Countries worldwide have started to exit the worst of the COVID-19 pandemic. Political and opinion leaders, scientists and civil society almost entirely agree that post-COVID economies should be run differently, with much more attention given to the ecological transformation, to climate change mitigation, and to social justice. In September this year, Pope Francis will give a speech at the United Nations on the need for a new socio-economic system post-coronavirus.
This is what we want – clean air and water, fairness, jobs and greater equality. But, can it happen? What must be done to have the life we want?
Let’s discuss the systemic issues first.
The theory of green growth postulates that technological progress and structural change would suffice to decouple economic growth from a rise in energy consumption and greenhouse gas emissions, but without questioning existing market structures and economic driving forces.
However, an increasing number of economists agree that dematerialised growth remains an illusion under prevailing neoliberal economics.
Without the democratisation of economies, without equalising the distribution of income and without changing consumer behaviour, the fundamental transformation required to grow a green economy is hardly likely.
More recently, the issue of climate change and its effects on economic theory has arisen, with rather diverse opinions on the matter.
According to Prof. Tim Jackson from Surrey University in the United Kingdom, climate change and a transition towards green economic growth would not affect economic theories too dramatically; rather, these could provide for different framework conditions and policy focus.
An opposing position is taken by Nobel Prize laureate Prof. Joseph Stiglitz. According to him, mainstream economic theory will need to change to reflect the new realities of the 21st century, i.e. those that did not exist in the mid-20th century.
Besides climate change, these issues include the excessive financialisation of the economy that provides for the corporate abuse which, in several cases, distorts taxation, as well as the need to increase the role of the state economy to provide for social security and inclusion.
For Stiglitz, the transition towards the green economy will be beset by several uncertainties and will largely be a matter of learning-by-doing.
Another significant opinion is that of Prof. Ottmar Edenhofer of the Potsdam Institute of Climate Impact Research, who believes that there is a need for greater fairness in the capitalist economy.
COVID-19 has prompted other debates around the relevance of current economic models.
According to Clive Spash, who has recently published an article “The economy as if people mattered: Revisiting critiques of economic growth in a time of crisis” (Globalizations), the pandemic has revealed that the modern economic system is structured to achieve ﬁnancial returns that are not necessarily green ones; that it is not sufficiently robust to deal with sudden changes in demand; that economies without growth are economies in total crisis; and that corporations are heavily dependent on public funds and government intervention.
Any unprecedented global crisis could put an end to the current economic system.
A crisis would sufficiently pressure governments and economic thought leaders to change both the system and the theories that govern it by putting Nature at the heart of the matter rather than leaving the environment and the people that inhabit it at the mercy of corporations, billionaires, speculators and proﬁteers.
Would all this mean a change in mainstream economic theories too? If so, Nature and the environment would feature prominently, as would fairness and increased equality and the role of civil society and of the state.
The elements of Nature, of the social system, of people and of the state shall be written in the theory of economic growth, whatever we call it and whoever espouses it; the powers of the free market, of the people and of the state would be well balanced to provide for the protection of Nature, for economic growth, and for welfare.
Then, let’s discuss the technical feasibility of green economic growth.
A big part of the debate on the feasibility of green economic growth – i.e. the feasibility of an absolute decoupling of greenhouse gas emissions from economic growth – hinges on the most important question of whether greenhouse gas emissions can indeed be decoupled from the use of materials and, especially, from the use of energy as inputs to production: to assume that greater material efficiency provides for higher economic growth.
The academic literature reflects a debate on energy use as an input of production, stating that it is virtually impossible to reduce energy use to such an extent that climate change could be decoupled from economic growth, which means that green economic growth might be questioned.
James Ward and others – who in 2016 have published an article “Is decoupling GDP growth from environmental impact possible?” (Plos One) – maintain the view that growth in efficiency has thermodynamic limits.
According to this view, any indeﬁnite growth will lead to an increase in resource use; thus, any efficiency gains through substitution or reduced use may only be temporary.
However, although green growth is not possible indeﬁnitely, it can happen and, according to Ward et al., can be sustained to 2050, by which time the limits of resource efficiency will have been reached.
The question, therefore, is this: if green growth – including resource decoupling – is possible for a certain period, at least up to the year 2050, why has it not yet happened?
A likely answer points to the fact that green efficiency-enhancing technologies are slow to be adopted, and certain government and industrial policies favour neoclassical economic growth above its green counterpart.
Finally, let’s have a look to the figures.
According to PwC, if one assumes that global GDP continues to grow at 3% per annum (average, 2010–2014), the decoupling must reach 10.5% per annum to keep the increase in global warming below 1.5°C compared with pre-industrial levels, or 7.3% per annum to keep it below 2°C; and if global GDP grows at 2.1% per annum, the decoupling must reach 9.6% per annum for 1.5°C, and 6.4% per annum for 2°C.
However, even the most optimistic scenarios for most advanced economies indicate a decoupling rate of not more than 3% a year.
According to PwC experts, even if the current rate of decarbonisation were double the 1.2% level recorded for 2013, it would still lead to emissions allowing for 4–6°C global warming by the year 2100.
Furthermore, it is vital that drastic reductions in greenhouse gas emissions happen in an historically short time, i.e. within the next 20 to 30 years.
There is nonetheless one model that considers the Paris Agreement goals feasible, but only under very strict conditions.
In 2018, Arnulf Grubler et al. presented a low-energy-demand scenario which predicts a reduction in greenhouse gas emissions being compatible with a 1.5°C limit provided global energy demand decreases by 40% by 2050.
According to the model, the aggregate total material output decreases by 20% – one third of which occurs by way of dematerialisation, and two thirds through improvements in material eﬃciency. The model also assumes that industrial activity declines by 42% in the Global North and 12% in the Global South. With eﬃciency improvements, this translates into the demand for industrial energy declining by 57% in the Global North and by 23% in the Global South. The model maintains annual GDP growth at 2%.
To conclude, green economic growth is a must, although it challenges everything we know – the foundations of economics, thermodynamics, the statistics, and many other things besides. It will be indeed learning by doing: a journey of will, dynamics and creativity.