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CLIMATE CHANGE AND

ECONOMIC GROWTHArttu Saarinen, Atte Virtanen, Ekaterina Ohotnikova, Régis Frias

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CONTENTsEconomic Growth 3

Can exponential growth with finite resources be sustained? 6

Limits to growth 6

Even infinite is not enough 7

We have been warned but warnings were ignored 8

So where are we now 9

The current plan 11

Technology 11

Behavior 11

Policy 11

The feasibility of the plan 12

Pathways to sustainability 14

Conclusions 17

References 18

Climate change is arguably the biggest challenge facing humanity in

the beginning of the 21st century. Its main cause is the greenhouse

gases (GHG) emissions by industrialized and developing countries.

But the challenge is tightly connected to the core of our current

economic model: economic growth, as defined by gross domestic

product (GDP).

Current research suggests that economic growth is incompatible

with sustainable development. A success in reaching the current 2ºC

target proposed by the IPCC will most likely put pressure for the

economy to grow in other natural resources and sinks.

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In its essence economic growth is an

increase in a country’s productive

capacity, measured by comparing its

gross domestic product (GDP) annually.

Some of the reasons for the occurrence

of economic growth are increases in

a nation’s capital stock, technological

advances to produce more efficiently

or improvements in the quality of

people’s lives. Worth mentioning is the

way quality of life works in relation to

economic growth, where increases in

GDP themselves in many circumstances

lead to improved life circumstances.

Hence GDP is a measure for the

wellbeing of a nation’s citizens. For

hundreds of year’s economic growth

has been the systematic goal of every

nation for multiple reasons. However

the strive for growth has been executed

at the expense of the Earth’s ecosystem,

neglecting depleting resources,

increased emissions and the Earth’s

decreasing capability of sustaining and

regenerating itself.

ECONOMIC GROWTH

It is arguable whether economic growth

is necessary, as its concept can be

considered to be detrimental to our

planet. One of the simple reasons for

seeking economic growth has been the

exponential growth in the population.

As more and more people inhabit the

Earth, more resources and products

are needed in order to at least maintain

the current level of wellbeing humanity

has achieved up to this point — at

least within the mainstream economic

framework. Another reason is the

characteristic of modern western

societies of wanting more. On average

people always want to have and strive

for more, whether it is wealth or goods.

The rich want to become richer and the

poor do not wish to be poor. This basic

human nature has a direct influence

on the population growth. If the global

economy would not grow, the sum of

all of the products of the world would

need to be distributed more evenly. This

would be in direct conflict with the wish

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ecosystem. Hence economic growth has

not taken the costs it induces on to the

environment into account — the so-

called externalities.

On average global economic growth has

been hovering around the 2 % mark for

the last decades, whilst the population

on Earth has doubled over the last 50

years. Some nations have experienced

more economic growth than others.

However these numbers and GDP have

not taken the costs on the environment

into account. If a monetary value would

be placed onto these costs and were

taken into account, growth would

actually be much less. It has been

estimated that with the costs to the

environment included into GDP, growth

would be reduced by an average of

3%, which would abolish the material

economic growth we have experienced

completely.

Additionally as GDP takes all of the

for more, making others have less of

what they had initially. In order to fulfill

the need for more, more debt would

have to be incurred on a personal level.

Therefore economic growth has been

the concept to fulfill these needs.

In a direct effect more consumption

leads to more production, which in

turn leads to growth in resources used.

The increase in production leads to

more pollution and waste created.

As the Earth’s natural resources

are diminished, its capability to

mitigate greenhouse gases and other

pollutants reduces simultaneously,

creating a vicious circle. The monetary

view of economic growth has been

kept separate from its effect on the

ecosystem and climate, without

recognizing how the economy is actually

a part of the ecosystem itself. Instead

of being its own entity, the economy

and its growth relies on the resources

and capital provided by the Earth’s

GDP versus GPI, 1950–2004

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13 %. This demonstrates the direction

global economies have been pursuing:

producing more goods at the expense

of nature and the climate, whilst not

necessarily increasing the production of

goods that develop wellbeing.

