Do we have to shrink the economy to save the climate?

Moderated by the "Süddeutsche Zeitung": a discussion between MCC Director Ottmar Edenhofer and the advocate of post-growth economics Niko Paech.

MCC Director Ottmar Edenhofer (left) is involved with carbon pricing. Niko Paech from the University of Siegen advocates a society whose needs are met without growth. | Photo: MCC/Uni Siegen

21.04.2021

A crucial question of climate policy is what to do about economic growth. For some, the constant striving for more is the source of all evil – after all, it is abundance that brings the planet to its limits. Others think: where, if not from a dynamic economy, should the resources and innovations for socially acceptable climate protection come from? The Süddeutsche Zeitung newspaper has now presented this fundamental question, in the form of a debate between two prominent economists. The discussion was moderated by Michael Bauchmüller and Marlene Weiß. Publication of our own translation here is with the kind permission of the newspaper’s publisher.

 

Mr Paech, you must be one of the few who welcome the Corona-slump in the economy. Do you?

Niko Paech: Even an uncompromising critic of growth would not want to subject a society to such a drastic cure. This crisis is causing too much social and societal trouble for that. Of course I am in favour of degrowing globalisation, the use of technology and industrial production. But it should be done step by step – not through dictatorial or forceful sledgehammer measures. I suggest initially aiming for a 50 percent reduction, and then checking whether the ecosphere has been sufficiently relieved.

 

Mr Edenhofer, is that a way forward?

Ottmar Edenhofer: I can't see why economic output has to fall in order to reduce carbon emissions. The question is: can we decouple them? The evidence is clear: adjusted for inflation, gross domestic product in the EU in 2019 was 60 per cent higher than in 1990, while greenhouse gas emissions were 24 per cent lower.

Paech: This decoupling cannot even be explained theoretically without logical contradictions. In an almost closed system like the Earth, there is nothing materially free. Value creation causing little harm to the environment existed perhaps in late-romantic, non-growing artisan and agrarian societies, but disappeared when the industrial revolution replaced human labour with machine labour.

 

You want to abolish machines?

Paech: Don't twist my words around! No, I just want to explain a dilemma: an "ecological production" based solely on human labour, which is minimally reinforced by machines, quickly reaches a limit; it cannot grow. Growth only sets in with the use of technology, so it can never be ecologically harmless. That is why gross domestic product is at best a measure of ecological destruction.

Edenhofer: One can certainly question whether gross domestic product is the yardstick of all things. But empirically, the findings are that countries with a higher GDP also have higher life expectancies, lower infant mortality, better education, higher labour force participation of women and so on.

 

Would there be an alternative to GDP?

Edenhofer: We certainly need a better metric that includes aspects such as life expectancy, income distribution and leisure time. Then Europe would hardly be behind the US. But I see no reason to deliberately lower the gross domestic product. This degrowth debate seems obsessive to me.

Paech: I don't see that the increase in health, life expectancy or education is directly related to growth. How are blast furnaces, air travel, cruises and yet more housing supposed to increase life expectancy? The economy does not need to grow for good healthcare. We should distinguish between basal needs and decadent luxuries that are ecologically ruinous.

 

And who decides which needs are satisfied?

Paech: That can only be done through democratic discourse. But I have never heard of anyone starving because gold rings, caviar, air travel and SUVs become more expensive or disappear. On the contrary, it leads to more social equality. But if politics and science don't even ask where there is potential for reduction, then unfortunately there is not much hope in an enlightened society.

Edenhofer: I see little possibility of making such distinctions in free societies. It may well be that no one has yet died from lack of champagne. But what about education and health? These are very expensive goods – and the richer people get,

"Ecological damage is no proof that economic growth is generally bad."

the more their needs for these grow. The idea of distinguishing between basic and luxury needs in a democratic discourse, and denying the latter their justification, seems absurd to me. By the way, we should also talk about what "goods" actually are. Mr Paech seems to me to have a very material conception of this.

 

You'll have to explain that.

