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The Green Growth Path to Climate Stabilization

The World Resources Council recently reported that between 2000 and 2014, 21 countries, including the U.S., Germany, the U.K., Spain and Sweden, all managed to “decouple” GDP growth from CO2 emissions — i.e. GDP in these countries expanded over this 14-year period while CO2 emissions fell.[1]   This is certainly a favorable development. But the crucial question remains: how favorable is it relative to what is necessary to put the global economy on a successful path to climate stabilization?

As of the most recent worldwide data (2012), global CO2 emissions are at around 32 billion tons per year.[2] The Intergovernmental Panel on Climate Change (IPCC) provides conservative benchmarks as to what is required to stabilize the average global temperature at no more than 3.6 degrees Fahrenheit (2 degrees Celsius) above the pre-industrial average. The IPCC presents these benchmarks in terms of ranges and probabilities, but a fair summary of their assessment is that global CO2 emissions need to fall by 40 percent within 20 years, to 20 billion tons per year, and by 80 percent as of 2050, to 7 billion tons.

We are not close to being on track to meet these goals. Overall global emissions rose by 33 percent between 2000 and 2012, from 24 to 32 billion tons, even with those 21 countries having successfully decoupled over this period. CO2 emissions rise for the simple reason that economies throughout the world continue to burn increasing amounts of oil, coal, and natural gas to produce energy. Correspondingly, the only way to achieve the IPCC emissions reduction targets is to dramatically reduce dependency throughout the world on fossil fuel energy sources. This has not yet happened.

At the same time, the positive evidence on decoupling does underscore the single most critical point for advancing a climate stabilization project that has a serious chance of succeeding. That is, we must advance a global climate stabilization program that is also consistent with economies continuing to grow at healthy rates. The reason is straightforward: there is no realistic way to expand economic well-being throughout the world in the absence of economic growth. We have no experience, in particular, of job opportunities expanding anywhere in the world when economic growth has been slow or during a recession. In strategic terms alone, attempting to advance a clean energy project in the absence of economic growth will be utterly unrealistic politically.

It is especially critical that developing countries be able to raise living standards for working people and the poor as the global clean energy transformation proceeds. There is no reasonable standard of fairness that can justify working people and the poor sacrificing opportunities for rising living standards to achieve climate stabilization. And here again, any climate stabilization program that would entail reducing mass living standards will face formidable political resistance. This, in turn, will create unacceptable delays in advancing an effective climate stabilization program. It is true that, for nearly 40 years now, the gains from economic growth in virtually all countries have persistently favored the rich.   Nevertheless, the prospects for reversing inequality in all countries will be far greater when the overall economy is growing than when the rich are fighting everyone else for shares of a shrinking pie.

In fact, there is a viable path before us now to climate stabilization that is also consistent with healthy economic growth. The global economy can bring CO2 emissions down to the IPCC target of 20 billion tons within 20 years if most countries — especially those with either large GDPs or populations — devote between 1.5 and 2 percent of GDP per year to investment in energy efficiency and clean, low-emissions renewable energy sources. The consumption of oil, coal, and natural gas will also need to fall by about 35 percent over this same twenty-year period — an average rate of decline of 2.2 percent per year. These investments aimed at dramatically raising energy efficiency standards and expanding the supply of clean renewable energy sources — what we can term a global green growth program — will also generate tens of millions of new jobs in all regions of the world. This is because building a green economy requires hiring workers at a much greater rate than that needed to maintain the world’s current fossil fuel-based energy infrastructure.[3]

How can this simple formulation deliver climate stabilization? Expanding clean energy investment is compatible with healthy economic growth because raising energy efficiency standards, by definition, saves money for energy consumers.   It enables people to heat, light, and cool their homes, travel, or operate appliances and machinery at lower costs. A major 2010 study by the U.S. Academy of Sciences found, for the U.S. economy, that “energy efficient technologies…exist today, or are expected to be developed in the normal course of business, that could potentially save 30 percent of the energy used in the U.S. economy while also saving money.”[4]  Similarly, a McKinsey and Company study focused on developing countries found that, using existing technologies only, energy efficiency investments could generate savings in energy costs in the range of 10 percent of total GDP, for all low- and middle-income countries.[5] An important 2015 book, Energy Revolution, by the Harvard University physicist Mara Prentiss even argues that these estimates understate the realistic savings potential of energy efficiency investment.

As for renewable energy, the International Renewable Energy Agency estimated in 2012 that, in all regions of the world, average costs of generating electricity with most clean, renewable energy sources — wind, hydro, geothermal, and low-emissions bio-energy — are now roughly at parity with fossil fuels. This is without even factoring in the environmental costs of burning oil, coal and natural gas, whose cost would of course rise through a carbon tax or cap.[6] Solar energy costs remain higher, but they have fallen by 80 percent between 2007 and 2013, according to Bloomberg New Energy Finance.[7] They are likely to reach cost parity with fossil fuels in less than a decade.

