Green Growth, Smart Growth

The political scientist Claus Leggewie makes a subtle distinction between limits to growth and limits for growth.2 The difference is bigger than it at first seems. Which do we have to restrict: economic growth per se or the consumption of natural resources? Here the concept of environmental guardrails—indicators for sustainable growth deduced from the limits of the biosphere— comes into play. The guardrails include upper limits for greenhouse gas emissions as well as targets for reducing land use, increasing energy efficiency and recycling raw materials. It must be left to competition to determine how these goals can best be reached. In ordoliberal terms this approach can be described as a regulatory framework for an environmentally friendly market economy.3 It aims to steer economic growth in a sustainable direction while actually accelerating it: the transition to a carbon-neutral mode of production requires an increase in innovation and entrepreneurial spirit in the best sense of the word.

There is certainly no general formula for the sustainable use of natural capital. But it is entirely possible to set quantitative limits to deal with certain environmental problems— particularly climate change. Given the correlation between global warming and the enrichment of greenhouse gases in the atmosphere, it is possible to deduce upper limits that future emissions must not exceed if we are to preserve our livelihood. The big difficulty lies in reaching a global consensus as to what this maximum should be and how it should be divided between almost two hundred countries. Up to now diplomacy has failed to cope with the challenge of climate change. The United Nations Climate Change Conference scheduled to take place in Paris in December 2015 might be the last chance to reach a binding agreement—and not a moment too soon. Yet, central players in the global economy still perceive a binding convention—one that would stipulate drastic reduction obligations for the OECD countries as well as a cap on emissions for the developing countries—as a threat to their growth prospects.

By agreeing to fiscal discipline, the Eurozone countries have voluntarily shackled themselves in order to limit the temptation of debt. The same kind of obligation should apply to environmental sustainability. What might a balanced-environmental-budget provision look like? There is certainly no general formula for the sustainable use of natural capital. But it is entirely possible to set quantitative limits to deal with certain environmental problems— particularly climate change. Given the correlation between global warming and the enrichment of greenhouse gases in the atmosphere, it is possible to deduce upper limits that future emissions must not exceed if we are to preserve our livelihood. The big difficulty lies in reaching a global consensus as to what this maximum should be and how it should be divided between almost two hundred countries. Up to now diplomacy has failed to cope with the challenge of climate change. The United Nations Climate Change Conference scheduled to take place in Paris in December 2015 might be the last chance to reach a binding agreement—and not a moment too soon. Yet, central players in the global economy still perceive a binding convention—one that would stipulate drastic reduction obligations for the OECD countries as well as a cap on emissions for the developing countries—as a threat to their growth prospects.

By agreeing to fiscal discipline, the Eurozone countries have voluntarily shackled themselves in order to limit the temptation of debt. The same kind of obligation should apply to environmental sustainability. What might a balanced-environmental-budget provision look like? There is certainly no general formula for the sustainable use of natural capital. But it is entirely possible to set quantitative limits to deal with certain environmental problems— particularly climate change. Given the correlation between global warming and the enrichment of greenhouse gases in the atmosphere, it is possible to deduce upper limits that future emissions must not exceed if we are to preserve our livelihood. The big difficulty lies in reaching a global consensus as to what this maximum should be and how it should be divided between almost two hundred countries. Up to now diplomacy has failed to cope with the challenge of climate change. The United Nations Climate Change Conference scheduled to take place in Paris in December 2015 might be the last chance to reach a binding agreement—and not a moment too soon. Yet, central players in the global economy still perceive a binding convention—one that would stipulate drastic reduction obligations for the OECD countries as well as a cap on emissions for the developing countries—as a threat to their growth prospects. In this regard they are unfortunately of one mind with critics of growth who argue that a shrinking economy is the only way out of the global environmental crisis.

Protecting the Global Commons
By agreeing to fiscal discipline, the Eurozone countries have voluntarily shackled themselves in order to limit the temptation of debt. The same kind of obligation should apply to environmental sustainability. What might a balanced-environmental-budget provision look like? There is certainly no general formula for the sustainable use of natural capital. But it is entirely possible to set quantitative limits to deal with certain environmental problems— particularly climate change. Given the correlation between global warming and the enrichment of greenhouse gases in the atmosphere, it is possible to deduce upper limits that future emissions must not exceed if we are to preserve our livelihood. The big difficulty lies in reaching a global consensus as to what this maximum should be and how it should be divided between almost two hundred countries. Up to now diplomacy has failed to cope with the challenge of climate change. The United Nations Climate Change Conference scheduled to take place in Paris in December 2015 might be the last chance to reach a binding agreement—and not a moment too soon. Yet, central players in the global economy still perceive a binding convention—one that would stipulate drastic reduction obligations for the OECD countries as well as a cap on emissions for the developing countries—as a threat to their growth prospects. In this regard they are unfortunately of one mind with critics of growth who argue that a shrinking economy is the only way out of the global environmental crisis.

There is a whole range of methods that can be combined to achieve this: resource taxes; levies on emissions; more costly

There is a whole range of methods that can be combined to achieve this: resource taxes; levies on emissions; more costly CO

There is good reason to surmise that the relationship between supply and demand on the raw materials markets is fundamentally changing now that the populous developing countries have embarked on industrialization and mass consumption. One indication of this is that in the decade between 2001 and 2011 the inflation-adjusted prices of raw materials rose by almost 150 percent. The implication is that the growth of the global economy has entered a new phase, in which the need for all kinds of resources is growing faster than the available supplies. That being the case, we can expect the prices of raw materials to continue rising. But it is also true that any future upward trend in the price of scarce resources will trigger its own countermovements. Rising prices increase the incentive to look for alternative processes and materials. New, more efficient technologies emerge, leading to the use of different raw materials—the switch from copper wiring to fiber-optic cables is a familiar example of this. Furthermore, raw materials prices are highly cyclical, a state of affairs that is being compounded by a growing volume of speculative raw materials certificates and options. After the high of 2011, industrial raw materials have become substantially less expensive against the background of the ongoing crisis in Europe, the weak performance of the US economy and the slowing Chinese boom: Within one year the price of iron ore dropped by 40 percent, the price of palladium by 30 and the price of copper by 25 percent. Gold dropped 15 percent from the high of September 2011, although it is an increasingly sought-after investment in times of crisis.

No matter how you look at it, the conjecture that the industrial system is running out of fuel is both illusory and dangerous. In fact we are in the middle of a race between renewable energy and fossil fuels—with all the risks that entails for the climate

Ultimately, however, dirty methods of energy production will only be eradicated if cost-effective alternatives are available. It is thus crucial that the cost of renewable energy sources continues to fall. It will also take an improvement in vehicle fuel economy and a more intelligent transport system to check the growing demand for raw materials. Here, too, a combination of efficiency improvements and alternative drive technologies are required. No matter how you look at it, the conjecture that the industrial system is running out of fuel is both illusory and dangerous. In fact we are in the middle of a race between renewable energy and fossil fuels—with all the risks that entails for the climate.