Mainstream economics is beginning to recognise the opportunities alongside the climate threat, writes Michael Jacobs.
Are we witnessing the birth of a new Big Idea? Fat reports from the staid and determinedly respectable Organisation for Economic Co-operation and Development, the economic think tank of the developed countries, don’t generally merit that label. But the publication in May of Towards Green Growth
, the OECD’s comprehensive study of how environmental policy can be good for the economy, may mark a significant moment.
It follows hard on the heels of an even larger report, Towards a Green Economy
, published by the United Nations Environment Program, or UNEP. Recent months have also seen a consortium of governments establish a new centre of excellence, the Global Green Growth Institute; the announcement of an intergovernmental Global Green Growth Forum to take place in Denmark later this year; the launch by a series of countries -- led by South Korea -- of national Green Growth Strategies and Low-Carbon Growth Plans; and the release of China’s latest five-year plan, built around the concept of "green development", which will determine that country’s economic direction over the next half-decade.
All these terms -- green growth, low-carbon growth, the green economy, green development -- are being used to convey a simple but potentially radical idea: that environmental protection and the reduction of carbon emissions need not be at the expense of economic growth but can actually contribute to it. This is hardly a new concept; a small group of environmental economists first argued this two decades ago. (I confess I was one of them, in a book, The Green Economy
, published in 1991.)
But when nations worldwide are struggling to boost rates of economic growth while facing a multiplying set of environmental problems, the emergence of "green growth" in mainstream economic analysis and government-sponsored discourse is worth noting.
The theory works at several levels. At its most basic it derives from the recognition that a key route to protecting the environment is to use resources -- energy, land, water or whatever -- more efficiently. This is essentially a form of productivity improvement: getting more output for less input. So long as this is done at a relatively low cost -- particularly by using market mechanisms to encourage firms and consumers to change their behaviour -- it should help growth not hinder it. It’s true that the growth generated by raising resource productivity can lead to new emissions and more environmental impact, but the evidence shows that the total impact almost always remains environmentally beneficial.
Overall, most estimates of the costs of tackling climate change show that if done efficiently, the rate of economic growth may slow slightly but will remain strongly positive. Typical was the study by the US Congressional Budget Office in 2009, which showed that a national emissions trading scheme would cut no more than 0.09% from annual GDP growth in the American economy between 2010 and 2050.
A striking conclusion of the OECD and UNEP reports is that the economic benefits of protecting the environment would be even more pronounced if the national accounts took proper notice of the loss of natural assets that occurs when the environment is degraded. If a business made money simply by selling off its assets, we wouldn’t say that its income is a good measure of its profitability, since it is clearly unsustainable.
Yet when economies run down fish stocks, or farm so intensively that soils are degraded, or cut down forests without replacing the trees, that’s exactly what happens: the income earned is counted towards GDP, but the loss of the "natural capital" that can sustain this income into the future is ignored. As both the OECD and UNEP reports insist, if national accounts were properly adjusted to record this, the contribution made by environmental protection to "real" growth would be even greater.
Of course, much environmental policy is expensive, not least cleaner forms of energy. Wind, solar and biomass remain in most places more costly than coal and gas (though the costs are coming down and, as Ross Garnaut has noted, are often exaggerated). So it’s generally argued that more aggressive climate policy focused on green technologies (not simply energy efficiency) will slow growth in comparison to the alternative uses towards which these extra costs could be put: that’s the principal reason why cutting emissions has proved so politically difficult.
But here the green growth theorists take a Keynesian turn. Where the economy is not running at full strength, investment in clean energy, or better water management, or protecting biodiversity, can generate new economic activity and jobs. This was why so many countries introduced "green stimulus" packages during the economic crisis of 2008–09: 12% of the US stimulus, one third of the Chinese, 60% of the European Union’s and fully 78% of the Korean stimulus package went towards environmental spending.
These policy responses were informed by a new body of "green growth" evidence, which showed that the employment content of environmental spending tends to be higher than in other industries. The location-specific nature of many environmental industries -- from insulating buildings to installing wind turbines -- means that (in many if not all cases) more jobs tend to be created by "green" than by "brown" economic activity.
*Michael Jacobs is a visiting professor in the Grantham Research Institute on Climate Change and the Environment at the London School of Economics. Read the rest of this post at Inside Story.