Our economy and society ultimately depend on natural resources: land, water, material (such as metals) and energy. But some scientists have recognised that there are hard limits to the amount of these resources we can use. It is our consumption of these resources that is behind environmental problems such as extinction, pollution and climate change.
Even supposedly 'green' technologies such as renewable energy require materials, land and solar exposure, and cannot grow indefinitely on this (or any) planet.
Most economic policy around the world is driven by the goal of maximising economic growth (or increase in gross domestic product – GDP). Economic growth usually means using more resources. So if we can’t keep using more and more resources, what does this mean for growth?
Most conventional economists and policymakers now endorse the idea that growth can be 'decoupled' from environmental impacts – that the economy can grow, without using more resources and exacerbating environmental problems.
Even the then US president, Barack Obama, in a recent piece in Science argued that the US economy could continue growing without increasing carbon emissions thanks to the rollout of renewable energy.
But there are many problems with this idea. In a recent conference of the Australia-New Zealand Society for Ecological Economics (ANZSEE), we looked at why decoupling may be a delusion.
The Decoupling Delusion
Given that there are hard limits to the amount of resources we can use, genuine decoupling would be the only thing that could allow GDP to grow indefinitely.
Drawing on evidence from the 600-page Economic Report to the President, Obama referred to trends during the course of his presidency showing that the economy grew by more than 10% despite a 9.5% fall in carbon dioxide emissions from the energy sector. In his words:
…this 'decoupling' of energy sector emissions and economic growth should put to rest the argument that combating climate change requires accepting lower growth or a lower standard of living.
Others have pointed out similar trends, including the International Energy Agency which last year – albeit on the basis of just two years of data – argued that global carbon emissions have decoupled from economic growth.
But we would argue that what people are observing (and labelling) as decoupling is only partly due to genuine efficiency gains. The rest is a combination of three illusory effects: substitution, financialisation and cost-shifting.
Substituting the Problem
Here’s an example of substitution of energy resources. In the past, the world evidently decoupled GDP growth from buildup of horse manure in city streets, by substituting other forms of transport for horses. We’ve also decoupled our economy from whale oil, by substituting it with fossil fuels. And we can substitute fossil fuels with renewable energy.
These changes result in 'partial' decoupling – that is, decoupling from specific environmental impacts (manure, whales, carbon emissions). But substituting carbon-intensive energy with cleaner, or even carbon-neutral, energy does not free our economies of their dependence on finite resources.
Let’s get something straight: Obama’s efforts to support clean energy are commendable. We can – and must – envisage a future powered by 100% renewable energy, which may help break the link between economic activity and climate change. This is especially important now that President Donald Trump threatens to undo even some of these partial successes.
But if you think we have limitless solar energy to fuel limitless clean, green growth, think again. For GDP to keep growing we would need ever-increasing numbers of wind turbines, solar farms, geothermal wells, bioenergy plantations and so on – all requiring ever-increasing amounts of material and land.
Nor is efficiency (getting more economic activity out of each unit of energy and materials) the answer to endless growth. As some of us pointed out in a recent paper, efficiency gains could prolong economic growth and may even look like decoupling (for a while), but we will inevitably reach limits.
The economy can also appear to grow without using more resources, through growth in financial activities such as currency trading, credit default swaps and mortgage-backed securities. Such activities don’t consume much in the way of resources, but make up an increasing fraction of GDP.
So if GDP is growing, but this growth is increasingly driven by a ballooning finance sector, that would give the appearance of decoupling.
Meanwhile most people aren’t actually getting any more bang for their buck, as most of the wealth remains in the hands of the few. It’s ephemeral growth at best: ready to burst at the next crisis.
Shifting the Cost onto Poorer Nations
The third way to create the illusion of decoupling is to move resource-intensive modes of production away from the point of consumption. For instance, many goods consumed in Western nations are made in developing nations.
Consuming those goods boosts GDP in the consuming country, but the environmental impact takes place elsewhere (often in a developing economy where it may not even be measured).
In their 2012 paper, Thomas Wiedmann and co-authors comprehensively analysed domestic and imported materials for 186 countries. They showed that rich nations have appeared to decouple their GDP from domestic raw material consumption, but as soon as imported materials are included they observe 'no improvements in resource productivity at all'. None at all.
From Treating Symptoms to Finding a Cure
One reason why decoupling GDP and its growth from environmental degradation may be harder than conventionally thought is that this development model (growth of GDP) associates value with systematic exploitation of natural systems and also society. As an example, felling and selling old-growth forests increases GDP far more than protecting or replanting them.
Defensive consumption – that is, buying goods and services (such as bottled water, security fences, or private insurance) to protect oneself against environmental degradation and social conflict – is also a crucial contributor to GDP.
Rather than fighting and exploiting the environment, we need to recognise alternative measures of progress. In reality, there is no conflict between human progress and environmental sustainability; well-being is directly and positively connected with a healthy environment.
Many other factors that are not captured by GDP affect well-being. These include the distribution of wealth and income, the health of the global and regional ecosystems (including the climate), the quality of trust and social interactions at multiple scales, the value of parenting, household work and volunteer work. We therefore need to measure human progress by indicators other than just GDP and its growth rate.
The decoupling delusion simply props up GDP growth as an outdated measure of well-being. Instead, we need to recouple the goals of human progress and a healthy environment for a sustainable future.
