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Economic Recovery from Covid-19 while mitigating Climate Change

Mark Diesendorf

Green growth, based on technological change, is necessary but not sufficient for effective climate mitigation. There must also be reduced material consumption in the rich countries.

In developing strategies for economic recovery from the Covid-19 pandemic, we are faced with a major challenge: how to re-establish an economy with (almost) full employment while rapidly cutting greenhouse gas emissions to avoid substantial, possibly irreversible, climate change. Because of the reduction in global GDP during 2020, annual global greenhouse gas emissions are at least 4% per cent lower than in 2019.

But, returning to conventional economic growth will tend to drive up emissions, as more people spend more money on more goods and services.

The latest scientists’ warning lists many options for modified or new economic systems with low-carbon emissions.

They range from small reforms in the existing neoliberal economic system to radical restructuring. The present article explains the strengths and limitations of two economic systems from this spectrum, green growth and steady-state economy (SSE), and also the process of degrowth to an SSE.

Green growth

This approach, sometimes described as ‘ecological modernisation’, is driven by government policies which encourage growth in low-polluting economic activities such as energy efficiency, efficient industrial processes, renewable energy and recycling of materials. Recommended policies include making regulations to increase the energy efficiency of buildings, appliances and industry; government funding of green infrastructure such as transmission lines and public transport; and environmental tax reform including carbon pricing. This approach is compatible with the existing economic system that involves continuing economic growth.

However, it’s based on the assumption that economic growth can be decoupled from environmental impacts. While such decoupling is occasionally observed in rich countries over short periods, these are the exceptions rather than the rule. Global greenhouse gas emissions and resource use were increasing consistently prior to 2020, despite improvements in efficiencies in the production and use of energy and materials. Even services that exclude tourism involve underlying biophysical consumption, i.e. the use of energy, materials or land.

Green growth is politically acceptable in Europe and a variety of countries and states, but almost certainly forecloses the option of a smooth transition to a climate in which global heating is limited to 1.5 degC above the pre-industrial level, which is the aspirational Paris target. Global average temperature has already risen by over one degree and even to limit global heating to 2 degC will be a major challenge. Some climate scientists estimate that, if we return to the pre-pandemic rate of global emissions, we could burn through the remaining carbon budget for 2 degrees by the early 2030s.

Clearly, while economic activities that emphasize green technological change are necessary, they are not sufficient, especially when time is of the essence. Therefore, some economists and other scholars have proposed engineering economic systems that involve the transition to a steady-state economy (SSE) while striving for full employment by other means than growth.

Steady-state economy

The proponents of an SSE argue that continued growth in the rich countries is environmentally destructive, exhausts natural resources, fosters inequity based on exploitation and doesn’t generally improve wellbeing. Originally proposed by economist Herman Daly in the 1970s, SSE is a stable economic system that operates within ecological bounds with no growth in the consumption of energy, materials and land, and with a stable population. However, it is compatible with growth in wellbeing, social equity, supportive communities, the arts, hiking and other non-material things that make life worthwhile.

Its feasibility is supported by a growing body of research published in peer- reviewed journals and books. Environmental economist Peter Victor used a macroeconomic model of the Canadian economy to generate scenarios showing that it’s theoretically possible to create a prosperous economy with full employment and low emissions without increasing GDP. The Australian scientist Graham Turner has obtained similar results by using a biophysical biophysical model of the Australian socio-economy.

Both researchers found that, in those scenarios where a freeze is imposed on growth, either economic or biophysical, and with no other supportive policies implemented, a large fraction of the population becomes unemployed, as expected. But, when a range of policies are implemented to foster new jobs and share them around, then an SSE with low unemployment, less poverty and reduced GHG emissions is possible.

Supportive policies, additional to those for green growth, include a shorter working week; stabilised population; investment in ‘green’ infrastructure; expansion of health care, social services and education; and possibly more local manufacturing in place of some imports.


Some scenarios for transitioning to an SSE involve de-growth, which means a reduction in consumption in biophysical terms. Some of the proponents argue on environmental and social justice grounds that a socio-economy based on grassroots communities is preferable to the existing centralised system.

They typically support the growth of localised eco-communities, voluntary simplicity, partial self-sufficiency including micro-grids, local food production.

People who envisage a significant role for governments in driving de-growth recommend the following policies additional to those listed for green growth and SSE: limits to the total global resource uses, more democratic decision-making, reform of government institutions, land reform, stricter limits to the powers of corporations, removing artificial scarcities, decommodifying public goods and expanding the commons. Attention is also needed to the role of the present financial/banking system in driving economic growth.

Targeted policies for de-growth

The vast majority of environmental impacts, including carbon emissions, come from consumption by the relatively rich fraction of the world’s population. Specifically, the top 10% of income earners are responsible for about 45% of global emissions, and the bottom 50% contribute only 13% of emissions. The environmental impacts of the rich come indirectly from their savings and investments as well as their direct consumption expenditures.

Specific additional policy options for targeting excessive consumption in rich countries, while fostering social justice, include progressive taxation to discourage very high incomes, environmental tax reform in which the revenue raised is returned equally to all adult citizens (e.g. carbon fee and dividend), inheritance taxes, job guarantee, fair minim- um income, ban on political donations combined with publicly-funded elect- ions, and serious action taken against corruption.


Green growth, based on technological change and environmental policies, is the least difficult pathway politically, but on its own cannot achieve a safe climate. This would become feasible if green economic activity is supplement- ed by de-growth to an SSE, but resistance by vested interests to such a path- way is likely to be formidable.

Source: John Menadue blog, 10 Dec 2020

Dr Mark Diesendorf is a renewable energy researcher and is an Honorary Associate Professor in the School of Humanities and Languages at UNSW.

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