Bill Gates on climate change and the dollar’s exorbitant privilege
The currency’s special status was bolstered by global trade in a commodity the world must give up
Bill Gates, the world’s richest college dropout, has been using his massive wealth to try and solve some of the world’s larger problems. The issue of climate change has caught his attention, and he has been trying to tackle it from different angles, from funding companies working in the area to trying to build an environment in which various stakeholders agree on what needs to be done.
Gates is also trying to educate the world at large about the issue, and has recently written a book titled, How to Avoid a Climate Disaster.
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The world typically adds 51 billion tonnes of greenhouse gases to the atmosphere every year. To stop global warming and at the same time avoid the worst effects of climate change, Gates says that the global greenhouse gas emissions need to come down to zero.
This is a very bold goal, given that almost every modern activity leads to the release of greenhouse gases, and even aiming to cut down on their release by a bit can lead to a slowdown in economic activity.
Take the case of 2020, when the covid pandemic hit the world. The total amount of greenhouse gases released into the atmosphere last year is expected to slow down to 48-49 billion tonnes, about 5% lower than in 2019.
Of course, this is good news. Nevertheless, the question is whether the world could continue to achieve such a reduction every year.
Also, look at what it took to even achieve this small reduction. As Gates writes: “A million people died, and tens of millions were put out of work… This was not a situation that anyone would want to continue or repeat."
The larger point being that getting the emissions down by even a small percentage is going to be very difficult. There are going to be multiple challenges.
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As the standard of living continues to improve the world over, there will be increasing demand for air-conditioners, buildings, cars, roads, electricity, computers and whatever it takes to lead a better life. The production and use of all these things will result in the greater emission of greenhouse gases.
Of course, along with this, the global population will keep rising as well. As Gates rightly puts it in his book: “We can’t expect poor people to stay poor because rich countries emitted too many greenhouse gases."
Further, solar power and wind power, which are the more environment-friendly forms of generating power, are extremely expensive when they need to operate on a scale.
Plus, they come with the problem of storage, given that sunlight is not available 24/7 and wind won’t blow 24/7. As Gates writes: “Electricity we store for nighttime use will cost us triple what we’re paying during the day."
And then there is the status quo. The world’s $5 trillion energy industry, which is so big that it is bound to resist any change.
The interesting thing is that in the last decade, the United States, thanks to the shale-fracking revolution, has become the largest producer of both oil and natural gas in the world.
As Daniel Yergin writes in The New Map: “Between 2009 and 2019, the increases in oil and gas have accounted for 40 percent of the cumulative growth in U.S. industrial production... By 2019, the unconventional revolution was already supporting over 2.8 million jobs."
Clearly, Gates will face a lot of resistance within his own country, given that if emissions have to come down, then its dependence on oil and gas as forms of energy needs to decline as well.
Finally, there is the exorbitant privilege of the US dollar as the world’s reserve and trade currency. As the story goes, on 14 February 1945, the then American president Franklin Roosevelt met King Abdul Aziz Ibn Saud of Saudi Arabia on a ship, USS Quincy, anchored in the Red Sea. Roosevelt was trying to secure an alternate source of oil for the US. In return for access to Saudi Arabian oil reserves, the Saudi king was promised full American military support to the ruling clan of Al-Sauds. Over the years, Saudi Arabia as the leader of the Organization of the Petroleum Exporting Countries (OPEC) returned the favour by ensuring that the oil cartel sold oil only in US dollars, even when the world’s premier currency was losing value against other currencies through much of the 1970s.
This bolstered the US dollar’s special status, something it ended up with after World War II and continues to gain from. Most countries do not produce as much oil as they consume. They need to earn dollars in order to pay for commodities like oil that are priced in US dollars. The US can simply print all the dollars it needs. This is the exorbitant privilege that the country has had.
If the world has to reduce emissions, every country needs to move away from hydrocarbons as sources of energy. It needs to shift over to alternate energy generated by wind, sunlight and other such renewables.
Wind and solar power will have to be generated largely within a country, or at least in the same region. And, as and when this becomes possible, global demand for US dollars is likely to fall. What this would mean for the exorbitant privilege of that currency is a question well worth asking.
Vivek Kaul is the author of ‘Bad Money’.
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