Green growth sounds nice, but can it deliver climate change mitigation?
In this article, Ulrich Hoffmann calls into question the notion of “green growth,” asserting that economic growth cannot be decoupled from a related rise in greenhouse gas emissions.
Many economists and policymakers advocate a fundamental shift towards “green growth” as the new, qualitatively-different growth paradigm, based on enhanced material/resource/energy (MRE) efficiency and drastic changes in the energy mix, with corresponding structural changes. Advocates argue that such a paradigm change would unleash new wealth creation and employment opportunities, provided that there was sufficient investment and that companies had access to better information and supportive incentives. In other words, the concept is flawless – only the enabling conditions are lacking. “Green growth”, which should rather be seen as a process of structural change, may indeed create new growth impulses with reduced environmental load, in particular at the micro-economic level. But can it also mitigate climate change at the required scale and pace (i.e., significant, absolute and permanent decline of greenhouse gas (GHG) emissions) at the macro-economic and global levels?
My new paper casts a long shadow on the “green growth” hopes, and also reviews related developmental implications for the South. “Green growth” may provide false hope and excuses to do nothing really fundamental to bring about a U-turn in global GHG emissions. The arithmetic of economic and population growth, efficiency limits related to the rebound effect, as well as systemic issues call into question the hopes of decoupling economic growth from GHG growth. One should not deceive oneself into believing that such an evolutionary (and often reductionist) approach would be sufficient to cope with the complexities of climate change. “Green growth” proponents need to scrutinise the historical macro- (not micro-) economic evidence, in particular the arithmetic of economic and population growth, as well as the significant influence of the rebound effect. Furthermore, they need to realise that the required transformation goes beyond innovation and structural changes to include democratisation of the economy and cultural change. Climate change calls into question global equality with regard to opportunity for prosperity (i.e., ecological justice and development space). It poses a huge developmental challenge for the South and a question of life and death for some developing countries.
Limits set by the arithmetic of economic and population growth
It is highly questionable whether the required drastic GHG-emissions reductions are really achievable under the prevailing growth paradigm. By way of illustration, global carbon intensity of production fell from around 1kg/$ of economic activity to just 770g/$ (i.e., by 23 percent) in the 28 years between 1980 and 2008 (a drop of about 0.7 percent per annum). Even if recent trends of global population (at 0.7 percent per annum) and income growth (at 1.4 percent per year) were just extrapolated to 2050, carbon intensity would have to be reduced to 36gCO2/$ – a 21-fold improvement on the current global average – to limit global warming to two degrees Celsius. Allowing developing countries to catch up with the present level of GDP per-capita in developed nations would require a much higher drop in carbon intensity of 99.2 percent (almost 130 times) by 2050 (See Figure 1).
In retrospect, apart from Germany for a short period after reunification in the 1990s, the Russian Federation is the only large economy that has reduced emissions substantially since 1990, mostly due to a breakdown of its heavy industry. The country’s carbon emissions fell by almost three percent annually from 1990–2005. The world – not only a handful of technologically very advanced countries – would have to repeat the Russian experience although two to three times more drastically. And even that would only result in limiting global warming to about three degrees. Does this sound feasible?
The rise of global population by about 35 percent, from 6.9 billion in 2010 to about 9.3 billion by 2050, will drive the scale effect of production and consumption. This growth, combined with a four-fold increase in output per capita (and even assuming that the rich world grows no more) would boost the size of the world economy by six times. While it is a fact that the countries with the highest population growth have contributed least to GHG emissions thus far, this is only because their populations continue to live in extreme poverty. In other words, population growth does not matter for resource consumption and GHG emissions as long as one accepts that people remain poor, with minimal levels of consumption. But it begins to matter a great deal if the international community has the ambition to reduce poverty amidst rapidly growing populations. If the 1.5 billion people currently without access to basic energy supply obtained that access and had the current average per capita CO2 emissions, this would increase global carbon emissions by 20 percent and double those of the developing world.
Enhanced MRE efficiency and ample availability of cheap renewable energy would encourage a “rebound effect” – physical consumption is likely to increase as a result of productivity increases – which leads to lower costs and prices and the shifting of thus saved consumer money or investment funds. This is called the financial rebound effect. In addition, there are two other clusters of rebound effects: material rebound and cross-factor rebound effects. Material rebound effects are caused by higher MRE consumption resulting from the need to change fixed capital and infra-structure for increasing MRE efficiency. The cross-factor rebound effect, in turn, is triggered by enhanced labour productivity, which replaces labour by mechanisation and motorisation, driving material and resource consumption, but in particular energy use.