Therefore a change in this mentality is

a necessary step in order to prevent

humans from destroying the planet,

where GDP cannot be considered

the true and only metric for the

advancements of mankind and its

sustainability in relation to Earth. Hence

we as inhabitants on this planet must

begin to question Goal 8 set by the

Sustainable Development program,

where the “promotion of sustained,

inclusive and sustainable economic

growth, full and productive employment

and decent work for all” is a goal we can

truly achieve on the scale we need, given

how our monetary approaches to life

have led us to the detrimental effects on

the ecosystem of our planet.

goods produced into account, it does

include goods that are of no concrete

value to society, instead of only vital

goods such as safety or health care.

Worldwide many products and services,

which are included in the GDP, create

no advancements in the wellbeing of

society and could even reduce it.

An alternative to the GDP is the Genuine

Progress Indicator (GPI), created by the

organization called Redefining Progress

(2015). According to them the GDP is

only a shorthand indicator of progress,

whereas the GPI considers only goods

and products that create true value in

the wellbeing of humans and takes the

costs of the environment into account.

An example of the difference between

GDP and GPI can be seen in the U.S.,

where for the last 45 years GDP has

grown by 70 %. However considering

only important goods and services and

the costs on the environment, the true

growth as in terms of GPI has only been

United Nation’s 8th Sustainable Development Goal

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CAN ExpONENTIAL GROWTH WITH fINITE REsOuRCEs bE susTAINED?

The attend to see whether exponential

growth with the existing resource

supplies would be possible, the research

team of Massachusetts Institute

of Technology (MIT) led by Dennis

Meadows made a two year study which

was published in 1972 under the name

The Limits to Growth (LtG).

The study was done on behalf of

the think tank Club of Rome – an

international group of distinguished

business people, state officials and

scientists. Together with Jay Wright

Forrester – pioneering computer

engineer, systems scientist and the

founder of system dynamics, MIT team

has built a computer model World3

based on the theory of system dynamics

Limits to growthwhich is dealing with the behavior of

complex systems.

The model was based on a certain

combination of interdependent

exponentially and linearly growing

parameters, accounts for positive and

negative feedback loops, nonlinear

relationships and response delays.

The model took into account relations

between various global developments

and produced computer simulations for

scenarios using different amounts of

possibly available resources, different

levels of agricultural productivity, birth

control or environmental protection.

The authors intended to explore

the possibility of a sustainable

The limits to growth 1972 edition.

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feedback pattern that would be

achieved by altering growth trends

among these variables in the frame

of three scenarios: Business as

Usual, Comprehensive Technologies

and Stabilized world. The research

presented and analyzed 12 model runs

for the scenarios and showed other

possible patterns of world development

over two centuries from 1900 to 2100. In

the end all of the Business as Usual and

Comprehensive Technologies scenarios

met overshoot and collapse by the

mid to later part of the 21st century.

And only Stabilized world scenario

resulted in an equilibrium stability. The

only scenarios which indicated human

welfare could be sustained were ones in

which growth was reduced.

Even infinite is not enoughThe standard model included a doubled

resource base of what was calculated

to be available back in 1970s and some

model runs included an assumption

where natural, technological or

energy resources were even infinite.

However those model runs still result

in overshoot and collapse from

overgrowth of other variable factors.

Increasing the availability of resources

didn’t increase the lifetime of resource

use in proportion but just insignificantly.

“Unlimited resources thus do not appear to be the key to sustaining growth in the world system.”

1972 runs of the World3

computer model

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Common criticism of the LtG research

was that technological innovation and

market signals would allow growth

to continue. It was argued that as

resources became scarce their market

prices would increase because of

scarcity and this would reduce demand

for them. Technological innovation

would then find substitutes so that

growth could continue. But according

to the model runs even when very

optimistic assumptions about technical

innovation are made, limits are still

reached and exceeded at some point.

