Beyond Blue Sky 2025 - Chapter 5a

 The Relationship Between Economic Growth and Climate Change

To examine the relationship between economic growth and climate change, we need to return to the Kaya Identity introduced in Chapter 1.  The two are related insofar as, unless low or zero carbon technologies are promoted, carbon emission reduction means economic growth constraints.

Global CO2 emissions disaggregated

Victor (2008), a Canadian environmental economist, divided the world into high income countries (HIC) and medium/low income countries (MIC/LIC) (roughly equivalent to the Annex A and non-Annex A countries of the Kyoto Protocol (1997)) or, for simplicity, the West and the Rest of the World (ROW) and used World Bank data to populate the following tables for historical average changes in atmospheric CO2 concentrations and related variables for the period 1972-2002.  He considered the key variables of CO2, Population, GDP/Capita, Energy/GDP, and CO2/Energy.  In Table 5.1, the percentages refer to the amount the variable has increased or decreased per annum.

Table 5.1 Global CO2 emissions, 1972-2002

Variable        CO2        Population        GDP/Capita        Energy/GDP        CO2/Energy

All

1972-1982    1.6%        1.6%                1.4%                    -1.1%                    -0.3%

All

1982-1992    1.8%        1.7%                1.6%                     -1.1%                   -0.3%

All

1992-2002    1.3%        1.4%                1.4%                    -1.2%                    -0.3% 

Table 5.1a HICs (Annex A or 'West') CO2 emissions, 1972-2002

Variable        CO2        Population        GDP/Capita        Energy/GDP        CO2/Energy

West

1972-1982    0.1%        0.9%                1.9%                    -1.9%                    -0.7%

West

1982-1992    1.5%        0.7%                2.6%                     -1.2%                   -0.5%

West

1992-2002    1.6%        0.8%                1.8%                    -0.9%                    -0.1% 

Table 5.1b MIC/LIC (non-Annex A or 'ROW') CO2 emissions, 1972-2002

Variable        CO2        Population        GDP/Capita        Energy/GDP        CO2/Energy

ROW

1972-1982    1.5%        1.8%                1.4%                    -1.7%                    0.1%

ROW

1982-1992    2.2%        1.9%                1.2%                     -0.9%                   0.1%

ROW

1992-2002    0.9%        1.5%                2.5%                    -2.5%                    -0.5% 

Principal Observations

There are several interesting observations to be gleaned from these tables.   Firstly, the fastest economic growth rate for ROW countries, which occurred between 1992 and 2002, was 2.5%.  Secondly, the fastest rates of energy intensity improvement per unit of GDP were 1.9% (1972-1982, West) and -2.5% (1992-2002, ROW).  Finally, the fastest rate of decarbonisation (-0.7%) coincided with major oil price increases during the 1972-1982 decade in high-income countries.

If we were to aim for a 2C increase in temperatures relative to 1900 by 2100, the tables demonstrate that even the best energy intensity rates of 1972-2002 sustained over a 30 year periods (2020-2050), coincident with even better rates of decarbonisation (-2%) in ROW countries facilitated by technology transfer, would be insufficient to meet the target.  Even if these rates are feasible, population and economic growth consequences must be considered.  For Western countries, neither can be afforded.  In the ROW, population and economic growth must be constrained.

The magnitude of the problem is now clear.  For annual population projections of 0% in Western countries and 0.8% in ROW countries, variable manipulation is now limited to economic growth to meet carbon objectives.  It is questionable whether any industrialized nation would forgo unilaterally economic growth whilst observing growth in the developing world underpinned by funded technology.

Growth of the 'Right Kind' Needeed

Emergence from The Financial Recession of 2008, greeted by much political class jubilation, with a return to economic growth, commends wise use of this with a focus on economy decarbonization rather than repeating the consumer squander of the 2000s which to some extent continued through the 2010s but on a global scale,  In short, we need growth of the 'right kind', as espoused by Lord Stern (2009) when he wrote:

"This is not to claim that the world can continue to grow indefinitely.  It is not even clear what such a claim would involve: societies, living standards, ways of producing and consuming all develop and change.  A picture of indefinite expansion is an implausible story of the future, but two things are key: first, to find a way of increasing living standards (including health, education and freedoms) so that world poverty can be overcome; and second, to discover ways of living that can be sustained over time, particularly in relation to the environment.  Strong growth, of the right kind, will be both necessary and feasible for many decades." (Stern 2009, A Blueprint for a Safer Planet, Random House, London).

We have, as it were, a kind of Faustian pact with economic growth (money).  On the one hand, we cannot afford to have it as shown in the Kaya Identity unless we discard our carbon reduction commitments over the next 25 years.  On the other hand, we need a strong economy, and with it economic growth, to fund the development of new technologies in an environment occupied by entrepreneurs seeking to expand their capital and technology; pertinent factors of economic growth.

In a capitalist world, we have to assume that everyone acting according to their wishes produces the optimal outcome even though market failure is often commonplace and Climate change, by today at least, can be regarded as the biggest example of this.