The limits of degrowth

The limits of degrowth

Jun 28, 2023, 12:00:00 PM UTC
In May 2023, MEPs, academics and activists gathered in Brussels to discuss our #BeyondGrowth future.
A person is standing at a crossroads: one path leads to degrowth, one path leads to green growth

In May 2023, 20 Members of the European Parliament organized "Beyond Growth", a three-day event in Brussels. Indeed, there's no denying that Europe is facing a conundrum. Since the Industrial Revolution, we've grown rich by burning fossil fuels as a source of energy. In doing so, we have warmed our planet and destroyed our ecosystems, and worse still, we have unwittingly set a destructive course for developing countries.

While rich and developing countries need to agree on a common approach, much of the debate on future sustainability focuses either on degrowth, the concept of reducing the scope of our economic activities, or on green growth, which involves decoupling economic growth from environmental destruction.

The debate often leads to the broader question of social equity, of the huge gap in emissions between the privileged and the poor. This debate is certainly justified - the greenhouse gas emissions of the richest 1% are 1.5 times higher than those of the poorest half of the world's population.

According to the theory of degrowth, high-income economies are consuming natural resources and available energy at unsustainable rates. NGOs such as the European Environmental Bureau (EEB) doubt that economic growth can coexist with environmental sustainability. As the global economy is structured around GDP growth targets, we are locked in a perpetual cycle of increasing production, much of which is superfluous. The degrowth movement asks: does a middle-class family need a new car every few years? Does it need a regular intercontinental vacation? In their view, GDP has been used as a measure of economic growth, but it is limited as an accounting principle. It needs to be complemented by measures that assess human well-being in a broader sense.

The proposed solution is a reduction in economic activity. Clearly, there is much to be said for reducing consumption of high-emission products such as fossil fuels, meat, cement and steel. Reducing consumption in wealthy countries would free up resources and energy for more precarious countries, which still need physical production to ensure their growth.

Rather than encouraging our economies to decline, we should be focusing on the type and characteristics of growth we are looking for in our societies.

Criticism of an exclusive focus on GDP is entirely justified. Modern economists like Kate Raworth (The Doughnut Theory, known as "Doughnut Economics") are right to point out the destructive tendencies of a growth-centric economy. However, we shouldn't focus on declining GDP either, because economic growth is not the culprit per se. Growth can also be the result of human inventiveness, a product of innovation and technology serving human needs and desires, generating added value and spreading throughout society. What counts is the type of growth an economy strives to achieve.

The degrowth movement doesn't insist enough on this important point: GDP growth is not inextricably linked to an increase in CO2 emissions. It is true that the more precarious countries are increasing their CO2 emissions by developing their economies (based on fossil fuels). China is a clear example.

Figure : China's CO2 per capita is higher than that of the EU.

Nevertheless, per capita emissions in wealthy countries such as the USA, the EU and the UK have already been halved from their respective peaks. Eastern Europe's emissions have plummeted since the collapse of the Soviet Union, and even China's are now stagnating as the country turns to renewable energy sources and becomes more efficient in terms of the amount of energy required per unit of production.

Thanks to investment in renewable energies and electrification, further gains will soon be possible, stimulating long-term growth. An economy that has to limit itself to conserve energy is less dynamic than one where energy is green, abundant and cheap.

The "less for everyone" message is not only synonymous with a loss of electoral votes, it's also dangerous. It unwittingly aids anti-environmentalists who want people to believe that protecting the environment is incompatible with raising living standards. Ultimately, innovation is the solution to our current situation.

While in many sectors it is possible to decouple growth from environmental damage, this is not an automatic process. Policies need to be designed to encourage the use of technologies that cause less damage to the environment. This may involve encouraging investment in infrastructure, as in the EU Green Deal, InvestEU or the US Inflation Reduction Act. It can also be encouraged by legislative frameworks such as the plan "Fit for 55" of the EU.

The task now is to accelerate the decoupling of economic activity from CO2 emissions. One reason for optimism is that, so far, this has happened without colossal expenditure or political consensus. Electricity generation is decarbonizing exponentially, with solar and wind power costs falling much faster than expected.

Figure : Wind power generation

Figure : Solar power generation

Many of the Western countries making the fastest progress on these issues have emissions trading schemes or other forms of carbon pricing. For the richest countries, the rapid spread of renewable energies in power generation, as well as the electrification of home heating, cars and other means of transport, will enable even faster progress. Importantly, as wealthier countries develop technologies and reduce costs, they are paving the way for sustainable development in lower-income countries.

But poorer countries are also industrializing in a different way to their predecessors. India and Vietnam, low-income economies that are taking export markets from China, are already much greener than their economic rival. In 2007, when China's economy was roughly as large as India's today, it emitted around twice as much carbon dioxide. India and Vietnam are still powered by coal, but the difference is that they use it much more efficiently. And now that they are developing their economies, renewable energies are becoming the more economical option..

Europe's role as motor of change

The European Union accounts for around 16% of the global economy. Thinkers like Mariana Mazzucato and Bill Gates rightly argue that, as major consumers (of fuels and raw materials, or by subsidizing transport), European governments can contribute to the success of young "green" start-ups.

Paradigm shifts only happen with public R&D funding and a committed buyer. In the case of the Internet, both these roles were fulfilled by the US government. Similarly, to accelerate green innovation, developed economies such as the EU, US and Japan need to take the lead.

The regulation of existing and new technologies is also important, as the most harmful sectors of our economy must adapt or decline in order to guarantee green growth for the whole of Europe. The EU is the global driver of regulation, with economies around the world replicating the Union's legislation, institutions and litigation.

The rise of electric cars is an example of a country at the forefront of innovation and regulation. The American company GM (EV1, 1996) was the first to mass-produce them, while Tesla (Roadster, 2003) really started the revolution. Since then, European and especially Chinese companies have shifted the majority of their production to electric vehicles. Meanwhile, EU regulators will abolish the sale of fossil-fuel cars by 2035, China requires 20% of cars to be electric by 2025, and even the USA recently unveiled plans to strictly limit vehicle emissions. The ripple effect of this innovation and regulation will be felt worldwide.

By continuing to regulate, set targets and invest, the European Union must stimulate green growth for the benefit of all economies, including those of today's most precarious countries, which will inevitably develop over the coming decades. Let's lay down the markers below so that they can do so in a sustainable way:

  • Corporate taxation in the EU: the green transition must be financed. The Union needs to implement EU-wide tax harmonization, ultimately leading to a European corporate tax that can be invested centrally. This tax should be progressive according to turnover.
  • European energy market: the Union must move towards a single market for renewable energies. The Union must regulate to achieve this objective.
  • European subsidies: the Union must stop subsidizing unsustainable business practices at the expense of truly sustainable ones, whether in agriculture, energy production or industry.

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Article by Paul van Bommel.

Updated June 28th, 2023.