalism) with different degrees of government regulation. According to the , capitalism is founded on the following pillars:

Private property.
Self-interest, where people act in pursuit of their own good.
Competition between firms.
Free market where prices are determined by demand and supply.
Freedom to choose with respect to consumption, production and investment.
Limited role of government.

One of my concerns with capitalism revolve around the concept of ‘self-interest’. Adam Smith, the famous Scottish philosopher, used the phrase “” to describe the unintended positive consequences self-interest has on the promotion of public welfare. I disagree with that notion. Perhaps, self-interest was the best way to succeed back in 1776 when Smith published The Wealth of Nations, but in the modern world, it manifests itself in the form of consumerism, overconsumption and climate inaction.

To explain my point, here are a few thought experiments to demonstrate the dichotomy between self-interest and environmentalism:

Should I stop eating beef just because bleaching events are threatening food supply for billions? My kids love meat.
Why should stop me from purchasing new toys for my child? I have work to finish and I need to keep my kids busy.
Should I turn down my heating if is under water? It’s cold and I need to stay comfortable.

If this line of thinking seems normal, you are not alone. Many of us have grown up in a society that is increasingly individualistic. We are hard wired to care about our own household, rather than our community or humanity as a whole. You may remember the food shortages during the early days of the pandemic, when people started hoarding everyday grocery items in anticipation of stricter lockdowns. During supply shortages, we should reduce individual consumption so that the scarce resources can be distributed evenly across the entire population. Instead, we resort to hoarding and overconsumption.

“The reason that the invisible hand often seems invisible is that it is often not there.” Joseph E. Stiglitz

‘Do what’s best for you and an invisible hand will take care of the rest’ — this line of thinking is fundamentally flawed. Rather than solely considering our own children’s well-being, if we pause to analyze how our choices affect our neighbor’s children and those in our neighboring countries, we can contribute to a sustainable future for the planet. We need to upgrade from Capitalism v1.0, where infinite economic growth is the sole purpose of humanity, to Capitalism v2.0, where sustainability and environmentalism are the guiding principles for ensuring long term public welfare. Some call it .

“Social capitalism involves a reorganization of our society and economy to account for and value non-economic factors“— Tristan Claridge from the Institute of Social Capital in Australia

Free market economies continue to emit freely

No economy is purely capitalistic. Governments play a crucial role in establishing the framework and boundaries for capitalist markets. Singapore is consistently ranked as the due to minimal government regulation and ease of doing business. However, barring a few oil-rich Middle-eastern countries, Singapore also has the dubious achievement of being one of the world’s worst emitter, per capita — 25 tons CO2 per person per year (see Fig 1 below). That’s 5.5 times more than the world average — if everyone in the world emitted like a Singaporean, Earth would have crossed 1.5C warming in 2022 and we would be headed towards 2C mark by the end of 2025.

Some may argue that Singapore is one of the most developed countries on the planet as seen by their sky-high . What’s the point of scoring high on human development if there are no humans left on the planet? Countries like Australia, Norway, and Switzerland, which have free markets with limited regulation, also exhibit notably high per capita emissions (Fig 1). This should be a warning that unregulated capitalism may help with short term development, but it can jeopardize the lives of future generations.

Note: Typically, countries are emissions. However, as seen in Fig 1, I prefer to use Consumption-based CO2 emissions as it factors in the additional CO2 emissions buried in trade and household consumption. Since the 1980s, capitalist economies have relied heavily on offshore manufacturing to lower the cost of everyday goods. It is only fair that the ecological footprint of producing these goods is borne by the consumer, not the producer. When I purchase a car, the burden of manufacturing-related emissions associated with that vehicle should fall on my shoulders, not the OEM. Let me know if you disagree.

Government role in regulating capitalism

“Generating 10 dollars’ worth of coal-fired electricity causes at least eight dollars’ worth of harm to human health and at least another eight dollars’ worth of climate damage” — says famous economist . “This is not the capitalism I signed up for.”

The retail price of fossil fuels does not factor in the environmental costs associated with pollution and global warming, as visualized from the example below (). We have already seen in the previous section that countries with minimal regulation are major contributors of climate change. Our governments must do more to curb the power of fossil fuel industry, by holding them accountable for this humanitarian crisis.

Regrettably, government intervention in addressing ecological damage has been very limited. “In most countries, the state is subservient to the bindings of the influential business groups”, . The fossil fuel subsidies, totaling an astonishing 7% of global GDP in 2022, can be divided into two parts, explicit and implicit (See Fig 5 below). Explicit subsidies allow governments to lower the price of everyday goods, in order to drive GDP and economic growth. Implicit subsidies are calculated by adding up the monetary cost of environmental pollution and climate change caused by burning of fossil fuels. Implicit subsidies are funded by taxpayers. According to the IMF, implicit subsidies are expected to increase in the same next decade as the world suffers from more frequent droughts, floods, wildfires, and hurricanes.

Implementing a ‘carbon tax’ can be an effective way to reduce emissions. By raising the price of fossil fuels, carbon-intensive products become more expensive, which makes sustainable choices more economical for average consumers. They were the one of the first countries to levy a carbon tax on their transportation industry, back in 1991. Since then, their economy has continued to grow but their emissions have declined by 30%. Other forms of carbon pricing in Germany and UK (like ) have also resulted in lower emissions, without affecting long term GDP growth.

