To prevent a climate catastrophe, economic growth is needed

In our hyper-consumerist society, the argument goes, consumption offers diminishing returns on human happiness, implying that embracing minimalism would yield a double dividend: environmental conservation and improved well-being. With this approach, rich countries would stop expanding their economies, while even the most ardent degrowth advocates argue that poorer countries still need to boost consumption and investment to escape poverty.

If this sounds too good to be true, that’s because it is. First some clarifications. Degrowth calls for an absolute reduction in consumption, and not merely a shift in its composition. But such shifts – such as ditching the car and commuting by bike – have been a constant throughout history, and that is what green growth strategies aim to achieve.

To be fair, there’s nothing wrong with slowing down and choosing to earn less (and apparently achieving inner peace in the process). But one should not get the impression that this is the key to tackling the climate crisis.

Consider a simple thought experiment. Let’s start with the global economy in a steady state, neither growing nor shrinking, and assume an annual decarbonization rate of 2.4% – our calculation of the average over the past twenty years, based on IMF economic statistics and emissions data from the Global Carbon Project. . In such a world, global CO2 emissions would fall by 48% by 2050. While the goal of net-zero emissions is far from being achieved, this hypothetical global economy would be almost twice as carbon efficient as the current one.

Now imagine if decarbonization were entirely dependent on declining economic output. To achieve the same result – almost halving global CO2 emissions – global GDP would have to shrink by 5% every year for the next thirty years. To put this into perspective, global GDP contracted by 2.7% in 2020, at the height of the pandemic. As successful as the lockdowns were in slowing the spread of Covid-19, they were a terrible way to reduce carbon emissions.

Limiting this thought experiment to rich countries – as Degthers propose – makes a weak argument absurd. Economic output in the G7 countries alone should contract by 17% in 2024, followed by an annual shock the size of the Great Depression.

By 2030, purchasing power in the G7 would be approximately equal to that of South Sudan today. How many climate-conscious Western consumers would be willing to put up with this?

Moreover, this thought experiment is necessarily limited. Our hypothesis started with an economy without growth, while global GDP per capita has grown at an annual rate of 6.8% over the past twenty years. Combined with population growth, this steady growth has contributed to rising, not falling, CO2 emissions.

Nothing less than a clean energy revolution, complete with clean transportation systems and industry, will turn the climate ship around. Furthermore, achieving net-zero emissions will require trillions of dollars in investments, which will increase economic growth, not decrease it.

That does not mean that improving energy efficiency is useless. In 2007, the United States passed a law that led to the gradual phasing out of incandescent light bulbs. As shown in McKinsey’s famous 2010 marginal reduction cost curve, there were large financial savings associated with switching from incandescent to LED lamps.

But this does not mean that the change would have happened automatically. Instead, it shows that the policy paid for itself, with Americans free to spend or save whatever money was left. Either way, economic growth was inevitable.

The growth potential for large-scale efficiency improvements is significantly greater than that of switching to LED lamps. In fact, using limited inputs more efficiently is the definition of economic productivity – which in turn drives growth.

Furthermore, the need to accelerate the decarbonization of our economies requires the rollout of green technologies at a much faster pace. Avoiding climate catastrophe will require more growth, not because ever-increasing GDP – itself a fundamentally inadequate measure – is the end goal, but because it is the result of cutting emissions fast enough.

• Alessio Terzi, lecturer at the University of Cambridge and Sciences Po, is an economist at the European Commission and 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 most recently the author of Geoengineering: The Gamble (Polity, 2021).