Is economic growth at odds with fighting climate change?

The quest for economic growth makes it hard to adopt changes to mitigate climate change. What if we were measuring progress the wrong way?

Visitors touch a melting ice block highlighting the effects of climate change, London, Britain, 12 December 2018 (EPA-EFE/NEIL HALL)

The woman is Ursula von der Leyen, the new president of the European Commission, who was flagging her ecological plan to the European Parliament days before this year’s United Nations Climate Conference (COP 25) opened in Madrid on December 2.

But the comment from an investment advisor on a French business TV channel underscored the difficulties facing those who want stronger action to restrain global warming.

The Madrid meeting is tasked with fine-tuning the rules governing implementation of the 2015 Paris Climate Accord, which is due to come into force next year. Under the accord, the world agreed to cut emissions of carbon dioxide (CO2), the most prevalent greenhouse gas, enough to keep the rise in global temperatures by 2050 to under 2°C, and preferably close to 1.5°C, compared with the pre-industrial era.

But scientific reports suggest that will be a very tall order, partly because greenhouse gas emissions keep rising and partly because climate change seems to be accelerating.

Coal-fired power stations are still being built, and plans to drill for oil and gas are still on the table, even though non-carbon energy sources are now competitive. These are decisions by governments and businesses, and they follow the orthodoxy expressed by the investment advisor.

Fairy tales of eternal economic growth

The argument holds that economic growth is a necessity, and the cost of moving to a low-carbon economy threatens it. To convince those holding the reins of power of the need for climate action, you have to unravel that argument.

First, it assumes that economic growth is necessary for human welfare. But environmentalists have long questioned this, saying people’s needs could be provided for without wrecking the planet.

“Fairy tales of eternal economic growth” was how Greta Thunberg, the Swedish teenager who spearheads the youth climate movement, put it in a speech to the UN Climate Action Summit in September.

Economists themselves do not necessarily disagree. Back in 1973, Kenneth Boulding, an economist, educator, peace activist and philosopher, famously used irony to convey something very similar when giving evidence to the U.S. Congress: “Anyone who believes that exponential growth can go on forever in a finite world is either a madman or an economist.”

In fact, not all economists shared that madness, even then.

William Nordhaus, awarded a Nobel Prize in 2018 for his modeling of climate change and economic growth, began on this path with the publication in 1972 of an article entitled “Is Growth Obsolete,” written with James Tobin.

Economists went on to describe how the market failed to put a price on pollution, classifying it as external to the production process. That means the cost of pollution is borne to varying degrees by everyone but the polluter. It also puts no value on the things the pollution destroys but people need, like fresh air, clean water, safe food, pristine nature — now called “the commons.”

Here they put a finger on an aspect of the equation that much economic orthodoxy ignores: the true costs of inaction.

Measuring how climate change hampers growth

In a landmark report for the British government in 2006, Nicholas Stern quantified the impact of global warming on the global economy. He estimated that the world needed to invest 2% of total economic output a year to avoid the worst impacts of climate change.

But the world economy would lose anything from 5% to 20% of gross domestic product every year, forever, if no action were taken on climate change — the variation depends the range of negative impacts that are included. There have been criticisms of the report, but it has also received wide support.

Fast forward to last May, when two Stanford professors published a study that found the harshest economic impacts of climate change are occurring in hotter, poorer countries.

Now that the impact of climate change is being felt in all four corners of the globe, from melting ice sheets and permafrost to floods, droughts, fires and hurricanes, we can expect there to be increasing evidence of the rising costs of inaction.

Wrong numbers, wrong answers

Faced with such evidence, why do governments, business and finance still see climate action as a cost, not a benefit — and a lesser rather than greater cost?

One reason is the way economic output is measured. Some economists, including Nobel Prize winner Joseph Stiglitz, have long criticized the way GDP figures are compiled. Economic growth is the difference in GDP between given periods of time. These numbers do not reflect the crises we face, he wrote in The Guardian newspaper in November.

“If our economy seems to be growing but that growth is not sustainable because we are destroying the environment and using up scarce natural resources, our statistics should warn us,” he wrote.

“Getting the measure right — or at least a lot better — is crucially important, especially in our metrics- and performance-oriented society. If we measure the wrong thing, we will do the wrong thing. If our measures tell us everything is fine when it really isn’t, we will be complacent.”

Could this explain why there has been far too little action — and even some backpedaling — since the Paris Accord was signed in 2015?

Undoubtedly, vested interests play a role. But if the economic numbers are wrong, as in any scientific study, the conclusions will also be off the mark.

Sue Landau is a retired journalist and translator based in Paris, France. Her editing and reporting career was mainly in financial and business journalism at the International Herald Tribune, Reuters and the Investor’s Chronicle. Among other topics, she covered energy, new technologies, media and advertising, corporate and industry issues, wealth management and investment, and regional development. She now contributes articles on climate change issues to News Decoder. For a profile of Landau, click here.