“What makes carbon pricing so powerful is that it is a policy that changes the entire system. No decision about any carbon-intensive activity escapes its influence: it changes the choices of consumers, producers, investors, entrepreneurs and innovators in all relevant sectors at once.” — Max Roser, an economist and philosopher at University of Oxford,

These policies are not foolproof and even if they are implemented properly, can take many decades to reverse the environmental damage caused already. But they can work. Signed back in 1987, was a rare show of solidarity by all UN member nations when they agreed to ban the use of harmful CFC gases to protect the rapidly depleting ozone layer. 35 years on, the ozone layer is on track to recover to original levels by 2100 (see fig below).

Consumerism — driving force behind capitalism

One pivotal moment in the history of capitalism’s evolution can be traced back to the 1920s, with the influence of a man named Edward Bernays. . He convinced people that owning and consuming more stuff would make them feel good, powerful, and sexy. This was the birth of consumerism, the consumption of goods without a compelling or essential requirement. Fig 3 shows how food, energy, and clothing consumption per capita has grown over the last two decades. Vox.com created a nice that talks about the worsening quality of everyday products over time. Do check it out.

Take consumer electronics for example. The world’s largest tech companies have been against ‘’ laws, forcing people to buy new products more often than required. for slowing down iPhones intentionally. They argued that the artificial slowdown was done to extend battery life, but critics believe the real motive was to spur sales of newer models.

“Material footprint” measures the full amount of raw materials used to satisfy a given country’s level of domestic consumption. According to the UN, high-income countries have a 10x material footprint per capita than low-income countries (see below). , so a ten-fold difference in consumption habits is hard to fathom without factoring in socioeconomic influences.

The advertising industry spends millions researching the human brain and understanding consumer behavior, so they can find new ways of selling products we don’t need. Furthermore, drives the economy and consumerism is the secret to growing household consumption. Whether capitalism bears responsibility for climate change is a subject of debate, but there is no doubt that consumerism is one of the leading causes of global warming today.

So, can Capitalism and environmentalism co-exist?

On one hand, innovation and competition, that form the backbone of advanced capitalist economies, have resulted in revolutionary breakthroughs that have helped all of humanity. New industries and jobs have lifted millions out of poverty over the past two centuries. funded by a mix of public-private partnerships have doubled average human lifespan over the last century. Invention and at-scale production of synthetic fertilizers has allowed us to grow food for eight billion people, much more than the carrying capacity of the planet. At the same time, self-interest, lack of government intervention and the endless pursuit to increase GDP has led to income inequality, global warming and ecological destruction.

If we can channel the positive aspects of capitalism to work towards ‘environmental protection’, I am confident that we can stop climate change. Recent ramp of electric cars and solar panels are wonderful examples of what capitalism can achieve with government and public backing. launched solar subsidy programs in late 90s. This incentivized the private sector to innovate, resulting in improved solar cell efficiency, reduction in solar costs and increasing demand for panels. At the same time, despite unreasonably high prices, a few brave consumers prioritized the environment over personal savings when they installed solar panels. This was a clear message that consumers are willing to fund the energy transition. 20 years on, solar is the cheapest way to power the world. So, can capitalism be part of climate solution? Yes, but not without government incentives and public support.

“Capitalist economy must be steered in the right direction by government policies and the general public to ensure that Smith’s invisible hand continues to work in society’s favor” —

What can you do?

Global GDP is more than 100 trillion USD. We emit almost 50 billion tons of CO2-eq every year. It may seem that your baby steps towards sustainability are futile in front of global trends. But as consumers, you and I wield more influence than we think. Here are a few ways we can steer capitalism to work for our collective good, so that we can leave a livable planet for future generations:

Support organizations that have taken a stance on sustainability. Look at — they have pledged all future profits ($100 million a year) towards fighting climate change.
There are new eco-friendly products being launched in the market every day. Initially, these products may be more expensive than lower quality, plastic products. If you have the means, pay a little extra to show you support. Don't forget that someone bought solar back in 2005 when it was 10 times more expensive than present day.
Look up a company’s track record on environmentalism before investing money in them. It goes without saying, but do not invest in fossil fuel companies. Look up sustainable companies or ETFs/funds that invest your money in renewable energy sector.
Governments can play a key role in redirecting capitalist markets towards sustainable choices. So, when you vote, make sure you understand what your favorite candidate is going to do about climate change. Some , so, obviously, do not vote for them.

When we put community over self-interest, our decisions can have a visible impact on human welfare. If we revisit the thought experiments from earlier in the piece, here’s what that process looks like:

Even though I love meat, I don’t want anyone’s kids to go hungry because of my taste preferences. I will eat meat less frequently in the future.
Even though my kids are bored of their toys, I will not buy any more toys; plastic pollution is a huge problem from manufacturing to recycling/disposal. I will first check the local thrift store or ‘Buy used’ option on Amazon. If I don’t find anything, maybe I will offer a ‘toy swap’ with neighbors.
Even though it’s cold here, running gas furnace all day will inevitably make conditions too hot to survive in parts of Africa and Asia. Instead, I will wear a thicker jacket indoors and start saving up for solar panels and a heat pump.

Thanks for reading and I welcome your comments and feedback.