The limits to environmentalism – Part 3

A year on from our controversial review of Growth isn’t Possible by the New Economics Foundation, we’re venturing back into the fray. As it comes out in paperback, here’s our take on one the most high-profile and influential environmentalist books of the last year – Tim Jackson’s Prosperity without growth: Economics for a Finite Planet (henceforth PWG).

Very very briefly, PWG says that economic growth cannot continue without doing serious damage to our ecology (especially through climate change), that we don’t need to be rich to be healthy and well-educated, and that, far from making us happy, spending money makes us unhappy and insecure. You won’t be that surprised to learn that he goes on to say that another world is possible – the world of a no-growth, steady state economy, which can exist within ecological limits and in which we can flourish.

There are one or two similarities between Prosperity without growth and Growth isn’t possible. They share many of the same themes and pretty much the same conclusion, for a start. PWG also shares the irritating (to me at least) tic of dismissing economics as “ecologically illiterate”, and then going on to selectively cite economists (in this case Dieter Helm, Sen, Nordhaus and Tobin) where they lend support to the argument, and to call for policies (e.g. a carbon tax) that economists have been banging on about for years. There’s no mention here of the huge literature on the economics of exhaustible resources going back at least to Hotelling, nor Kuznet’s warnings about the limits to GDP as a measure, nor Partha Dasgupta’s pioneering work on natural capital and the greening of national accounts. Not the best way to start a debate with a pretty powerful professional group…

But moving swiftly on, unlike the NEF offering, PWG is a serious book. Indeed, it is popular precisely because it is the most eloquent and well-developed version of the environmentalist view of the world around at the moment. There is no opaque modelling, and there is a serious attempt to understand the nature of growth rather than just attack it. Some of his numbers on growth and carbon emissions pose some really challenges in a very clear and direct way. At the same time, Jackson acknowledges that ending growth would not be easy, and would not solve all problems. He tries to think through how a no-growth economy might work. He even offers some ideas about policy.

There’s a lot in the book, and here I’m going to focus on what I think are the core arguments about ecological limits and the nature of economic growth. I also think there are weaknesses in the ‘happiness’ agenda and in Wilkinson and Pickett’s The Spirit Level, which Jackson also stirs into the pot, but for more on those issues I’d recommend reading critiques by Paul Ormerod and John Goldthorpe respectively.

Jackson raises some difficult questions for the view that continuing economic growth in the West is compatible with abiding dangerous climate change, but in three areas I think the book dodges some fundamental issues, each one following on from the next. They are, in turn, the debate on decoupling, the nature of capitalism vs. a steady state economy, and the politics of it all. This post will tackle the decoupling debate, while Part 4 will look at the other two areas.

The decoupling debate

At the core of the book is the argument that it is “delusional” to believe that capitalism’s potential to improve efficiency will be able to decouple economic growth from carbon emissions in time to avoid dangerous climate change (Jackson takes that to require stabilisation at 450 ppm by 2050). The argument goes like this. Growth (or decline) in emissions depend by definition on the product of three things: population growth (numbers of people), growth in income per person ($/person), and on the carbon intensity of economic activity (kgCO2/$). This last measure depends crucially on technology, and shows how far growth has been “decoupled” from carbon emissions. If population growth and economic growth are both positive, then carbon intensity must shrink at a faster rate than the other two if we are to slash emissions sufficiently.

Jackson calculates that to reach the 450 ppm stabilisation target, carbon emissions would have to fall from today’s levels at an average rate of 4.9% a year every year to 2050. So overall, carbon intensity has to fall enough to get emissions down by that amount, AND offset population and income growth. Between now and 2050 population is expected to grow at an average of 0.7% and Jackson first considers an extrapolation of the rate of global economic growth since 1990 – 1.4% a year – into the future. Thus, to reach the target, carbon intensity will have to fall at an average rate of 4.9+0.7+1.4 = 7% a year every year between now and 2050. This is about ten times the historic rate since 1990.

Pause at this stage, and take note that if there were no further economic growth, carbon intensity would still have to fall at a rate of 4.9+0.7 = 5.6%, or about 8 times the rate over the last 20 years. To his credit, Jackson acknowledges this – as he puts it, decoupling is vital, with or without growth. Decoupling will require both huge innovation and investment in energy efficiency and low carbon energy technologies. One question, to which we’ll return in part 4, is whether and how you can get this if there is no economic growth.

But also note that the difference between business as usual and no growth is the difference between an 8-fold and a 10-fold acceleration in the rate of decoupling. Economic growth plays much less of a role than the basic need to decarbonise. It’s possible to argue that if we can make the technological breakthroughs and huge investments needed to speed up decoupling by 8 times its current rate, we will be able to achieve a 10 times acceleration.

