Sunday, January 6, 2019

A Green New Deal and Economic Growth

I wrote about a Green New Deal (GND) a few days ago and ended my comments by noting that the GND makes some progress toward bringing economic and climate change issues together, which is important. However, the GND's approach to economics seems mostly focused on linking the GND to job creation and full employment.
This is laudable but it does leave aside the question of economic growth. I think that's a mistake. The GND can and should be sold as a growth program because an effective approach to the clean energy transition (full employment, massive public investment) both needs and should facilitate strong growth.
It is odd that the left does not stress this connection more than it does. This may have something to do with prevalence of anti-growth sentiments in some of the greener parts of the left. These sentiments could not be more misguided.
The basis for these views has been well-summarized by technologist Ramez Naam, author of the book, The Infinite Resource: The Power of Ideas on a Finite Planet:
"The world is facing incredibly serious natural resource and environmental challenges: Climate change, fresh water depletion, ocean over-fishing, deforestation, air and water pollution, the struggle to feed a planet of billions.
All of these challenges are exacerbated by ever rising demand -– over the next 40 years estimates are that demand for fresh water will rise 50%, demand for food will rise 70%, and demand for energy will nearly double –- all in the same period that we need to tackle climate change, depletion of rivers and aquifers, and deforestation."
All of these problems are tied in one way or another to economic growth. So, logically, if we want to stop the problems shouldn’t we just stop or even reverse economic growth? Naam rejects this logic despite fully embracing the scale of the problems we face. His first reason is that stopping growth would not work morally or practically.
It would not work morally, Naam argues, because most of future growth will benefit people whose living standards are far below those in the developed world. To tell these people to forego the benefits of economic growth, when those in the developed world have already received those benefits, is grossly unfair. As Naam points out :
"Roughly one billion people alive today on the planet have access to automobiles, air conditioners, and central heat. The other six billion do not. Two billion lack access to a toilet. One billion lack access to electricity. The bulk of the growth to come over the next few decades – in global GDP, in energy consumption, in CO2 emissions, in food consumption, in water use – will all come from the developing world. That growth isn’t trivial. It isn’t about building McMansions or driving SUVs. It is, by and large, growth that reflects the aspirations of billions of people around the world to rise to a level of comfort that nearly everyone in the rich world – even those we consider poor – enjoy. A path forward that doesn’t allow room for billions to rise out of poverty and to at least this modicum of comfort is not a very appealing one."
And stopping growth would definitely not work practically. Even if we could stop growth in the developed world, how are we to stop those in the developing world who want to consume more from doing so? Short of enforcing austerity in the developing world, we can’t do that.
Naam’s second reason is that stopping growth is not necessary. The resources—water, food, energy, etc.–available to humanity greatly outstrip the potential needs of our population, not only today but in the future. The problem lies in accessing those resources in an economically feasible and environmentally sustainable way. That in turn depends on innovation, both technological and economic.
Take energy and, by extension, climate change. The price of solar energy is coming down fast; a watt of solar power today costs only 5 percent of what it cost in 1980. But it’s still too expensive to out-compete fossil fuels, even setting aside, for the moment, the storage problem. The solution: massive investment in clean energy R&D (the US currently invests only $5 billion a year in this, actually less than it invested in the 1980’s) and a carbon tax to encourage clean energy use and accelerate innovation. As Naam puts it :
"The fundamental driver here is economics. Consumers, businesses, and industry want energy. They need energy. That’s true everywhere in the world. And they will buy whatever sort of energy is cheapest. Indeed, if a new source of energy is sufficiently cheaper than the old, consumers will switch their energy consumption from the old to the new.
If we want to win the race against climate change, one thing matters more than all others: make renewable energy (including storage) cheap. Dirt cheap. And do it fast."
Naam makes similar arguments about challenges in the areas of water and food: the solution is not to stop growth but to innovate and to do it fast. In this, he joins such “green growth” advocates as Ralf Fücks, President of the Heinrich Böll Foundation and a leading member of the German Green Party, whose book Green Growth, Smart Growth lays out a number of ideas similar to Naam’s. This is indicative of a new attitude toward economic growth among some sectors of the green left in Europe.
Will that happen here? We shall see. Meanwhile, instead of arguments for growth, we are more likely to hear arguments for "degrowth" from green activists, on the belief that, on our current trajectory, we cannot possibly continue to grow and hit reasonable climate targets. On this view, a growing economy has not and will not produce needed technological and policy changes fast enough. Therefore, we simply must put the machine in reverse.
This is misguided on many levels, not least of which is its utter political impracticality. But it also underestimates the degree to which desired changes are, in fact, possible within our current system and with economic growth. This "conditional optimist" argument is well-made by energy economist Michael Grubb in a paper for the Institute for New Economic Thinking (INET). As Grubb puts it: [R]adical decarbonization will...not be possible without increasing the size of the economy, fueled and funded by a new industrial revolution in energy and its efficient use."
The paper is a bit technical but well worth reading in its entirety. There is a also a good article on Vox by David Roberts summarizing his and other conditional optimist arguments.
INETECONOMICS.ORG
A response to economists who doubt our capacity to decarbonize while maintaining robust growth

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