James Ward, Lecturer in Water & Environmental Engineering, University of South Australia; Keri Chiveralls, Discipine Leader Permaculture Design and Sustainability, CQUniversity Australia; Lorenzo Fioramonti, Full Professor of Political Economy, University of Pretoria; Paul Sutton, Professor Department of Geography and the Environment, University of Denver, and Robert Costanza, Professor and Chair in Public Policy at Crawford School of Public Policy, Australian National University
In November the Turnbull Government ratified Australia’s commitment to comply with the Paris Agreement on Climate Change. Australia has set a target to reduce emissions by 26 to 28% below 2005 levels by 2030, which builds on the 2020 target of reducing emissions by 5% below 2000 levels. The 2030 target is equivalent to about 13% below 2000 emission levels so the 2030 target is not as good as it sounds.
Currently the government’s main plan to reduce greenhouse gas emissions to meet our obligations under the Paris Treaty is called the Direct Action Plan. Introduced in 2014, the scheme operates by reverse auction, funding projects voluntarily proposed by the private sector. Projects are selected on the amount of greenhouse gas emissions expected to be abated at the cheapest price. So far $1.7 billion has been allocated out of a budget under the Emissions Reduction Fund (ERF) of $2.55 billion over 4 years.
Direct action also involves an emissions ‘safeguard mechanism’ to discourage large emitters from increasing their emissions above historical benchmarks. It commenced on 1 July 2016. It is not clear yet whether the rules will be effective in controlling increases in emissions.
This article draws on two recent analyses of the effectiveness of the Direct Action Plan:
- Paul J Burke, Undermined by Adverse Selection: Australia’s Direct Action Abatement Subsidies, Australian National University, April 2016
- Margaret Blakers and Margaret Considine, Mulga Bills won’t Settle our Climate Accounts: An Analysis of the Emissions Reduction Fund, The Green Institute, November 2016
Risk of Adverse Selection
Paul Burke questions the effectiveness of the direct action projects because of fundamental flaws in the scheme design:
- There is no way of preventing the direct action scheme subsidising projects that would have gone ahead anyway. For example funding has been provided for replacing machinery that is inefficient and upgrading lighting in supermarkets. These projects would provide a financial benefit to the proponent in any case so a subsidy has no justification.
- The international rules of carbon accounting require additionality. This means that credit for emissions reductions must not include changes that would have occurred anyway, say, because of legislation.
- The information about emissions expected to be abated will depend on a definition of baseline emissions, that is, what emissions would have been if the project had not been implemented. It is the proponent’s responsibility to identify their baseline in accordance with approved methods, and there is some flexibility. The government’s inability to know true project baselines creates a major challenge. Projects with overgenerous baselines will be able to submit relatively low auction bids because the abatement they offer will be easy to achieve, and thus cheap. These bids are well placed to secure funding. If the baseline is higher than business as usual, in the end the project will deliver less abatement than notionally indicated.
Effectiveness and Value for Money of Abatement to be Delivered
Margaret Blakers and Margaret Considine have undertaken the first ever analysis of the ERF auctions. They found that direct action not only fails its own test of delivering ‘real and additional’ emissions reductions, but also that it cannot serve as the foundation for more serious action without very substantial changes to its architecture. Their key findings are:
- Large sums of money (around $1.2 billion) have been poured into protecting land sector carbon. At the same time there is no federal policy safeguarding existing landscape carbon stocks. They are turning a blind eye to state governments rolling back land clearing controls. The entirety of the abatement purchased by the ERF so far (143 Mt CO2-e) at a cost of $1.73 billion accounts for less than 20% of projected emissions from land clearing up until 2030.
- Over half of all abatement comes from just two mulga-dominated bioregions in south-west Queensland and western NSW. The value of ERF contracts in and around these regions is about $1 billion. With carbon payments estimated to average $195 per hectare, this represents many times the per hectare value of land in the region. Paul Burke makes a similar point. This situation only applies to land with existing land clearing permits predating 1 July 2010. The payments rest on the assumption that clearing would have happened without the subsidy. No doubt some vegetation has indeed been preserved, albeit at a high price. Some of the spending has questionable additionality, however, given that the incentive to clear was anyway rather low (clearing is expensive and the productivity of the land is low).
- Much of the scheme’s expenditure has either been wasted or is at risk due to doubtful additionality (as per Paul Burke’s examples) and lack of permanence. 25% of ERF abatement has a ‘permanence’ period of only 25 years, after which time landholders regain ‘full land-use flexibility’. As well, the concentration of abatement in the semi-arid mulga regions carries its own risks such as from drought and climate change itself.
Fundamentally the ERF abatement profile is at odds with Australia’s emissions profile. Over 80% of our emissions are from industry, but 80% of direct action abatement is from the land sector. Only 4% is from the energy and industrial processes sectors, which produce most of Australia’s emissions.
Inadequacies in Methods for Vegetation Abatement
All the methods apply to ‘forest’ which is defined under the international rules. No methods are available at present for non-forest native vegetation or existing native forests on public land. Native forests on private land protected by legislation or covenant do not qualify because they are required by law to be protected.
Most landscape carbon resides in natural ecosystems. If well-managed, these will be resilient and are likely to persist and accumulate large carbon stocks in soils and plants over decades and centuries. Natural ecosystem management requires coherent, continental-scale policies and funding for the long term coordinated by the states and Commonwealth, not the ad hoc project funding that direct action provides.
The ERF is failing the climate, failing the land sector and failing the budget. To be credible, Australia’s climate policies must address the land sector in its own right and must stem the loss of carbon from the landscape caused by clearing, logging and other forms of degradation.
Ultimately the only effective long-term strategy to reduce Australia’s greenhouse gas emissions is to place a direct price on emissions.
The Paris climate change talks in December 2015 produced an agreement hailed as 'historic, durable and ambitious'. Developed and developing countries alike are required to limit their emissions to achieve an objective of limiting average global temperature increases to 2°C with an aspiration of 1.5°C.
Under the United Nation's climate change agreement Australia’s current greenhouse gas emissions reduction task is to reduce its emissions by 5% below 2000 levels by 2020.