The Future of Global Climate Policy: Is Economic Contraction a Climate Solution (Part 2)

By Matthew Stepp, Clean Energy Policy Analyst at the Information Technology and Innovation Foundation and Jesse Jenkins, Director of Climate and Energy Policy at the Breakthrough Institute

It is time to take stock of our current climate trajectory, and consider what it means for climate policy. In Part 1 of this week long series, we argued that our current climate trajectory means we must 1) redouble efforts to reduce CO₂ emissions as quickly as possible, and 2) we must proactively build resilience to the uncertain impacts of a changing climate. Part 2 in this series examines whether voluntary economic contraction is a key strategy in reducing emissions “as quickly as possible.”

In a recent commentary, Grist’s David Roberts notes that our current climate trajectory puts us on a path to dangerous climate impacts, demanding that we must reduce emissions dramatically over the near-term. His proposed strategy to reduce emissions as quickly as possible constitutes an “all-hands-on-deck mobilization” (including a carbon tax, efficiency standards, subsidies, tech development). He also argues that the time has come to consider “shared sacrifice” in the world’s wealthiest nations: a course of voluntary economic contraction in developed economies (thus reducing fossil energy consumption), while allowing developing nations time to shift from dirty to clean energy.

As we wrote in Part 1 of this series, we firmly agree that our climate trajectory demands that we redouble efforts to reduce global CO₂ emissions as quickly as possible. They key question remains: what levers or strategies are central to determining how quickly we can reduce emissions. Is voluntary economic contraction a key climate strategy?

Before diving into this question, it’s helpful to go over the basic arithmetic of reducing global carbon emissions, called the Kaya Identity. In simple terms, it states that:

Carbon Emissions = Population x GDP per Capita x Carbon Intensity of the Economy

Or

C = P x GDP/P x C/GDP

(Note: C/GDP is in turn made up of two terms: E/GDP and C/E, or Energy Intensity of the Economy and Carbon Intensity of Energy Supply)

In order to reduce global emissions as quickly as possible, at least one of these variables has to shrink substantially. Furthermore, it’s easy to see from this equation that as population rises through the coming decades, as expected, either the combination of the GDP per Capita or Carbon Intensity of the Economy terms must fall nearly to zero, in order to drive deep reductions in the Carbon Emissions side of the equation.

Roberts, quoting climate scientists Kevin Anderson and Alice Bows, argues, that the “brutal logic” of climate change “suggests (extremely) dangerous climate change can only be avoided if economic growth is exchanged, at least temporarily, for a period of planned austerity” in the world’s developed nations. In other words, its time to accept a voluntary decrease in GDP and incomes, at least in developed countries, to reduce emissions and buy us time to figure out the best way to drastically reduce global carbon intensity.

So is voluntary economic contraction a key lever for climate mitigation? In fact, there are two problems with this as a key climate policy strategy. First, it will obviously be very difficult, if not impossible, to actually get political economies anywhere to voluntarily and substantially stifle economic growth. And second, the math just doesn’t add up; even in the most ideal circumstances, voluntary economic contraction in the developed world can’t drive global carbon emissions towards zero.

That it would be very difficult to convince nations to voluntarily reduce economic welfare should be a fairly uncontroversial notion. Roberts, to his credit, knows how fantastical his proposal sounds.

In his book, The Climate Fix, Roger Pielke Jr. formulates an Iron Law of Climate Policy, which states that “even if people are willing to bear some costs to reduce emissions, they are only willing to go so far.” In other words, when policies on emissions reductions require reduced economic welfare, public tolerance for such policies will be extremely limited. Societies do sometimes opt to pay slightly higher energy prices for cleaner air, domestic energy production, or other “intangible” goals. But acceptance of such policies always comes after a big fight, and it can only be sustained if the economic impacts of these policies are limited.

But acceptance of such policies always comes after a big fight, and it can only be sustained if the economic impacts of these policies are limited.