The rebound effects have been poorly analysed so far, with estimates limited to the financial rebound effects. These alone are estimated to neutralise about half of the total MRE efficiency gains. Empirical information on material and cross-factor rebound effects is not yet available. Against this background, it would be simplistic to assume that MRE efficiency gains could play the main role in reducing GHG intensity. The key dilemma is that efficiency and productivity gains tend to boost economic growth, thus ushering in more physical consumption. This is one of the key reasons to call into question the feasibility of the “decoupling strategy” at the macro-economic level.
Linear thinking and horizontal shifting
There is also a tendency of too much linear thinking and approaches to enhancing MRE efficiency, often resulting in an outcome that only shifts the problem. Some of the technical advances leading to MRE efficiency gains, for instance, rely on materials that are either scarce, very energy intensive to produce, or difficult to re-use, recycle or safely dispose of. According to Bleischwitz et al., “the upswing for eco-industries in the North may have a dark side in the South: resource-rich countries being moved into rapid extraction paths exceeding the eco-systems and socio-economic institutions of those regions and fuelling civil wars with resource rents”.
A considerable part of GHG intensity drops in developed countries has been achieved not by real physical savings, but by “outsourcing” MRE-intensive production to developing countries. In fact, almost a quarter of GHG emissions related to goods consumed in developed countries has been outsourced. A team of scientists at Oxford University, for instance, estimated that under a correct account, allowing for imports and exports, Britain’s carbon footprint is nearly twice as high as the official figure (i.e., 21 t CO2eq/person/year instead of 11). The share of CO2 net imports to total carbon emissions of individual developed countries has recently ranged from about 15 percent for Greece to almost 60 percent for Switzerland.
A very hard nut to crack – changing consumption patterns
The colossal required decarbonisation of the economy and human life will only be achievable if current consumption patterns, methods and lifestyles are also subject to profound change. Yet, far-reaching and lasting changes will be very difficult to bring about. The globalisation of unsustainable Western lifestyles and consumption trends, the tendency towards higher animal protein diets, and the high mobility obtained through modern, but carbon-intensive transport systems, are but three examples of the very hard nuts to crack on the consumption front. What is often underestimated by the advocates of “green growth” is the fact that changing consumption and concomitant lifestyles need to be understood as a social issue, factoring in equity. Consumption patterns are unlikely to significantly change unless income distribution changes as well.
Governance and market constraints
No doubt, the drastic and quick changes required for achieving the unprecedented absolute, permanent and global GHG emission reductions necessitate a clear political vision, a sound strategy and consistent implementation. Yet, in practice, we remain far from that. The international climate regime, though without alternative, is not providing a coherent and sufficiently effective approach yet. The gap between the claims and the reality of international climate policy is widening. According to Fatih Birol, the chief economist of IEA, “potentially, we are already with our feet in water, reaching the level of our knees. Yet we make decisions and keep promising that our toes will remain dry.”
Moreover, the current public debt and financial crisis in numerous Western countries is likely to complicate the much required structural and technological change that underpins “green growth.” Governments in the crisis-stricken developed countries find themselves in a budgetary straightjacket. They are obliged to drastically cut back public expenses and investment in the next few years, increasing deflationary and recessionary tendencies in the concerned economies. Most of these countries will be unable to launch big economic stimulus or re-structuring packages as in the wake of the 2008–2009 crisis.
Existing market structures are also complicating the “green” transformation of economies. For instance, from a systemic point of view, a considerable part of renewable energy can (and should) be deployed in a local, decentralised way, avoiding much of the required investment in new grids, avoiding transmission losses and matching supply with demand. Yet, the market domination of few energy companies leads to a preference for central, grid-based approaches that retain their market power. Off-shore wind parks and project proposals for huge solar power generation facilities, for instance in the Sahara, are cases in point.
The externalisation of environmental costs and massive subsidisation of fossil-fuel dependent industries and industrialisation approaches have become a fundamental part of the capitalist market economy. More generally, there is a systemic problem of free riding of “conventional producers” that take advantage of all kinds of “perverse” subsidies and misguided incentives. Conversely, sustainable producers, who want to distinguish themselves, have to provide and pay for the evidence that they are indeed meeting specific sustainability criteria (usually partly reflected in voluntary sustainability standards).
