Averting Climate Catastrophe Requires Economic Growth

Alessio Terzi

By Alessio Terzi and Gernot Wagner

CAMBRIDGE/NEW YORK – Improving energy efficiency is undoubtedly a good thing. But efficiency should not be confused – as it sometimes is – withsufficiency,which calls for limiting energy consumptionand is thus closely connected to the degrowth movement. Tackling climate change means doing more with less, not simply doing less.

Gernot Wagner

The idea that sufficiency, and by association degrowth,could serve as a blueprint for reaching our climate goals gained traction after the COVID-19 lockdowns, when humans retreated indoors and global carbondioxide emissionsfell sharply, and Russia’s invasion of Ukraine, which triggered energy-security concerns in Europe. In our hyper-consumerist society,the argument goes, consumption offers diminishing returns for human happiness, which implies thatembracing minimalism would yield a double dividend:environmental preservation and improved well-being. Under this approach, wealthy countrieswould stop expanding their economies, whileeven the most strident degrowth advocates contendthat poorer countries would still need to boost consumption and investment to escape destitution.

If this sounds too good to be true, that’s because it is. First, some clarifications. Degrowth calls for an absolute reduction in consumption, rather than merely a shift in its composition. But such shifts – such as ditching thecar and commuting by bicycle–have been a constantthroughout history, and are what green growth strategiesaim to achieve. To be sure, there is nothing wrong with slowing down and choosing to earn less (and apparentlyachieving inner peace in the process). But one should not be led to believe that doing so holds the key to addressing the climate crisis.

Consider a simple thought experiment. Let’s start with the global economy in a steady state, neither growing norcontracting, and assume an annual decarbonizationrate of 2.4% – our calculation of the average over the past two decades, based on IMF economic statistics and emissions data from the Global Carbon Project. In such a world, global CO2emissionswould fall by 48% by 2050. While far from reaching the goal of net-zero emissions, this hypothetical global economy would benearly twice as carbon-efficient as today’s.

Now imagine if decarbonization were to depend entirely on decreasing economic output. To achieve the same outcome – almost halving global CO2 emissions –world GDP would need to shrink by 5% every year for the next three decades. To put this in perspective, global GDPcontracted by 2.7% in 2020, at the height of the pandemic. As successful as lockdowns were at slowing the spread of COVID-19, they were a terrible wayto cut CO2 emissions.

Limiting this thought experiment to richcountries – as degrowthers propose – makesa weak argument an absurd one. Economic output in the G7 countries would need to shrink 17% in 2024 alone, followed byan annual shock the size of the Great Depression. By 2030, purchasing power in the G7 would be roughly equivalent to South Sudan’s today. How manyclimate-conscious Western consumers would be willing to endure this?

What’s more, this thought experiment is necessarily limited. Our hypothetical began with a zero-growth economy, whereas over the past two decadesglobal percapita GDP has grown by 6.8% annually. Coupled with an increase in population, this steady growth has contributed to rising, not falling, CO2 emissions. Nothing short of a clean-energy revolution, complete with cleantransport systems and industry, will turn the climate ship around. Moreover, achieving net-zero emissions requirestrillions of dollarsin investment, which will add to, not subtract from, economic growth.

That is not to say that improving energy efficiency is futile. In 2007, the United Statespassed a law that helped phase out incandescent lightbulbs. As shown by McKinsey’s famousmarginal abatement cost curvein 2010, there were large monetary savings associated with switching from incandescent to LED bulbs. But this does not imply that the change would have happenedautomatically.Instead, itshows that the policy paid for itself, with Americans free to spend or save the leftover money. Either way, economic growth was inevitable.

The growth potential for large-scale efficiency improvements is significantly greater than that from switching to LEDlightbulbs. In fact, using limited inputs more efficiently is the definition of economic productivity – which, in turn, boosts growth. Moreover, the need toaccelerate our economies’decarbonization requires rolling out green technologies at a much faster pace. Staving off climate catastrophe will require more growth, not because ever-increasingGDP– itself afundamentallyinadequate metric – is the end goal, but because it is the result of cuttingemissions fast enough.

Alessio Terzi, a lecturer at the University of Cambridge and Sciences Po, is an economist at the European Commission and the author of Growth for Good: Reshaping Capitalism to Save Humanity from Climate Catastrophe (Harvard University Press, 2022). Gernot Wagner, a climate economist at Columbia Business School, is the author, most recently, of Geoengineering: The Gamble (Polity, 2021).

Copyright: Project Syndicate, 2024.

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