Can We Be Green And Grow?

As prospects for an end to the pandemic prompt talk of building back better , many have argued for a sustainable, inclusive and resilient...


As prospects for an end to the pandemic prompt talk of building back better, many have argued for a sustainable, inclusive and resilient recovery as the best means to secure growth in productivity.

But are such proposals realistic or is the continued pursuit of exponential economic growth part of the problem? Many argue for reducing the size of economies (degrowth) or at the very least a shift away from the pursuit of economic growth as an objective.

Rapacious growth is unsustainable

They point out that staying within finite planetary boundaries and environmental limits is incompatible with ever increasing consumption. Greater efficiency allows us to decouple growth from resource use and climate pollution, but we have never managed a rate of decoupling fast enough to drive absolute decoupling and secure a sustainable use of the planet’s resources.

Consequently, climate change and preserving natural capital must take priority over economic growth.

The notion that ‘green’ and growth are traded off is intuitively appealing, but it relies on the assumption that economic growth equates to growth in material use (such as fuels, minerals, ecosystem services and capital equipment) and pollution. In fact, efficiency and productivity improvements can allow us to get more out of the resources we have by decoupling GDP from materials. It is true, the world has never before managed this, but the fact is we have never really tried.

Sustainability is in our gift

Where a minimal public and private effort has been made to invest in new technologies, for example in renewables and electric vehicles, great progress has been made towards decarbonising the electricity and transport sectors. This relied heavily on taxpayer funded research and deployment policies to kick start innovation. Moreover, once learning, experience and economies of scale in production and discovery kicked in, these innovative new technologies turned out to be cheaper, more efficient and more productive than the incumbents they replaced.

Exponential growth is not only possible, it is exactly what you’d expect in a world where you did not increase your resource or greenhouse gas footprint. You’d learn to use resources smarter and get more out of them. Investing in science, creativity and innovation allows us to use fewer resources. In this way, increasing returns to ideas overcome diminishing returns to factors, such as labour and physical capital. This then generates more resources for further investment. Unlike material resources, ideas are weightless. Knowledge begets knowledge and does not deplete when used.

Ideas can be weightless as well as priceless

The green transition can serve to accelerate this trend provided we steer innovation in a way that enhances prosperity. The World Bank estimates that intangible capital—ideas, processes, software, databases, new media libraries, creative copy-write and online services—now makes up between 60% and 80% of total wealth in most developed countries.

GDP measures neither happiness nor well-being. Reported happiness does not rise in line with growing GDP over time, even if it does across space. GDP certainly does not measure comprehensive wealth and may not even go in the same direction. A dashboard of metrics should be used to complement GDP and guide our measure of true prosperity.

‘Degrowth’ poses environmental risks too

But economic growth is strongly correlated with other, non-monetary things of value, such as substantially lower child mortality, declines in preventable diseases, educational and scientific prowess, equal opportunities, rule of law and financial security.

In poorer parts of the world, ‘degrowth’ risks condemning hundreds of millions of people to endemic poverty. In rich countries, the prospects of large cuts in wages and salaries would likely erode popular support for environmental measures as well as suffocate resources for vital innovation. Policy-driven consumption reductions such as Allied rationing after World War Two and Soviet rationing in the Cold War produced negative ecological outcomes. Take a look at the satellite pictures of the border between Haiti and the Dominican Republic to see how low consumption relates to deforestation and land degradation. Economic contraction would be among the most expensive abatement solutions costing US$2,000 per tonne of CO2 according to Cameron Hepburn at Oxford University.

By contrast, opportunities from dematerialisation include reduced urban pollution and traffic congestion as well as cost saving from better managing water, land and food.  The Global Commission on the Economy and Climate found that “at least half and possibly as much as 90%” of global emissions reductions required to meet an ambitious climate target could generate net benefits to the economy. The IMF recommends fossil fuel pricing on narrow economic as well as environmental grounds. Efficiency opportunities are available to squeeze out carbon even in hard to abate sectors such as aviation, shipping and industry.

Innovate and grow

In truth, neither growth nor ‘degrowth’ will alone deliver sustainability. Preventing dangerous climate change means net emissions must fall close to zero. Without decoupling production from emissions, GDP would have to fall to zero too, inducing mass starvation. By the same token, the only growth path is the sustainable growth path, all the others will snuff themselves out.

Innovation is therefore necessary and we will also have to change our material consumption. Yet tastes, preferences and social norms are not fixed. As we get richer, we value personal services such as performance art, care services and socialising over material goods. The ‘degrowthers’ are right: prosperity does not rely on growth in material resources (despite its many flaws, even real GDP is a chain weighted value concept, so it will pick up our changing preferences for dematerialised existence, albeit slowly and imperfectly).

In short, what matters is decarbonisation and dematerialisation, not ‘degrowth’. The primary route to dematerialisation is through innovation. And this requires strong, clear and credible policy intervention. There is no reason why the future cannot be cleaner, quieter and more secure as well as more efficient, productive and prosperous. We just need to design it that way. For all our failings as stewards of the planet, innovation is one thing humans excel at. We need more of it and of the right kind.

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