Countries at all levels of development will also experience significant gains in job creation through clean energy investments relative to maintaining their existing fossil fuel infrastructure. Research that I have conducted with co-authors has found this relationship to hold in Brazil, China, Germany, India, Indonesia, South Africa, South Korea, Spain and the United States. With India, for example, we found that increasing clean energy investments by 1.5 percent of GDP every year for 20 years will generate a net increase of about 10 million jobs per year. Meanwhile, India’s CO2 emissions could be stabilized at their current low level and GDP would grow at an average of 6 percent per year.[8]

Of course, to increase clean energy investments by 1.5 percent of global GDP will not happen without strong public policies. Even though, for example, energy efficiency investments generally pay for themselves over 3-5 years, somebody still needs to provide the initial capital and bear the project risk.   The experience in Germany is valuable here, since it has been the most successful advanced large economy in developing its clean energy economy. According to the International Energy Agency, a major factor in Germany’s success is that its “state-owned development bank, KfW, plays a crucial role by providing loans and subsidies for investment in energy efficiency measures in buildings and industry, which have leveraged significant private funds.”[9]

The German approach could be adapted successfully throughout the world. It could provide the financial foundation for a global clean energy investment program capable of delivering, in combination, dramatic cuts in CO2 emissions along with healthy economic growth and a worldwide expansion of job opportunities — a viable solution to global climate change.

Footnotes:

[1] http://www.wri.org/blog/2016/04/roads-decoupling-21-countries-are-reducing-carbon-emissions-while-growing-gdp

[2] https://www.eia.gov/cfapps/ipdbproject/IEDIndex3.cfm?tid=90&pid=44&aid=8

[3] The background and model through which I generated these estimates are presented in Pollin, Greening the Global Economy (MIT Press 2015). All additional references in this paper that do not have a specific citation within this article can be found in my book.

[4] http://www.nap.edu/catalog/12621/real-prospects-for-energy-efficiency-in-the-united-states

[5] file:///C:/Users/rpollin/Downloads/A_Compelling_Global_Resource.pdf

[6] https://www.google.com/webhp?sourceid=chrome-instant&ion=1&espv=2&ie=UTF-8#q=irena%20renewable%20power%20generation%20costs%20in%202012%20an%20overview

[7] http://about.bnef.com/services/renewable-energy/

[8] http://www.epw.in/system/files/pdf/2015_50/42/An_Egalitarian_Green_Growth_Programme_for_India.pdf

[9] https://www.iea.org/publications/freepublications/publication/EEMR2013_free.pdf

Robert Pollin

  • This is a fascinating article, pointing to the real possibility of addressing the disaster of climate change in a realistic and progressive way that also faces the need for economic growth in order to address economic inequality. and injustice Thank you, Robert Pollin, for an important contribution.

  • Julia

    We need not look to Germany. The ‘green growth’ approach harkens back to many of our nation’s most dynamic, innovative, and effective policy solutions. Time and again, the federal government has led private investors in making profitable and socially beneficial long-term investments: the Reconstruction Finance Corporation, Rural Electrification Administration, the Tennessee Valley Authority, the Defense Plant Corporation, Fannie Mae, Freddie Mac, Ginnie Mae, and Sallie Mae. From the 1930s until the 1990s (when the GSEs fell prey to the ideology of shareholder value-maximization), these programs channeled taxpayer dollars and lured private savings into investments that met social needs. In doing so, these programs financed the buoyant growth, strong employment, and rising standards of living that Americans enjoyed after World War II.

    Take the Reconstruction Finance Corporation. Established by the Hoover Administration in 1932 to stem bank failures, the RFC sustained the railroad and financial sectors during the Great Depression. (At one point, RFC-owned banks controlled one third of all banking capital in the United States). RFC loans also helped to keep the commercial, industrial, and agricultural sectors afloat. In World War II, the Reconstruction Finance Corporation redirected its mission, disbursing billions of dollars to build war-related plant and infrastructure that private investors would not finance until the federal government led the way.

    The Reconstruction Finance Corporation precedent allows us to assess the costs of emission reduction and clean energy technologies – estimated at 1.5% to 2.0% of GDP – in a realistic, sobering light. The RFC authorized public investments equal to 1.9% of GDP over the turbulent period between 1932 and 1945. During its peak period of activity in World War II, the RFC authorized public investments equal to 2.3% of GDP. Taxpayers took no losses. Private investors who bought up the RFC’s portfolios reaped healthy profits. And RFC-funded enterprises equipped the U. S. economy with the infrastructure and technology for the long postwar boom.

    The notion that we in the United States could invest profitably in new technologies that would reduce CO2 emissions, create jobs and sustain growth may sound heretical to environmentalists, pointless to climate-change deniers, and fantastical to a great many. The global green growth program demands a significant financial commitment, to be sure. But it can be done.

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