Can we make these breakthroughs?  That’s a good question, and Jackson makes a lot of it. A 7% per year increase in efficiency over 40 years sounds very daunting, but technology breakthroughs can actually produce improvements equivalent to this, although usually with very big jumps, followed by smaller incremental changes over a longer period. For example, the introduction of the basic oxygen furnace in steelmaking increased labour productivity by 1,000% over 80 years, equivalent to around 9% a year, and cut the time required to make a given volume of steel by over 90%.

But Jackson doesn’t stop there. He goes on to point out that taking historical economic growth as a basis for the future means you accept a very unequal world. If we are serious about fairness, and poor countries catching up with rich countries, then the challenge is much, much bigger. In a scenario where all countries enjoy an income comparable with the EU average by 2050 (taking into account 2% annual growth in that average between now and 2050 as well) then the numbers for the required rate of decoupling look like this: 4.9% a year cut in carbon emissions + 0.7% a year to offset population growth + 5.6% a year to offset economic growth = 11.2% per year, or about 15 times the historical rate.

[Methodological note: Since Jackson is talking about equity in living standards, he should be basing the discussion of catch up and growth on a purchasing power parity calculation of GDP. It’s a not clear from Jackson’s presentation whether he’s done this, but if he has made the calculations based on GDP on a nominal exchange rate basis, then this overstates the required catch-up growth by a factor of about 3.]

Interestingly, Nancy Birdsall and Arvind Subramanian over at the Centre for Global Development in Washington explored similar numbers as Jackson back in 2009, and came to the c0nclusion not that growth in OECD countries should stop, but rather that “very large, probably revolutionary, improvements” in carbon intensity are needed.

There is a reason why this picture may not be quite as daunting as it appears. In this exercise, the vast majority of growth will happen in developing countries. Places like India and especially China already have a big fossil fuel infrastructure. But in many countries, and even in India, the majority of people still do not have access to electricity. For these people, there are no big fossil fuel plants to close down, and there is a huge opportunity to build a low carbon energy system almost from scratch. Their growth wouldn’t need to be decoupled from carbon, it just has to be low carbon. Brazil until recently is a good reminder of this – not particularly for climate reasons, it has followed a low carbon path. Most of its electricity comes from hydropower) and it uses sugar-cane ethanol for transport fuel. Brazil’s GDP (ppp) per head is $11,300 (about one third of Britain’s) and its energy carbon intensity of GDP is 0.181 kgCO2/$, compared with the UK’s 0.258 kgCO2/$.

Again, the more innovation we get in low carbon energy technologies, the cheaper and easier such low carbon growth will be. Look at some numbers. Installed capacity per head in Africa (including North Africa) is 0.117 kW, compared with the UK’s 1.4kW. To make up the gap using, say, solar PV, so that every African enjoyed the same capacity as each Brit, and taking into account solar PV’s low capacity factor (say 0.15 in the tropics), this would require an investment of 8,550GW of solar PV. Since 2001, the retail price of solar PV modules has halved, from $5/watt to around $3/watt in 2011, because of cheaper silicon, technological improvements and economies of scale in manufacturing, making that investment some $17 trillion cheaper than it would have been 10 years ago (these astronomical figures also show how expensive solar PV remains, however).

A final but important point. When looking at this kind of poor world catch-up scenario, the influence of economic growth on the required rate of decoupling is much bigger than when we are looking at a growth-as-usual scenario. The case for slowing or stopping global growth is much stronger, in terms of the difference it makes to being able to reach the carbon targets, when we are talking not about just BAU growth in OECD countries, but much higher growth in developing countries.

But then it is not exactly clear what Jackson is proposing. At various points he seems to acknowledge the need and the historical right for developing countries to have economic growth. But at the same time he is saying that it’s incredible to believe that efficiency gains can accelerate decoupling 15 fold. If OECD countries stop growing, that would help, but as we’ve seen, not a lot. They’ll continue to emit carbon at near the current level, as shown in a steady state economy model of Canada that he introduces later in the book. To make a more serious difference, and keep global economic growth low or zero, OECD countries would have to try to find prosperity not only without growth, but with a 75% reduction in their economies, as Jackson hints at one point. Such a mixture of rapid economic growth in some places and rapid decline in others might make it more feasible to meet carbon targets, but it’s clearly not what he really has in mind when he is talking about his alternative “steady state economy”. But does that mean he thinks that poor countries shouldn’t reach EU levels of income, and perhaps only aspire to thresholds levels at which better health and life expectancy outcomes are typically reached (in the region of $6,000-15,000/head)? The basic issue is even if you stop growth in the OECD tomorrow, if you want to meet the ecological constraint, you still need some combination of unprecedented increase in the rate of technological change and low carbon investment, and/or an unfair global distribution of income. Jackson’s headlines are all about the first issue, but what about the other two, bigger, issues?