The first week of June 2023 was the hottest in recorded history. The planet has not seen a hotter week, month or year in the last 120,000 years. At current rates of inaction, temperature rise could reach 1.5°C  by the turn of the decade. “We are hurtling towards disaster, eyes wide open,” remarked António Guterres, UN Secretary-General.

As climate change looms large, it has become clear that the linear, capitalistic model of ‘growth at all costs’ is unsustainable. Historically, leaps in economic growth have come at the cost of the environment. Economists/climate scientists hold different views on how to secure a thriving, prosperous future both socially and environmentally – whether it be through ‘green’, climate-compatible growth or controlled degrowth. 

Since the Industrial Revolution, carbon emissions have moved in tandem with economic growth. Such growth seems necessary to alleviate poverty; since 1990, extreme poverty has fallen by two-thirds. Carbon emissions alone have grown by 56% in the same period. Herein lies the crux of the first trade-off: growth-driven emissions will, alongside irreversibly damaging the planet, beget further poverty. According to the World Bank, climate change will force 130 million people in the coming decade into poverty. By 2050, 1.2 billion ‘climate refugees’ will be displaced. Amongst these, the worst-affected individuals will be the poorest, and the worst-affected economies are unlikely to be the worst offenders – developed economies. It is important to balance the focus on the short-term costs of transition with a considered, long-term approach when it comes to climate investment, policy, and regulation. The effective execution of a ‘Just Transition’ mechanism is essential to ensure the switch to net-zero is “fair and inclusive”.

From a historical standpoint, it seems economic growth and climate change are by nature intertwined; they cannot be ‘decoupled’. According to IMF research, a rise of 1% in annual GDP was on average associated with a 0.7% rise in emissions in 72 developing countries since 1990. 

However, recent data suggest there has been a ‘relative decoupling’ of growth and emissions in developed countries; in recent years, 33 countries have cut down on emissions while maintaining growth rates. Between 2007 and 2019, GDP per capita in America rose by 23% while emissions fell by 15%. Similar trends are visible in the rest of the developed world, and, more recently, developing nations too. It is important to distinguish between ‘relative’ and ‘absolute’ decoupling in this context. ‘Relative’ decoupling occurs when carbon emissions are growing but at a slower pace than economic growth. ‘Absolute’ decoupling, on the other hand, describes a scenario in which greenhouse gas emissions are stable or falling and economic growth is positive. The ideal scenario, from a growth-centric perspective, would be to achieve global absolute decoupling.

Perhaps applicable solutions lie in the successes of the aforementioned examples. The first and most significant reason for the observed decoupling is simply the shift towards renewable sources, specifically in the import sector. Offshore ‘leakage’ through imports from manufacturers like China, India and Indonesia are often neglected in analyses of emissions against growth, resulting in false ‘decoupling’. However, this does not seem to be the case here. Consumption emissions, a measure which factors in imports, have fallen in tandem with territorial emissions. China, the world’s biggest exporter, is chiefly responsible for this ‘real’ decoupling of emissions and growth. Since 2005, China accounts for over half of wind and solar growth. A 100% increase in global renewables by 2030 could add up to 1.1% to global GDP in comparison to baseline projections. Renewables could be a silver bullet for post-pandemic economies looking to eliminate the trade-off: accelerate growth and secure prosperity for growing populations while mitigating climate change in the process. In the US market, it is now cheaper to build new wind and solar plants than to continue operating existing thermal power plants. Similar trends can be seen in China and across the globe. 

Other factors, too, played a role in the decoupling observed as of late. Developed economies have seen a marked shift away from goods and towards services which has drastically lowered the carbon output per unit of value produced. In 1997, services made up 69% of GDP in high-income countries. By 2015, that figure was 74%. In other words, markets have become more greenhouse gas (GHG) efficient, inputting less carbon for no loss in output. GHG intensity plays a key role in optimising the trade-off. Since GHG emissions are equal to economic growth plus GHG intensity growth, reducing GHG intensity is the only way to externally influence emissions without reducing growth (besides renewables, of course).

Despite this, proponents of ‘degrowth’ claim even ‘green’ growth is unsustainable. “Anyone who thinks that you can have infinite growth in a finite environment is either a madman or an economist,” according to environmentalist David Attenborough. The ideology accepts the trade-off and resigns to abiding by it, reducing growth to reduce emissions. Although the dethroning of GDP as a be-all-end-all metric for development and transition to a circular economy sounds appealing, the idea of degrowth is problematic politically. According to a Yale study, “it appears that recessions crowd out concern for the environment.”

While it is clear that we face a number of challenging trade-offs between economic growth and preventing climate change, a recent break in pattern of the historic trend between economic growth and GHG emissions is an encouraging sign. However, what we need now are coordinated, concerted efforts from both governments and the private sector to ensure a just transition to a decarbonised economy.