“We have felt it necessary to dwell

so long on an analysis of technology

here because we have found that

technological optimism is the most

common and the most dangerous

reaction to our findings from the

world model. Technology can relieve

the symptoms of a problem without

affecting the underlying causes.

Our attempts to use even the most

optimistic estimates of the benefits

of technology in the model did not

prevent the ultimate decline of

population and industry, and in fact did

not in any case postpone the collapse

beyond the year 2100. We have shown

that in the world model the application

of technology to apparent problems

of resource depletion or pollution or

food shortage has no impact on the

essential problem, which is exponential

growth in a finite and complex system.”

(Limits to Growth, 1972)

We have been warned but warn-ings were ignoredThe purpose of LtG was not to make

specific predictions, but to explore

how exponential growth interacts

with finite resources. The model runs

clearly showed that by the year 2100

the world might be on a collision

course with catastrophe if then current

rates of growth in such areas as

resource use, industrial output, food

production and population expansion

continued on their then current

course. The projections for the values

of the variables in each scenario were

predictions only in the most limited

sense of the word, and were only

indications of the system’s behavioral

tendencies.

1972 runs of the World3 computer model

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Because of the fact that the model

has no military sector to drain capital

and resources from the productive

economy, it has no wars to kill people,

destroy capital, waste lands, or generate

pollution, it has no ethnic strife, no

corruption, no floods, earthquakes,

nuclear accidents, or health epidemics,

model representations thus are the

uppermost possibilities for the “real”

world. This probably makes scenarios

highly optimistic

So where are we nowThe conclusions presented in the

research were novel and even

controversial in 1972. At that time the

world’s population and economy were

still comfortably within the planet’s

carrying capacity. The team found that

there was still room to grow safely while

we could examine longer-term options.

However in 1992, this was no longer

true.

On the 20th anniversary of the

publication of LtG, in the 1992 the team

made an update in a book called Beyond

the Limits. Already in the 1990s there

was compelling evidence that humanity

was moving deeper into unsustainable

territory. Beyond the Limits argued that

in many areas we had overshot our

limits, or expanded our demands on

the planet’s resources and sinks beyond

what could be sustained over time.

The most recent updated version was

published on June 1, 2004 by Chelsea

Green Publishing Company and

Earthscan under the name Limits to

Growth: The 30-Year Update. Donella H.

Meadows, Jørgen Randers, and Dennis

Meadows have updated and expanded

the original version. In this update the

study team point out some lessons

they feel have been learned from

their computer simulations, many of

which explore assumptions about both

technological innovation and resource

substitution:

• If one limit is removed but growth

continues overall, then another limit

will be encountered; they point out

that there are layers of limits which

are likely to unfold in successively

multiple ways. Continued growth will

only accelerate this process.

• If a society is in fact successful in

putting off limits through economic

or technical adaptations, it runs

the risk of later exceeding several

limits at the same time. What such

a society runs out of is the ability to

cope.

• Markets and technologies are tools

that serve goals set by society; if the

primary goal is growth these tools

will be used in service of growth.

• Adjustments by markets or

technology also have costs, and as

limits are approached these costs

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increase dramatically, making the

adjustments unaffordable.

• Markets and technologies operate

through feedback loops with

information distortion and delays;

such delays facilitate overshoot.

In 2008 Graham Turner at the

Commonwealth Scientific and Industrial

Research Organization (CSIRO) in

Australia published a paper called

A Comparison of `The Limits to

Growth` with Thirty Years of Reality.

It examined the past thirty years of

reality with the predictions made

in 1972 and found that changes in

industrial production, food production

and pollution are all in line with one of

the book’s three scenarios so far that

of ‘business as usual’. In 2014 Graham

Turner concluded that “preparing for a

collapsing global system could be even

more important than trying to avoid

collapse.”

The study team published both a 20

year and a 30 year follow up, adding

measures and making improvements

in their computer simulation model.

