Less levity Professor Stern! Economic growth, climate change and the decoupling question.

windmills in an arid landscape

An industrial scale wind farm in Brazil. While the energy is clean, the people living nearby gain nothing.

Note: we have published more recent pieces on the myth of decoupling, including commentary on more recent claims. Click HERE for a full list.

Steady State Manchester has argued, along with most ecological economists that continued economic growth is incompatible with ecological safety. That is to say continued increases in Gross Domestic Product, (GDP and also Gross Value Added, GVA) cannot happen while reducing ecological impacts in general, and climate change-causing greenhouse gas (GHG)emissions in particular. It isn’t a popular message, and is one that is typically ignored, not least by our city leaders who still seem to think we can have some kind of ‘good growth’ while avoiding ecological catastrophe.

So what do we say to a well publicised international report that argues the opposite? This is not just any report, but one from the very well-resourced Global Commission on the Economy and Climate:

The Global Commission is chaired by former President of Mexico Felipe Calderón and comprises former heads of government and finance ministers, and leaders in the fields of economics and business. The Commission’s work is being conducted by a global partnership of leading research institutes. Reporting in September 2014, the project will make recommendations on actions and policies that can achieve high quality economic growth at the same time as addressing dangerous climate change.

The Global Commission on the Economy and Climate was commissioned by seven countries – Colombia, Ethiopia, Indonesia, Norway, South Korea, Sweden and the United Kingdom – as an independent initiative to report to the interational (sic) community.

The Vice Chair of the commission and chair of its Economics Advisory Panel is none other than Nicholas Stern, Professor of Economics at LSE and author of the 2006 “Stern Review on the Economics of Climate Change” (full text here). This report can take some considerable credit for helping to make the climate crisis a mainstream issue: as well as arguing that the climate emergency was evidence of a massive “market failure”, it argued that the economic costs of doing nothing would be greater than those of tackling climate change. A series of imitator reports, including Manchester’s Deloitte “Mini Stern” sought to cash in on the idea that there was money (economic growth) in climate change mitigation.

But let’s look at the new report.

The report’s conclusion is that countries at all levels of income now have the opportunity to build lasting economic growth at the same time as reducing the immense risks of climate change. This is made possible by structural and technological changes unfolding in the global economy and opportunities for greater economic efficiency. The capital for the necessary investments is available, and the potential for innovation is vast. What is needed is strong political leadership and credible, consistent policies.”

A strong claim. Now to be fair, the report has a lot of useful information and argument. It’s real target is those who want to “cut the green crap”, believing that actions to mitigate climate change would harm the economy. It is this focus that gives the report its emphasis which is on the actions that are needed. But what about that claim? The report makes a number of interlinked statements:

In this sense, the choice we face is not between “business as usual” and climate action, but between alternative pathways of growth: one that exacerbates climate risk, and another that reduces it. (p. 15)

Strengthening growth and tackling climate risk are therefore not just compatible goals; they can be made to reinforce each other. (p. 18)

And the crucial section is this:

The evidence for these conclusions has been accumulating over the last decade. The theoretical basis for them has been known for some time. What is new is the practical experience around the world. National and local governments as well as businesses that have adopted lower-carbon strategies and policies have found them associated with economic performance as good as or better than their high-carbon peers’.(33)

Much of this has been driven by recent technological advances. The decoupling of growth from carbon emissions in some of the best-performing economies, both in Northern Europe and in North America, demonstrates the gains that can be made in incomes, jobs, rates of innovation and profits from a low-carbon, resource-efficient model of growth.(34). (p. 18)

I was intrigued, because the evidence that I have seen suggests that, so far at least, it is not possible to decouple growth in carbon emissions from economic growth. We reviewed this evidence two years ago in In Place of Growth (see page 18). The relevant references are given below, together with a further one from New Zealand. So I looked up the reference notes (33 and 34).

33 PricewaterhouseCoopers (PwC), 2013. Decarbonisation and the Economy: An empirical analysis of the economic impact of energy and climate change policies in Denmark, Sweden, Germany, UK and The Netherlands. Available at: http://www.pwc.nl/nl/assets/documents/pwc-decarbonisation-and-the-economy.pdf.

34 See: Brahmbhatt, M., Dawkins, E., Liu, J. and Usmani, F., 2014 (forthcoming). Decoupling Carbon Emissions from Economic Growth: A Review of International Trends. New Climate Economy contributing paper. World Resources Institute, Stockholm Environment Institute and World Bank.To be available at: http://newclimateeconomy.report.
Also: Brinkley, C., 2014. Decoupled: successful planning policies in countries that have reduced per capita greenhouse gas emissions with continued economic growth. Environment and Planning C: Government and Policy, advance online publication. DOI:10.1068/c12202.

Well, the Brahmbhatt et al. paper has yet to appear on the New Climate Economy website, a little extraordinary since it seems to underpin a key and very controversial claim. I couldn’t find anything by those authors elsewhere that threw any light on the claim either. update, October 2015: the article still has not appeared. An internet search for these 4 authors yields no results!

The PWC report (2013) is certainly a very interesting one with a lot of detail. But the devil, as so often, is in the detail. Firstly it is chiefly focussed on energy supply. But secondly, it is critical to understand which emissions are being discussed. On page 17 we find a map showing the CO2 to GDP ratio reductions for the five European countries studied. They have all reduced the energy intensity of their economies. But the footnote tells us that “We use domestically created carbon emissions per GDP. This does not include emissions of imported goods (consumption based emissions).” [see a Manchester take on the Total Carbon Footprint here] And it turns out that the apparent decarbonisation of these economies, while partly due to increases in energy efficiency and changes in the fuel mix (in Germany and Denmark renewables play a big part), owes a lot to the outsourcing of production to the low wage economies of the ‘developing’ world. Or put it another way, as is all too familiar to those of us who have lived in Manchester over the last 3 decades, we have de-industrialised. Our increasing GDP includes our increasing consumption. Our expenditure on imports goes into the GDP growth figure, but the emissions created in making and distributing those goods do not enter into the GHG calculations. So the claim in the report that some of these economies have produced an absolute decoupling of GDP growth from GHG emissions, evaporates into….. the air.

