“It’s the economy, stupid.” This phrase was coined by James Carville, a political strategist under former US President Bill Clinton during the successful presidential campaign against George Bush Sr.
Nowadays, any political adviser worth his salt would make sure that his candidates used “This is the environment, stupid” as an election slogan at every opportunity.
The question is whether the two are mutually exclusive or whether economic growth and climate protection are two sides of the same coin.
The first major environmental protection rules date back to the 1970s. Since then, a debate has raged on their potentially damaging impact on economic growth and competitiveness. One school of thought says that countries that adhere to environmental policies less strictly have a production and trade advantage over countries that take climate action to reduce emissions. The concern in these countries is that their own high emission industries are at a competitive disadvantage.
This so-called pollution paradise hypothesis predicts that if competing companies differ only on the severity of the environmental regulations they face, then those bound by relatively stricter measures will lose competitiveness.
On the other hand, the so-called Porter hypothesis concludes that stricter climate rules should encourage investment in the development of new technologies to reduce pollution. While these technologies lead to energy savings, they in turn can help offset some of the costs of climate protection. Then there is also the question of how much it could cost if we fail to mitigate climate impacts.
Is GDP the only valid indicator?
At first glance, using GDP as a measurement tool is an obvious choice to provide cost-benefit analysis. The question is to what extent does it provide an adequate measure of growth and prosperity.
“This is the most developed indicator. I wouldn’t say we should be moving away from it, but a lot of this damage associated with climate change is not internalized. This means that we, as a global society, will likely have costs due to lost biodiversity, for example, which is not reflected directly in GDP, ”Wilfried Rickels, director of the Global Commons and Climate Research Center at the Kiel Institute for the World Economy, told DW.
In an article from the National Bureau of Economic Research, the authors’ analysis showed that without countermeasures, an average increase in global temperature of 0.04 ° C per year could reduce global GDP by 7.22% of here 2100. If, however, countries adhere to the Paris Agreement to limit temperature rise to 0.01 ° C per year, the loss of GDP is reduced to 1.07%.
“That’s why at one point in the Paris climate agreement, they said, ‘We’re setting a fixed limit. “Imagine running down a slope that could be covered in fog; at some point you have to say, ‘I’m not going any further,’” said Rickels.
According to the Coalition for Climate Resilient Investment, a consortium of businesses, governments and multilateral organizations, financial losses could reach $ 69 trillion (€ 58 trillion) by 2100 if left unchecked. to mitigate the impact of climate change.
Can economic growth and climate protection go hand in hand?
It depends on the point of view. Twenty years ago, the consensus was that it was crazy to invest in solar power, for example, because of the huge costs. However, in the end, this investment has paid off, not least because the development of new and innovative technologies has led to the creation of new jobs and has helped reduce energy costs, which in turn benefits the economy.
“Now it has become a technology that is applied even in countries that do not necessarily use climate policies because it is the cheapest source of energy,” Karsten Neuhoff, who heads the climate policy department of the German Institute for Economic Research (DIW Berlin), says DW.
The same thinking could apply to the energy efficiency aspect of the equation. “I think everyone wants to live in a well-insulated building these days, whereas two decades ago everyone said it was crazy. So, again, it’s a change that requires efforts but ultimately has economic benefits, ”Neuhoff said.
Investing in energy efficient resources is not only sustainable, but can also boost economic growth
Critics point out that while this may apply to rich and industrialized countries, it is a very different story for poorer countries, which are seen as often having to choose between climate protection or economic growth.
“Countries that are still very poor, that is, have very low per capita income, don’t think that far. They still have a main incentive to develop now and are less interested in policy measures. long-term climate change, ”Rickels said.
Environmental protection itself contributes to economic growth
As modern economies move towards a so-called resource-efficient and circular economy (RE-CE), there are concerns that, at least in the short term, jobs will be lost in various sectors of the economy and that job creation will be lost. scaled down. minimal. However, an OECD report notes that it is important to distinguish between different sectors.
Most jobs over the next two decades are expected to be created in the construction industry, as well as in renewable energy production and services; while manufacturing, agriculture, food production and fossil fuel-based electricity are expected to experience job losses.
The overriding question is how to balance economic growth with reducing carbon emissions and ultimately achieve climate neutrality. At this year’s World Economic Forum in Davos, Johan Rockström, director of the Potsdam Institute for Climate Impact Research, pointed out this contradiction. “It is difficult to see whether the current model of economic growth based on GDP can go hand in hand with a rapid reduction in emissions,” he said.
The concept of climate neutrality (i.e. reducing CO2 emissions to a minimum and offsetting remaining emissions with climate protection measures) has become more concrete as one accepts and understands that it is increasingly desirable to embark on the production of electricity without fossil fuels. Currently, there are five carbon-intensive sectors – transport, heating, mining, agriculture and industry – where a shift to climate neutrality would make economic and environmental sense.
“So, then you think, okay, what technologies are acceptable? Wind, solar? And what are their costs? And it becomes clear that it takes a lot of effort to make the change. wind turbines or solar panels. This is all an effort for a company, but in the end, it doesn’t have big economic costs if it’s done right, “Neuhoff said.
A key indicator of the effectiveness of a country’s environmental policies is the Environmental Performance Index (EPI), a data-driven tool used to assess the state of sustainability. The 2020 results show that a positive result is closely linked to economic wealth (GDP per capita). Economically prosperous countries like Norway, the United Kingdom or Switzerland can invest in climate protection policies, which leads to a win-win situation for the economy and the environment.
Taking action on climate change will ultimately boost economic growth, especially as new technologies come into play and open up new employment opportunities. Currently available data suggests that countries do not need to sacrifice sustainability for economic security or vice versa.
This article is part of a series in which DW debunks the myths surrounding climate change.
Part 1 – Is global warming just a natural cycle?
Part 2 – Is Half a Degree of Warming Really That Important?
Part 3 – Is China the Main Culprit of Climate Change?
Part 4 – Climate protection: can I tell the difference?