Edenhofer: If you teach me the saxophone, Mr Paech, and I teach you modern welfare economics, then these are goods. To say that value creation only refers to what hurts when you bump into it, that's nonsense! Education, health and care services – in many areas there are goods that even increase in quality over time, so that the gross domestic product increases.

Paech: Services can have bigger ecological rucksacks than the good old physical products. If someone works as a masseur but earns as much money as he received before at the blast furnace, then we are only shifting steel production to China and the masseur is demanding the same goods. Ecological relief does not result from this.

Edenhofer: Ecological damage is no proof that economic growth is generally bad. The reason is that we still do not provide enough incentives to decouple emissions and value creation.

 

What form could such incentives take?

Edenhofer: We do know the planetary boundary. Ultimately, we have to gradually reduce carbon emissions to zero by giving them a price that increases over time. After that, we will see whether we can still achieve growth. I am neither an anti-growth nor a growth fetishist; I am agnostic. But you have to start where economic performance causes damage and reduce this damage. Climate protection through prices has one big advantage: I don't have to distinguish between luxury and basic needs. This has a better chance of social approval. However, lower-income households have to be compensated, it doesn't work without social justice.

Paech: You're running into a trap here. Despite such promises of compensation, climate protection fails because those with the lowest incomes are immediately put forward as being negatively affected. The German governing parties CDU and SPD in particular use this argument.

Edenhofer: We have shown in models that the revenues from carbon pricing can be redistributed in such a way that low-income households are actually better off, on balance. Of course, I hope that the policy will trigger innovations so that carbon prices do not rise quite as much as expected. But they will reach an order of magnitude that would not be enforceable without social support.

Paech: So the state makes itself dependent on generating enough revenue from environmental consumption to finance such supportive measures. And if carbon prices were completely compensated for, low-income groups would hardly change their behaviour, while people with high incomes would continue to be able to afford their lifestyle anyway – with symbolic compensation; I paid the ecological price, so I can book the next flight to Honolulu and be at peace with myself. To prevent this, we would need a carbon tax of 200 or 300 euros per tonne CO2 – instead of the homeopathic doses used so far. How you want to implement this politically and compensate for it in socio-political terms remains your secret.

Edenhofer: It is simply not true that redistribution destroys the ecological effect. Households receive compensation regardless of their emissions, and those who reduce emissions are better off. According to our calculations, if we want to implement the stated climate goals, carbon prices in Europe should rise to 100 euros by 2030, or even better, 150 euros. That will not be easy. But it is still much easier to introduce transparent carbon prices than, according to your concept, to initiate a monster recession that makes everyone worse off and not only those who cause damage.

Paech: To date, there is not a single country in which a democratic majority has been reached in favour of consistent price control. Even the eco-tax introduced in 1999 by the then Red-Green government was only homeopathy. And one more thing: lower income groups, in particular, often prefer actions that are particularly CO2-intensive in order to adapt culturally. An emancipated society cannot delegate its co-responsibility to politics. It must independently produce lifestyles that are sustainable and can thus be copied. Only this signal sets social and political change in motion.

 

What do you tell people in developing and emerging countries? Do you want to explain to them that unfortunately nothing will come of the hoped-for modest prosperity?

Paech: The truth is reasonable for people. We can't seriously advise people in Africa to repeat our mistakes! If we did we might as well commission an interplanetary tombstone. What is needed is an international consensus on a modest level of prosperity that goes hand in hand with an average of one tonne of CO2 equivalents per person per year. We would have to establish this first and foremost in Europe in order to demonstrate this to the people in the global south without the arrogance we have displayed so far: we are not so bad we can’t implement a globally just way of life. Because the global south uses us as an example.

„The pressure to act is great, but that is precisely why there is no time for utopias.“

Edenhofer: In the run-up to the Paris global climate agreement, I negotiated IPCC reports with representatives from almost 200 countries, and I can tell you that if you link climate protection with a halt to growth at the international level, the conversation ends immediately. Many see that as colonialism. It's about linking climate protection and development. And the first thing is to succeed in phasing out coal in Southeast Asia. Vietnam, for example, has now announced a coal moratorium, which could be turned into a coal phase-out with clever incentives. If we offer them low-interest loans and encourage them to introduce emissions trading or carbon prices, I think that would be a correct, pragmatic step. In this decade it will be decided whether we keep the door open for the 1.5 degree target. We do not have time for illusory games.