But the analyses came to the same

conclusions as the original study –

that continued growth would lead to

overshoot and catastrophe for human

civilization. In their original study in

1972 they warned that overshoot was

a possibility; in the 1992 report Beyond

the Limits they argued that overshoot

had already occurred in a variety of

areas, and that their original warning

were even more urgent.

The study pointed out that once

overshoot of carrying capacity has

occurred it will inevitably lead to

collapse unless the process is reversed

as well as further delays in recognizing

and dealing with the overshoot issue

would actually reduce the options

available for returning the world to a

sustainable state.

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the current pLanAs for now, the international community

plans to restrict the global warming

to two degrees Celsius by decoupling

the CO2 emissions and economic

growth from each other. By effective

decoupling, the economy would

grow practically at the same rate as

before while the amount of emitted

greenhouse gases would decrease to

a sustainable level. The available tools

to make the decoupling happen are

technology and changes in behavior and

policy.

TechnologyAccording to the International Energy

Agency (IEA, 2015), the needed

decoupling for only a 2°C warmer future

Earth can be achieved through the

following technologies.

The technologies in the chart are

already economically reasonable with

the exception of carbon capture and

storage. Therefore we can conclude that

we have the technological knowhow

to limit the warming to 2°C although

innovation would be of great help.

The scope of implementation is what

matters most.

PolicyThe politicians have perhaps the most

power to mitigate the climate change.

If the policy makers were to set a price

of $50 for a ton of emitted CO2 and

increase the price 4% every year, the

markets would change so significantly

that the resulted CO2 emissions would

warm the climate only by 2°C. At

the same time the reduction in the

economic growth would be as negligible

as 1,6% over the time period of 2010 to

2050 (Schandl et al. 2015). The economic

growth is explained by a large growth in

the green technology sector.

A government can induce the

implementation of green technologies,

change in behavior and increase in

innovation in various other ways as

well. Through legislation a country can

for example create standards for things

such as energy efficiency or the sorts

of fuel used for transport. In addition

to a carbon tax a government can

help green technology companies by

strategically distributed subsidies. Also

direct investment, relevant education

and influencing in international deals

are instruments that governments can

use to mitigate the climate change.

Another way for rich countries to reduce

the emissions is funding the climate

action of developing countries. At best it

cuts also the global income inequality as

a side effect.

BehaviorTo deploy the green technology, there

must also be changes in behavior.

For example to reduce emissions

in transport people have to choose

low carbon options such as public

transport and electric cars. In addition

to direct reduction of CO2 emissions

changes in consumption make the

green technologies cheaper and more

available and it also influences the

governments to pass policies that makes

the use of those technologies easier.

A larger demand for green technology

increases also the amount of innovation

in the field.

Cumulative CO2 reductions by sector and technology in the 2DS to 2050.

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The feasibility of the planHistorically, the global CO2 emissions

have increased almost yearly regardless

of the realized decoupling. Basically the

only times when emissions have been

reduced are during depressions when

the economy has grown only little or it

has shrunk. Only exceptionally strong

decoupling like China’s reduction in

the use of coal in 2015 have been able

to reduce the global emissions. The

continuation of the year 2015’s trend is

unclear (Jackson et al. 2015).

On top of that, the current alleged

decoupling is not properly accounted.

The developed countries’ domestic

material consumption (DMC) seems

to be decoupled from economic

growth, although that has been far

Global CO2 emissions from fossil-fuel use and industry since 1990 and emissions intensity CO2/GDP.

Relative changes in

total resource use (MF and

DMC) and GDP-PPP-2005 between 1990

and 2008

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from making the case for decoupling in

OECD countries. The aforementioned

strategies could bring this down to the

desired levels, but the actual material

footprint (MF) in these countries is

following the GDP growth hand in hand.

Also, this doesn’t take into account that

the economic growth requires the so

called clean energies’ consumption also

increases. And each of the alternatives

(hydro, wind, solar, CCS) have a clear

and known limitation.