The much-vaunted market-based instruments for internalising GHG emission costs, in particular emissions trading, have so far also fallen far short of expectations. A recent review of the EU Emissions Trading System (ETS) by Carbon Trade Watch and Corporate Europe Observatory draws very sobering conclusions: “It is failing badly. In theory, it provides a cheap and efficient means to reduce greenhouse gases within an ever-tightening cap, but in practice it has rewarded major polluters with windfall profits, while undermining efforts to reduce pollution and achieve a more equitable and sustainable economy.” What is more, even the smartest-designed carbon offset trading scheme cannot overcome the constraints set by the above-mentioned limits of the maths of decarbonisation - as stressed by Pielke, carbon “markets cannot make the impossible possible.”
As if the growth, technological, governance and market constraints were not already enough, some systemic issues are also calling into question the “green growth” hopes. Their essence is that the capitalist economic system cannot operate without growth, with the exception of short cyclical crises. “Expand or perish” is an inexorable force and the constant accumulation of capital has inherent expansionist features – all economic agents are under competitive pressure to either undercut the costs of their competitors or create new products and markets. Increases in labour productivity and the permanent creation of new consumer needs generally lead to more, not less, physical production and consumption (i.e., the principal of capitalist accumulation). This increase in growth can bring, but does not necessarily mean, additional benefits to society. Capitalist actors are not interested per se in growth of societal benefits, but in sales’ increases so that profits rise. As put by Lockwood, “growth is inherent in capitalism, which means you can’t have capitalism without growth, and you can’t have a capitalist steady state economy,” as advocated by Herman Daly and others. Rather, as nicely described by Green, “growth is like a bicycle – if it stops, you fall off”.
Key challenges for developing countries
Often arguments are made that developed countries should drastically cut their GHG emissions to make sufficient atmospheric carbon space for development in the South. As analysed above, however, significant absolute declines of Northern GHG emissions will remain illusory. What is more, it is simplistic to assume that a drastic reduction of growth (or even a decline) in developed countries could make sufficient “development and carbon space” for developing countries in the future. One cannot deny the reality that much of developing country growth will continue to be dependent on unsustainable Northern consumption.
The above analysis on the math of required drastic decarbonisation of the world economy under various scenarios of the South catching up with Northern levels of GDP per capita illustrate that, to avoid an apocalyptic future, developing countries will no longer be able to follow, but will have to “tunnel” the so-called Environmental Kuznets Curve. In other words, there is insufficient atmospheric carbon space. Developing countries will no longer be able to rely on unabated economic growth until GDP per capita reaches a level at which environmental pollution and GHG emission intensity of growth start falling. As a result, “developmental space and justice” and “historical climate debt” are set to become very contentious issues in North-South relations and international climate change negotiations.
Because of multiple vulnerabilities associated with lower levels of development and inadequate resources, developing countries tend to suffer more from climate calamities. Disaster risk management and adaptation to climate change have not been mainstreamed and responses are mostly event-driven. It is therefore imperative that investment and technology decisions related to disaster risk reduction and adaptation to climate change are incorporated in national development strategies.
Against this background, while climate-change mitigation efforts remain important, developing countries need to prioritise effective climate-change adaptation in forms that optimise poverty-eradication. The most pressing and promising areas in this regard are a fundamental transformation of agriculture; harnessing the use of renewable energy, in particular for sustainable rural development; and energy-efficient and climate-resilient construction and renovation of buildings – including urbanisation in low-carbon cities and climate-proofing of infrastructure in coastal zones.
Given the level of urgency and the time constraint, freeing sufficient national funding and obtaining adequate external funding for the above-mentioned adaptation measures is of pivotal importance. Appropriate international adaptation funding should reflect (i) the full costs of avoiding harm; (ii) actual harm and damage; and (iii) lost opportunities for development in developing countries.
Taken together, the adaptation and mitigation measures outlined above for developing countries are unlikely to sufficiently check global warming, yet they have the potential to make economic development more climate change resilient. They also offer ample development space for prosperity gain. It should however be remembered that, as the Fukushima incident, the recent floods in Thailand, or the catastrophic floods in Pakistan harshly illustrated, major climate change-caused disasters may role back development gains, in particular when certain environmental tipping points are reached.
Ulrich Hoffmann - Senior Economic Affairs Officer, International Trade Division, UN Conference on Trade and Development (UNCTAD) secretariat in Geneva. The views expressed in this article are those of the author and do not represent the position of the UNCTAD secretariat or UNCTAD member countries.
The full paper, including all references for the summary of its key findings above, is available athttp://bit.ly/I5dYKZ