Economic growth and our environmental futureJan 28, 2023
A spate of articles have argued protection of the environment is incompatible with population and economic growth. But they do not address how to stop this growth and its public acceptability, nor how more determined efforts to protect the environment can succeed.
Over the last few weeks Pearls and Irritations has posted several articles asserting that continuing economic and population growth is incompatible with environmental sustainability on the planet. According to Mark Diessendorf if this growth continues it is likely to lead to the “collapse of civilisation within a few decades”.
The one dissident voice has been Roger Beale, a former Secretary of the Australian Government Environment Department. Beale argues that where governments take action to protect and improve the environment, that of itself encourages innovation that limits further environmental damage. As examples, Beale cites action to replace ozone depleting substances, and the drop in the cost of renewable energy so that it will replace carbon pollution.
I too agree with Beale but repeating Beale’s arguments will probably not be any more successful in satisfying the critics. On the other hand, my problem with the critics, is that while I agree with them about the importance of protecting the environment, they offer no realistic alternative set of policies that could limit population growth and/or economic growth.
I will demonstrate that conclusion by considering first, future population growth, and second, the implications of the widespread human desire for further improvement in material living standards.
Future population growth
It is next to impossible for governments to control population growth. A partial exception has been China. It brutally enforced a ‘one child’ policy, but it eventually realised it risked growing old before it became rich. Now that individual families are allowed to make their own decisions about how many children they have China’s women have disappointed the government by failing to lift the birth rate, and its population has now started to decline.
Most importantly, the key to voluntarily reducing birth rates, besides access to birth control, is women’s education and empowerment, and a welfare safety net to look after people in their old age. All are highly correlated with economic growth.
Consequently, almost all developed economies birth rates are now well below the net reproduction rate necessary just to stabilise their populations. That in turn means that most of their populations can be expected to decline too.
That low birth rate is also true of Australia, but our population will continue to increase so long as immigration continues around its present level. However, Australian immigration represents a redistribution of the global population and does not add to that total.
In sum, to the extent population growth is a source of environmental pressures, it is likely that this problem will largely resolve itself over time in response to economic growth –in the developed countries first, and then others as their living standards rise.
Material living standards
As Beale said, “We are simply never going to be able to convince humans that they should not strive for better material living conditions.” It is all very well for other commentators, who are comfortably off in the top quarter of the income distribution, and own their home, to say no further increase in living standards is necessary. But such views are very much a minority.
Living standards are always a key election issue even in a high-income country like Australia, with ‘struggling families’ demanding more. And of course, at least half the world’s population has living standards well below what is acceptable in the developed economies.
Most of the other articles in this series did not address how governments could reconcile the demands for improved material living standards with their demand for zero economic growth. In fairness, Diessendorf did however address this key issue, asserting that instead of trying to convince humans to forego their aspirations for higher living standards through economic growth, “some redistribution of wealth and income, both between and within countries, … could allow better living standards for the vast majority of people.”
I agree, in principle, redistribution could meet peoples’ aspirations for improved living standards. But surely it is incumbent upon those who make this argument to then consider the scale of redistribution necessary and how practically it could be achieved. Otherwise proclaiming that the environment can be saved by redistribution is a diversion and not a solution.
But when we look at some facts, in Australia the highest quintile (the top 20%) in the distribution of equivalised disposable household income has an income 5.05 times the income of the lowest quintile. Whilst internationally, Australian GDP per capita is 289% of the world average.
That means that if redistribution in Australia was to give the two bottom quintiles of households the same average disposable income as the middle third quintile, then the disposable incomes of the top two quintiles would need to be cut by another quarter, over and above the redistribution that the top two quintiles are already paying for through the existing tax system. And even after that redistribution, the top 20% would still have an average household disposable income that was almost twice that of the bottom 60%.
While, a major redistribution of this order might produce a fairer and more cohesive society, how do we achieve it in a world where we cannot even stop stage 3 of the tax cuts?
Similarly, if the alternative to continuing economic growth is redistribution to produce international income equality, then Australia’s contribution could reduce the value of the GDP Australia retained to not much more than a third of its present value per person. Again, that would represent a massive loss of living standards for each and every Australian.
In other words, it is extremely doubtful that any government, let alone governments collectively, could achieve or would want to achieve the scale of redistribution necessary to satisfy the material aspirations of all populations.
But if redistribution is not the realistic alternative to more economic growth to satisfy peoples’ aspirations for higher living standards then there is no alternative to further government regulation to protect the environment along the lines that the Albanese Government is proposing.
I appreciate the argument against that approach is that insufficient progress towards environmental protection has been achieved so far. But that is an argument for trying harder and taking more difficult decisions to stop particularly harmful activities, rather than stopping all further population and economic growth.
Furthermore, we are making progress. An outstanding Australian example is the take-up of renewable energy, where for the first time in the last December quarter renewable energy accounted for more of the East Coast electricity generation than black coal.
Globally progress in limiting carbon emissions is also being made. Back in 2013 only 20 jurisdictions had a price on carbon of just US$0.67 per tonne, covering just 8% of global emissions. By the end of 2022, the number of jurisdictions had risen to 58, accounting for 22.5% of global emissions, and the price was around US$7.77 per tonne – almost 8 times higher than 2013.
But this is also an example of where more can and should be done. For carbon pricing to wean us off fossil fuels, the IMF has calculated that the carbon price needs to be around US$75 by the end of this decade, while at the end of last year the world’s average price was only around US$5.29.
The main problem is that (i) too many countries (including Australia) still do not have a mandated carbon price, and (ii) most of the world’s emissions – from land clearing, cars, and industry – are pumped into the atmosphere without any cost to the polluter.
So, we all need to do more. But pricing carbon and replacing it with other non-polluting forms of energy is manageable, and certainly much more readily accomplished than massive redistribution of incomes, both within and between countries.
To the extent that initiatives to protect the environment come at a cost to economic activity, and that is not always the case (cf the lower costs of renewable energy), that extra cost will lower material living standards, but by nowhere near as much as trying to stop all economic growth. Reforms should therefore focus on that relatively small extra cost that we should be prepared to pay to protect the environment.
In short: where there is the necessary will, there is a way to protect the environment without resorting to measures that will never gain public acceptance and are unnecessary.