Therefore we don’t have solid historical

evidence for the decoupling plan

to work which exposes the plan to

surprises. Another weakness of the

plan is that it allows economic growth

to happen even though it increases

emissions or in this case the need

for decoupling. Obviously it’s harder

to decouple more than less. Hence,

it’s useful to consider other ways to

mitigate the climate change as well.

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The previous sessions demonstrate that even if the

proposed strategies to reducing CO2 emissions

succeed, that doesn’t mean we have a safe framework

to sustain human prosperity throughout the 21st

century. That is because prosperity has been defined

as — or at least tightly linked with — economic growth.

The ultimate solution to our environmental crisis is

then to redefine prosperity.

As Jackson (2009) points out that economists and

policymakers have, for most of our recent history,

focused on GDP growth, even though it has “delivered

its benefits, at best, unequally”. He explains that (id.

ibid.):

Growth in the GDP is taken for granted. Reams and

reams have been written about what it’s based on,

who’s best at making it happen and what to do when

it stops happening. Far less is written about why we

might want it in the first place.

pATHWAys TO susTAINAbILITy

The myth of growth has failed us. It

has failed the 1 billion people who still

attempt to live on half the price of a

cup of coffee each day. It has failed

the fragile ecological systems on which

we depend for survival. It has failed,

spectacularly, in its own terms, to

provide economic stability and secure

people’s livelihoods.

Tim Jackson

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The same plot a hundred years later

(below) clearly shows that more income

actually increases life expectancy.

Beyond about U$ 20,000, increment in

income has little to irrelevant impact on

life expectancy. From that point other

factors are more important than GDP

for a nation’s prosperity.

Tim Jackson (id. ibid.) points out that

[p]rosperity is not synonymous with

material wealth. And the requirements

of prosperity go beyond material

sustenance. Rather, prosperity has

to do with our ability to flourish:

physically, psychologically and socially.

Beyond mere subsistence, prosperity

hangs crucially on our ability to

participate meaningfully in the life of

society.

There is “growing recognition that,

beyond a certain point at least,

continued pursuit of economic growth

doesn’t appear to advance and may

even impede human happiness” (id.

ibid.).

Gapminder world plotting life expectancy and income per person in 1995 and in 2005

In developed countries the most important element to predict health and social problems is inequality: the more unequal, the worse the indices (Wilkinson & Pickett 2011)

Part of the explanation lies in the fact

that up until a point economic growth

does bring more prosperity. The chart

below (Gapminder, 2015) is a plot of life

expectancy as a function of income per

person in 1915 (bubble size represents

population size).

If policy is focused on GDP growth, when

the economy shrinks, governments urge

the population to consume more. This

is part of a perverse mechanism that

puts materialism ahead of prosperity in

policies and our lives.

An element that plays an important

role in prosperity is income inequality.

Wilkinson and Pickett (2011) show, in

a series of comparisons between rich

countries the relationship between

social problems and income inequality.

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Inequality is also a great driver for

climate change. The Equality Trust, 2015:

The most important obstacle to

achieving sustainability is consumerism

and the opposition to any policy which

appears to be an obstacle to the

maximisation of personal incomes and

consumption. A very important part

of what fuels consumption however

is status competition - keeping up

with others, maintaining appearances,

having the right clothes, car, housing,

education etc, to compare favourably

with others. All these pressures are

intensified by greater inequality.

As a result people in more unequal

societies work much longer hours to

keep up appearances. They spend

more, save less, get into debt more and

aspire to ever higher incomes.

The Sustainable Economies Law center

proposes a description of some of the

elements of a sustainable economy, one

that doesn’t rely on economic growth

just to stay alive:

• Food “is produced locally and/or by

small-scale, sustainable, community-

owned enterprises” and provides

“more opportunities for people to

create rewarding livelihoods working

in the production of food.”

• Cooperatives: they propose a society

where “enterprises and assets

are owned and controlled by the

communities that depend on them

for livelihoods, sustenance, and

ecological well-being.”

