The green growth mindset

NEW YORK — Everyone needs a foil, and for many who are focused on climate and sustainability, economic growth — capitalism — is a convenient target. This is understandable. Economic expansion is the quintessential capitalist imperative, but infinite material growth on a finite planet is physically impossible. Hence the rise of “degrowth”, “agrowth”, “post-growth”, and other concepts that have emerged to underpin seemingly sophisticated criticisms of the “standard” economic model.

Look beneath the surface and you will find that this clash of worldviews is more about rhetoric than actual policy. It is also a distraction.

The focus instead must be on cutting carbon and other forms of pollution. While high-carbon, low-efficiency economic activities, and some entire sectors, must shrink, low-carbon, high-efficiency activities and sectors must grow. Harnessing this natural process of “creative destruction” does not mean embracing laissez-faire, with policymakers sitting on the sidelines watching passively.

Consider the massive negative societal costs associated with burning oil, coal, and gas. According to the best estimates we have, the social cost of carbon in the United States has nearly quadrupled in the last decade, from around $50 per ton of emitted carbon-dioxide to almost $200, and even that is only a partial estimate of the true costs.

All told, each barrel of oil and each ton of coal burned cause more in external damage than they add to GDP, and we have not even yet accounted for other important environmental factors like land use and biodiversity. Given these high and mounting costs, the policy prescription has long been clear: put a price on carbon. Or better yet, price any and all negative externalities, and subsidise the positive ones.

Last year’s US Inflation Reduction Act (IRA) nods in both of these directions. But while it includes a little-known direct price for methane emissions from oil and gas operations, its main focus is on subsidies and tax credits. By harnessing the potential of markets and incentivising economic growth in specific areas, it represents “green industrial policy” in action.

Such active government involvement in the economy raises a host of questions. What is not in doubt is that hundreds of billions of dollars of government subsidies will drive the deployment of renewable energy, battery storage, clean transportation and other important technologies in under-developed sectors. Moreover, all that development will generate economic growth, as measured in the narrowest of ways through traditional GDP, economic value-added and employment statistics.

Does this mean growth at any cost is good? Clearly not. Nor is “green growth” alone necessarily desirable when viewed through any number of other lenses. The rapid deployment of low-carbon energy and other climate technologies will not guarantee inclusive growth, decent work, better health, less poverty or any number of other important global policy priorities. “Affordable and clean energy” represents only one of 17 United Nations Sustainable Development Goals for good reason.

Nor is deploying more clean energy sufficient even as a climate solution. Energy-efficiency measures also have an important role to play, which is why the IRA, for example, includes a “High-Efficiency Electric Home Rebate Programme”. Better-insulated buildings and more efficient modes of transportation will contribute to reducing carbon emissions long before energy and electricity are fully de-carbonised. That is to say, efficiency cuts carbon pollution.

Better insulation also improves quality of life, by adding protection against wildfire smoke and other outdoor air pollution. Preventing toxic seepage into one’s home through poorly insulated windows, doors and walls improves human health, electricity bills and real-estate values all at the same time.

True, this juxtaposition of clean-energy growth on the one hand and efficiency measures on the other appears to mirror the “green growth” versus “degrowth” camps. But this is an illusion. Efficiency means doing more with less, which makes it effectively synonymous with economic productivity, one of the key ingredients in standard macroeconomic growth models.

This semantic point cuts both ways. There are developing countries in the Global South and specific regions in advanced economies that remain heavily dependent on extracting and exporting fossil fuels. These sectors and economies will necessarily shrink, as the rest of the world makes the transition to cleaner sources of energy, and they may well end up poorer and more de-stabilised. But this is not what most advocates of degrowth have in mind.

Yes, some companies and individuals have profited massively from exploiting the planet’s resources, lobbying policymakers and covering up the damage they have done. That, in many ways, is where the motivation behind much “degrowth” thinking arises. We can all point to specific activities that we would rather see less of. But the question then is about framing and strategy. I believe the productive path forward is to focus on the trillion-dollar business opportunity that rapid de-carbonisation presents, and the many positive stories of transformation that go with it.

In the end, there is a fine balance to strike between unleashing the entrepreneurial “can-do” spirit and channeling it in the right direction; between Silicon Valley’s mantra of “move fast and break things”, and the physician’s oath of “first, do no harm”. The latter, of course, goes hand in hand with paying for one’s own pollution. That pollution ought to be the true foil, rather than the economic growth that results from entrepreneurs, businesses and governments attempting to rein it in.

Gernot Wagner is a climate economist at Columbia Business School. Copyright: Project Syndicate, 2023. 

www.project-syndicate.org