In other words, a climate strategy that hinges on significant, voluntary economic contraction is going to be a steep uphill battle that at best results in marginal results and at worst will expend significant political capital on a proposition that will almost certainly lose.

Roberts counters that the only way his approach works is through an intense climate communications effort. But it still seems all but certain that something like the Iron Law of Climate Policy holds even under an intense PR push by climate advocates and the most charismatic and courageous political leadership. Public tolerance for voluntary economic contraction in the name of climate mitigation will be extremely limited at best.

But let’s play devil’s advocate: say an intense climate communications effort convinces the rich world that we are already far too wealthy for our own good and should happily begin a substantial reduction in our incomes and GDP. Is this a core climate solution? The short answer is no. The math just doesn’t add up.

Let’s work through a thought experiment. Current global GDP per capita is roughly $9,000 per person and the global population is about 7 billion. Let us assume for this exercise that around $15,000 per capita constitutes a “happiness threshold” where real improvements in welfare and happiness stops being strongly correlated with increased wealth, as some social researchers contend. If global wealth were somehow perfectly redistributed to each person equally (this is clearly a thought experiment!), we would therefore need to see per capita GDP increase by 67 percent by 2050 in order for each of the world’s inhabitants to reach incomes consistent with this happiness threshold. But at the same time, global population is expected to rise to at least 9 billion people by 2050, an increase of 28 percent. Using our Kaya Identity terms, we can see that global GDP would then have to rise by over 100 percent (+67% per capita GDP * +28% population = +114% GDP). In other words, even if we were to achieve this perfect redistribution of global wealth at exactly the ideal happiness threshold, global GDP would still have to more than double by mid-century, at the same time that global carbon emissions should be cut by half or more.

Clearly, this is also the most optimistic thought experiment possible, with perfect global wealth redistribution. Per capita GDP would fall in the richer parts of the world to $15,000 per person (down to about half of today’s per capita GDP in OECD nations) and rising in the poorer parts of the world to $15,000 per person. You be the judge as to how likely this scenario is, or how happy you would be to see your income fall to around $15,000.

Any real-world scenario that resembles Roberts' proposal for “voluntary economic contraction” in the developed world is likely to have far more modest outcomes and will certainly lack the perfectly equal distribution of global wealth in this example. Meaning unless we're going to try to condemn the emerging economies to permanent poverty as well, we're going to see global GDP far more than double over the next four decades.

Economic contraction is thus a non-solution to significantly reduce emissions: it simply cannot result in the kind of substantial absolute decline in (at least) one of the Kaya Identity terms above. We will not bend global carbon emissions rapidly downward through even the most humane vision of voluntary economic contraction and global wealth redistribution.

Returning to our Kaya Identity, we can thus be clear: both the population and GDP per capita terms of our equation are going to rise steadily through at least the next half century, whether we see voluntary economic contraction in the world’s rich nations or not. That leaves us with just one key strategy to drive emissions towards zero: we must accelerate the decarbonization of the global economy to significantly reduce the C/GDP term of our equation.

Thus, if we must drive carbon emissions towards zero as quickly as possible, there is only one core climate lever that can get the job done: we must decarbonize the economy as quickly as possible. As we’ll argue in Part 3 of this series, the most important thing we can do to greatly accelerate the global adoption of clean energy technologies and the decarbonization of the global energy supply is to accelerate the pace of energy innovation and make clean energy cheap.

At the same time, we must also recognize that we cannot mitigate away all the potentially dangerous impacts of climate change. The time has come to proactively prepare for those impacts and to place efforts to build climate resilience on equal footing with aggressive mitigation efforts. We will take up this part of the climate strategy in Part 4 of our series.

Finally, we will offer recommendations on how to reduce potent, non-CO₂ influences on global warming, which can be reduced in the near-term with substantial benefits, while buying us time to decarbonize the energy system and build climate resilience. That will be Part 5…

**Updated 5PM, January 24, 2012 to more clearly define 'The Iron Law of Climate Policy' and update the source material link.