Destroying growth will not solve our climate conundrum
Investment and innovation provide the most viable route to net zero
Efforts to slow the pace of climate change have focussed on improving energy efficiency and switching to renewable energy sources. Some argue that the world needs a more radical approach, one that limits carbon emissions by ending the drive for economic growth itself. The environment has suffered as economies have grown. As the Japanese economist, Yoichi Kaya, observed, carbon emissions are a product of population, GDP per capita, energy efficiency and carbon intensity. Freezing GDP per capita at current levels would stop a major source of emissions.
Discussions on the so-called ‘de-growth’ today focus on its potential to reduce carbon emissions. But de-growth has other supporters. Some think that advanced economies are ‘rich enough’ and should shift away from the pursuit of growth to the pursuit of leisure and the betterment of society. An older idea, one dating back to the early days of the Industrial Revolution, contrasts the excesses of urbanisation and industrialisation with a supposedly gentler, uncompetitive world of cooperation and mutual aid. Supporters of de-growth are united in their criticism of GDP, pointing out how it fails to capture everything from inequality to mental illness, declining biodiversity and, indeed, happiness.
De-growth is an idea, not a set of policies. There is, for instance, no consensus among de-growthers as to whether it would apply only to richer countries and environmentally damaging activities, or to all countries and all economic activity.
Let’s assume de-growth does mean an end to growth, one that aims to rapidly reduce carbon emissions. Would such a policy work?
The old relationship between economic activity and carbon emissions is changing. A significant and growing number of countries – 33 with a combined population of over 1bn, according to The Economist – have broken the link between economic growth and carbon emissions. They are getting richer and producing less carbon.
Since 2005 US GDP has risen by about 50% while carbon emissions, including, those embedded in imports, have fallen. Greater energy efficiency and a shift to renewables have played a significant role. But so, too, has the shrinkage of energy-intensive manufacturing and declining levels of carbon in imports (China has decarbonised its exports faster than the wider economy).
Richer economies demonstrate that growth and reducing carbon emissions need not be in conflict. An advocate of de-growth might retort that western emissions are still too high and emissions from emerging economies, such as India and China, are growing rapidly.
Yet growth seems to offer a more plausible solution to these challenges than de-growth. The energy transition requires vast amounts of investment and rapid innovation in areas as diverse as batteries, freight transport, energy management systems and networks. It is a struggle to imagine such a transformation taking place in economies that are stagnating. Risk-taking, innovation and investment are fuelled by, and in turn contribute to, growth.
Meanwhile, freezing economic activity would condemn much of the world’s population to poverty, low incomes and shorter, less healthy lives.
The development of new energy sources, and more energy-efficient technologies, will allow for lower carbon growth in emerging economies, much as has happened in richer economies. But it won’t get there without more investment and cheaper, better technologies.
What about the politics of de-growth?
The pursuit of growth has been a central aim of modern governments. Growth raises standards of living and strengthens public services. Voters want prosperity and opportunities, not just for themselves but for their families and communities. Even in rich countries, unmet needs, in terms of health care, inadequate incomes, housing and infrastructure, are enormous. Unmet needs are, of course, far greater still in many emerging economies.
The losses suffered by incumbent governments in elections around the world this year were in large part a backlash against the high inflation and weak income growth of recent years. As James Carville, Bill Clinton’s political adviser said, it’s “the economy, stupid”.
De-growth would mean economic stagnation in the West. People living in developing countries would have to abandon hope of escaping poverty, or would require a massive redistribution of wealth from advanced economies to developing ones.
For all the progress of emerging economies like China the world is still a poor and unequal place. Nearly one in ten people still live on less than $2.15 a day, the UN’s definition of extreme poverty. 58% of the world’s population live on less than $10/day. To get income everywhere to the global average of about $14,000 would require incomes in the West to be collapsed with vast transfers going to emerging and developing economies.
The idea that voters in democracies would accept this – and that governments in more authoritarian countries would give up on growth – requires near infinite levels of optimism. In its pure form de-growth is not in the realms of political reality.
For all of the challenges that growth brings, it offers a more realistic path to net zero than no growth.
A personal view from Ian Stewart, Deloitte's Chief Economist in the UK. To subscribe and/or view previous editions just google Deloitte Monday Briefing.
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