• Grassroots Finance: “any project

or enterprise can obtain financing

from members of the local

community, and where the majority

of businesses in a community are

locally owned and locally financed.”

• City Policies: cities have “a diversity

of micro-enterprises, urban farms,

community markets, transportation-

sharing, co-housing communities,

shared housing options, cooperative

enterprises, and a wide variety of

economic solutions developed at the

grassroots level.”

• Community Currencies:

“communities can create diverse

and satisfying means for people to

provide for and exchange with each

other.”

• Community Renewable Energy:

“break barriers to the formation

of community-owned renewable

energy enterprises.”

• Rethinking Home: “world

where every person can live in

economically sustainable homes

without stressful financial burdens

and without diminishing the housing

and land resources available to

others.”

• Work in the New Economy: “every

person has satisfying options for

making their livelihood, including

through participation in cooperative

enterprises, micro-enterprises,

social enterprises, nonprofit

enterprise, low-profit enterprises,

and gift-economy enterprises.”

This is is, of course, by no means

comprehensive, but is a set of

foundation values for a society that

doesn’t rely on GDP growth to exist.

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The climate change is a real and important challenge, but it is a

symptom of a deeper problem: the impossibility of continued

exponential growth. As long as we depend on economic growth to

be able to maintain our lifestyle, mitigating global warming is a side

issue (albeit a huge one).

The main point is that the end of GDP growth doesn’t have to mean

the end of prosperity. Quite the contrary: the end of growth could

mean a healthier nature as well as a healthier human society,

with less work-related stress, conspicuous consumption anxiety,

inequality and more. GDP is a very questionable proxy for wellbeing

and it is cracking while we approach (or cross) the Earth’s resource

and sink boundaries. Hence the remaining question is whether we as

mankind are able to take a step towards such economics.

CONCLusIONs

18

Club of Rome, 2015, Club of Rome. http://www.clubofrome.org.

Gapminder, 2015, Gapminder World. www.bit.ly/1HOxjzc.

Jackson, Tim, 2009, Prosperity without growth: economics for a finite planet. London: Earthscan.

Jackson, Tim et al. 2015. Reaching peak emissions.

Meadows, Donella, J. Randers and D. Meadows, 1972. Limits to Growth. New York: Universe Books.

Meadows, Donella, J. Randers and D. Meadows, 1992. Beyond the Limits. White River Junction, VT: Chelsea Green Publishing Co.

Meadows, Donella, J. Randers and D. Meadows. 2004. Limits to Growth: The Thirty Year Update. White River Junction, VT: Chelsea Green Publishing Co.

Wilkinson, Richard & Pickett, Kate, 2011. The Spirit Level: Why Greater Equality Makes Societies Stronger. New York: Bloomsbury.

The Equality Trust, 2015. The Equality Trust. https://www.equalitytrust.org.uk/equality-and-global-warming

IEA, 2015. Energy Technology Perspectives. http://www.iea.org/etp/etp2015.

Turner, Graham. A Comparison of ‘The Limits to Growth’ with Thirty Years of Reality. CSIRO Working Paper Series 2008-09, http://www.manicore.com/fichiers/Turner_Meadows_vs_historical_data.pdf

Turner, Graham & Alexander, Cathy, 2014. Limits to Growth was right. New research shows we’re nearing collapse. In: The Guardian http://www.theguardian.com/commentisfree/2014/sep/02/limits-to-growth-was-right-new-research-shows-were-nearing-collapse.

Redefining Progress. 2015. Redefining progress. http://rprogress.org/sustainability_indicators/genuine_progress_indicator.htm

Schandl et al. 2015. Decoupling global environmental pressure and economic growth: scenarios for energy use, materials use and carbon emissions.

Wiedmann, Thomas O. & Schand, Heinz & Lenzen, Manfred & Moran, Daniel & Suhf, Sangwon & West, James, and Kanemoto, Keiichiro. 2013. The material footprint of nations. Procedings of the National Academy of Science of the United States of America. http://www.pnas.org/content/112/20/6271.full

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