The Ultimate IOU: How the Economy is Writing Checks Nature Can’t Cash (…still)
In 2018, a U.S. government report warned that inaction on climate change could shrink the country’s economy by up to 10% by the end of the century. Yet, in 2025, despite more frequent climate disasters and escalating global instability, economic systems continue to treat environmental destruction as an “externality”—a term that suggests these impacts are peripheral rather than intrinsic to the very fabric of our economies. This mischaracterization could be humanity’s downfall.
The World Economic Forum’s Global Risks Report 2025 underscores a deeply fractured world, where climate-related threats intertwine with geopolitical conflicts, rising inequalities, and economic fragility. The Intergovernmental Panel on Climate Change (IPCC) further warns that human activities have already raised global temperatures by 1.1°C, with far-reaching consequences. Yet, economic frameworks continue to downplay these risks, effectively subsidizing environmental destruction through inaction. The assumption that pollution, biodiversity loss, and ecosystem collapse are merely ‘side effects’ of economic activity, rather than core costs, distorts decision-making and leads to disastrous underinvestment in sustainable solutions.
Economist Jason Hickel has long argued that the vast disparities between wealthy and low-income nations are fundamentally linked to environmental exploitation. Industrialized nations built their wealth on centuries of resource extraction, much of it from the Global South, while the costs of this extractive economy—deforestation, pollution, and climate breakdown—have disproportionately fallen on those least responsible. By treating these costs as external, high-income nations effectively shift their environmental burdens elsewhere, perpetuating global inequality under the guise of free markets.
Efforts to internalize these costs are emerging, but at a sluggish pace. The EU’s Emissions Trading Scheme (ETS) and carbon pricing mechanisms like the UK’s Emissions Trading System attempt to put a price on pollution, yet these frameworks remain incomplete. The EU’s Carbon Border Adjustment Mechanism (CBAM), meant to prevent carbon leakage, is already facing political pushback and delays. Similarly, the UK’s biodiversity net gain requirement, which mandates new developments to compensate for ecological destruction, has been met with slow enforcement and weak penalties.
The slow pace of progress underscores a critical point: if environmental costs are not properly integrated into economic decision-making, market mechanisms alone will fail to drive meaningful change. One potential saving grace is Article 6 of the Paris Agreement, which allows for international carbon trading between nations. In theory, this could help balance climate responsibility between wealthy and developing nations. However, for this to work effectively, countries exporting carbon-intensive goods must be compensated based on accurate marginal abatement costs. Without this precision, carbon markets will entrench existing inequalities rather than mitigate them, as wealthier nations will continue to offload their emissions onto the Global South while paying a fraction of the real costs.
Without pressure and clear guidance from governments, the private sector will not move at the speed required to prevent further climate catastrophe. Yet, public-led initiatives are equally fraught with challenges, as economic divides between the wealthy and poor—both within and between nations—hamper collective action. The state of education systems in many countries fails to foster critical thinking and systemic problem-solving, making it harder for societies to coalesce around coherent and unified responses. This is why politicians consistently frame sustainability efforts as a cost burden on consumers, reinforcing the misleading narrative that caring about the environment is a luxury for the wealthy. In reality, a well-designed, holistic approach to sustainability would create a more equitable world for all, ensuring economic stability, resilience, and improved quality of life, especially for the most vulnerable.
In short, treating environmental damage as an externality is not just an economic misjudgment—it is a fundamental misrepresentation of reality. Climate breakdown is not a peripheral concern; it is an existential risk embedded in every facet of global stability. Until economic systems fully internalize environmental costs, both through robust carbon pricing and equitable global cooperation, humanity will continue to race toward irreversible ecological collapse, all while pretending the bill has yet to arrive.