 

But isn't much of Asia's growth based on products for us? Can that be sustainable?

Edenhofer: In its current form, it is not sustainable. In fact, Europe is not only a net importer of goods from the region, but also of emissions. If this is realistically accounted for in the trade flows, then the EU's emissions are seven percent higher – which, however, does not fundamentally affect the decoupling of growth and emissions. Because of global interconnectedness, it is important that we move towards an international carbon price gradually and through voluntary agreement by countries. Then trade flows will adjust accordingly. The pressure to act is great, but that is precisely why there is no time for utopias such as those presented by Mr Paech.

Paech: For me, your technical and institutional confidence is pure utopia. We have been proclaiming technical and political solutions for decades, but we have just kept on piling up new sustainability problems. In the post-growth economy that I propose, nothing is utopian. Instead of embarking on technical adventures, tried and tested practices would be reactivated; let's think of sharing, repairs, handicrafts, regional economics, organic farming. Is that supposed to be utopian? And as for the time problem, it's exactly the opposite. Nothing is quicker than adjusting to the fact that climate protection is an art of omission and not of additional action. Nothing costs less and is technically and politically less demanding.

 

Why hasn't it happened yet if it's so easy?

Paech: There are many reasons for that. Among them, in particular, is the science-fuelled belief in technology, which provides a convenient alibi for maintaining ruinous lifestyles. And when Mr Edenhofer says that we cannot want a reduction because it is politically unenforceable, this becomes a self-fulfilling prophecy. If all politicians, scientists and the media swear that it won't work, then it definitely won't work. We should be more honest here. Replacing coal with renewables, for example, fails due to technical limitations or only succeeds at the cost of other ecological damage. There remains only the third way beyond previous and green growth: we must reduce energy consumption without replacement – and that requires materially more frugal demands.

Edenhofer: It is a false assertion that energy production from the sun and wind is just as damaging to the ecological basis of life as energy production from coal. Of course, renewables also have their price, which is why efficiency increases in electricity and general energy consumption are necessary. What bothers me is that you claim this consumption is directly related to the gross national product. I think that is the blind spot in your reasoning.

 

There have already been advances in efficiency. Cars are much more economical today. But engines are getting bigger and more people are driving around. Don't such rebound effects eat up all progress?

Edenhofer: In fact, CO2 emissions in German road traffic in the pre-Corona year 2019 were four percent higher than in 1990. With more economical engines, petrol consumption per kilometre driven falls. Yet the fact that people then drive more shows that they do respond to incentives. That's why I say we also need rising carbon prices in the transport sector over time, precisely so that the efficiency gains will not lead to an increase in driving. Carbon prices must play a dominant role.

Paech: That is not enough! The only responsible lifestyle policy in the sense of the two-degree climate target is one that is based on the regulative idea that each person can only be entitled to a certain budget of ecological consumption. This should become the standard in school lessons, and even more so in politics and science. Something like this should be exemplified.

Edenhofer: If we want to achieve the 2-degree target, we need an annual reduction in carbon intensity of about five per cent – for the 1.5-degree target it is as much as seven per cent. There are people who voluntarily refrain from consumption, that's okay. Of course, we need lifestyle changes in general. But even if our gross domestic product were to fall by two percent a year over a long period of time, which would be unprecedented in economic history, there would still need to be three to five percent of emissions shrinkage per year, which politicians would have to enforce in other ways. I think it is wrong, and irresponsible, to approach climate protection mainly from the renunciation direction.

Paech: I cannot agree with you when you say that zero growth is not enough, so that we need technology. It is precisely because zero growth is not enough and technology is failing that we need a gradual and socially acceptable reduction to a viable level. Homo sapiens, as a social being, is capable of profound change precisely when he finds real examples of it to use as a guide.