What about the other, very new reference? It is so new that it only appears as a web preview of the article in press in the scholarly journal Environment and Planning C: Government and Policy. Those with University library access can see it here (others can only see the abstract). In this article, Catherine Brinkley “identified nine countries that have steadily decoupled per capita carbon emissions from GDP”. Her detailed study is again interesting, with a lot of pointers to where and how to make reductions in GHG emissions. But again, “Territorial emissions are emphasized in this research”, and as she notes, “some scholars argue that deindustrialization and commodity trading account for the majority of carbon emission reductions in wealthy nations, thereby distorting the true per capita carbon footprint”.

So this is the crux. While Stern and colleagues draw the conclusion that absolute decoupling is possible, they present no evidence for this, and the (available) sources they do cite, while rather airily talking about “absolute decoupling”, can only show either sectoral reductions (in energy use) or territorial reductions, that leave out all the outsourced emissions that are the sequelae of the rising GDPs.

But there is another problem – rebound, or the Jevons paradox. Suppose we follow the actions of Stern et al. and invest heavily in energy efficiency and renewables. My energy bills will go down. What shall I do with the money saved? I could go on foreign holidays, buy some more consumer goods (a new bike), eat more unseasonable fruits and vegetables, or fish (and if I weren’t mostly vegetarian, meat), build an extension. I could put the money into investments. All of these, as things stand, will generate more emissions. As Stern et al. are at pains to point out, the economy is complex and interconnected (just like the ecosystem!), but they themselves fall into a simplistic linear model that fails to take complex feedback effects into account.

So, the case that GDP growth and climate change mitigation are friends is not made.

Let’s look at what the real experts, the IPCC said earlier this year:

Globally, economic and population growth continue to be the most important drivers of increases in CO2 emissions from fossil fuel combustion. The contribution of population growth between 2000 and 2010 remained roughly identical to the previous three decades, while the contribution of economic growth has risen sharply (high confidence). Between 2000 and 2010, both drivers outpaced emission reductions from improvements in energy intensity (Figure SPM.3). Increased use of coal relative to other energy sources has reversed the long-standing trend of gradual decarbonization of the world’s energy supply. [1.3, 5.3, 7.2, 14.3, TS.2.2] http://report.mitigation2014.org/spm/ipcc_wg3_ar5_summary-for-policymakers_approved.pdf

So there it is. A decidedly serious problem that won’t be resolved by optimistically thinking that we can have our cake and eat it. Less levity, I think, Professor Stern.

A lot more could be said, about, for example, the faith of these economists in the carbon price mechanism – using the market to correct the market. But the report is not all bad. It is a call to action and it focusses on the key sectors where emissions can be cut (cities, land use and energy). It is just that their basic assumption and some of their recommendations (e.g. putting a price on things like forests) are inconsistent with that imperative.

For some other criticisms of this flawed report, see this interesting critique from the “Sceptical Economist” who also wrote this useful summary of the decoupling question.

update 6 october., 2014:-
And some further critiques:-











Spash, C. L. (2014). Better Growth, Helping the Paris COP-out? Fallacies and Omissions of the New Climate Economy Report (SRE-Disc No. sre-disc-2014_04). Institute for the Environment and Regional Development, Department of Socioeconomics, Vienna University of Economics and Business. Retrieved from https://ideas.repec.org/p/wiw/wiwsre/sre-disc-2014_04.html

And here are the other references on decoupling:

Our own review of evidence for country level decoupling produced by World Resources Institute and Carbon Brief, April 2016

SERI, http://www.materialflows.net cited in O’Neill, D, Dietz, R, & Jone, N (Eds.). (2010). Enough is Enough: Ideas for a Sustainable Economy in a World of Finite Resources. The report of the Steady State Economy Conference. Leeds: Centre for the Advancement of the Steady State Economy, and Economic Justice for All.

Victor, P. A. (2011). Growth, degrowth and climate change: A scenario analysis. Ecological Economics. doi:10.1016/j.ecolecon.2011.04.013 available at http://degrowth.org/wp-content/uploads/2011/05/Victor_Growth-Degrowth-and-Climate-Change.pdf

Jackson, T. Prosperity Without Growth. London: Sustainable Development Commission, 2009. http://www.sdcommission.org.uk/publications/downloads/prosperity_without_growth_report.pdf , Næss, P., & Høyer, K. G. (2009). The Emperor’s Green Clothes: Growth, Decoupling, and Capitalism. Capitalism Nature Socialism, 20(3), 74–95. doi:10.1080/10455750903215753 http://www.tandfonline.com/doi/abs/10.1080/10455750903215753

Giorgetti, A (2007) A Discussion on Decoupling Economic Growth from the Emissions of Carbon Dioxidereport prepared for Environment Waikato & The Parliamentary Commissioner for the Environment, Wellington, New Zealand. http://www.waikatoregion.govt.nz/PageFiles/6131/tr07-02.pdf

(post updated 27 October, 2014.  Minor update, 5 October, 2015, 17 April, 2016)

Mark Burton
Steady State Manchester Collective

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