 

But if the climate is to stabilise, we must become climate neutral. How can that be done without modern technologies?

Paech: Of course it cannot be done without technology. But technology doesn't solve the growth problem, because it can't be had without ecological damage, so it has to be restricted. Renewable energy sources – which, by the way, are grossly overestimated – need to be used in such a way that we don't destroy the last remnants of nature. Thus we have to accommodate their limited possibilities by adopting a sufficiently energy-saving lifestyle. Cars could still be used, but to a much lesser extent. Instead, we will ride bicycles much more. We won't have to do away with the internet either, but we musn’t replace our hardware every five years or be online all day.

 

Growth holds the great promise that more prosperity can be achieved by everyone at the same time. If you give that up, you first have to take away from the rich what you want to give to the poor – stuff for fierce conflicts.

Paech: That may be, but could anyone want us to ruin our livelihoods out of fear of distribution conflicts? The most unsocial thing I have ever heard of is the destruction of a planet. If there is any hope of humanity and enlightenment, it is based on understanding the growth crisis as an opportunity to achieve more social justice by limiting and redistributing the use of ecological resources. This benefits the poorest, and for the richest it is not a renunciation but a liberation from excess.

„Every change that took place under conditions of freedom had its origins in niches.“

Edenhofer: It is undisputed that Europe or the US, for example, emit more greenhouse gas per capita and are richer than other regions. But if global per capita income is to stop rising and to be equally distributed, that would mean that the standard of living in the US would have to be lowered by about 80 per cent. I think it is completely unthinkable, and also wrong, to even try to do that. After all, the world has to reach net zero emissions – that can only be achieved through innovation and investment, not through a general renunciation of growth.

 

Mr Paech, you talk a lot about "we". Are you referring to the part of society that is ready for such changes? How would you prevent these people from shouldering the climate burden for the free riders?

Paech: In a democracy, this risk cannot be avoided. Otherwise, the counter-question arises: how would you organise majorities for what Mr Edenhofer is proposing? Every change that took place under conditions of freedom had its origins in niches, in real-world laboratories, with avant-gardists. It is only when new forms of existence and patterns of supply become visible that the new practices can spread. Only then, never before, will politics muster the courage to take up this development. This process can start everywhere on a small scale, and this is already observable. The change Mr Edenhofer refers to has been unsuccessful for 50 years as it requires a political miracle.

 

But there have already been scientific real-world laboratories, such as the "KLIB" in Berlin, where families have tried to reduce their emissions. The success was disillusioning, emissions hardly decreased at all.

Paech: I know about this experiment, but I don't think it is very meaningful. If we look at Europe as a whole, we can find more and more real-world laboratories and examples of post-growth real-life models and economic systems, for example, in the food sector, with "solidarity farming", community gardens, and food sharing. People no longer wait for a political Godot – they do it themselves.

Edenhofer: You believe that people are basically only interested in material wealth – and that they first have to overcome their dependence on consumption before they will commit to the change towards sustainability. I have a different view of humanity. People understand that we have to reduce greenhouse gas emissions, but to do so is very difficult for the individual. Politics must provide him with incentives. This is not to persuade him he has alternative needs, but to facilitate his decisions, also incorporating the behaviour of others. And prices make sense for this. You are doubly wrong; you are making demands on rich societies that will never be met, and you are shifting too much responsibility onto the individual.

 

Are you both sometimes afraid that you are wrong? That in the end your ideas won't work out?

Edenhofer: I always assume that I could be wrong. Will we succeed, for the first time in human history, in setting limits for ourselves to ensure our survival? The Paris world climate agreement a good five years ago was an important step in this direction. Since then, things have moved on, also outside Europe. That is why, against all odds, I am not worried about the future.

 

And you, Mr Paech? Do you sometimes fear that your model will not arrive in time?

Paech: I'm not afraid because I'm 60 years old and the possible crises are no longer of much relevance to me. But I do worry about future generations. Anyway, the growth issue is like a ghost debate. At best, there is still a choice between a chaotic or voluntarily ordered retreat from eco-suicidal abundance. Either we change or we will be changed.