Achieving Both Economic Growth and Reduced Environmental Pressures in the Current Financial Climate

By Smith, Michael; Hagroves, Karlson | Ecos, April-May 2009 | Go to article overview

Achieving Both Economic Growth and Reduced Environmental Pressures in the Current Financial Climate


Smith, Michael, Hagroves, Karlson, Ecos


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During arguably the worst global economic recession since the 1930s, world leaders will meet in Copenhagen later this year to negotiate a Post Kyoto Framework and targets for decoupling economic growth from greenhouse gas emissions.

Since the start of the global financial crisis there have been calls by business interests and media pundits for caution on acting 'too fast' on climate change, in case it negatively affects economic growth. Despite this, both the UK and new US administrations have made clear and strong commitments to significant greenhouse gas reductions as part of a new strategy for economic growth. (1) They are confident they can achieve both increased economic growth and reduced environmental pressures.

This position is well supported. History shows that when governments have introduced regulation, emission trading schemes or other incentives to phase out harmful chemicals or pollutants, significant decoupling of economic growth with that pollutant is achieved. Findings from a number of countries show that achieving this high level of decoupling does not result in negative impacts on economic growth.

A leading example of this has been global and regional efforts to decouple economic growth from sulphur dioxide pollution, and hence acid rain, through first the 1983 Helsinki Protocol and then the United Nations Economic Commission of Europe Second Sulphur Protocol in 1994. The Second Sulphur Protocol committed nations to targets of sulphur reductions of 50 per cent by the year 2000, 70 per cent by 2005 and 80 per cent by 2010. (2)

The environmental objective of the Protocol was to bring sulphur depositions in Europe within the critical loads of receiving ecosystem, a fundamental principle of ecological sustainability. The emission reduction required was 80 per cent, a five-fold improvement. Initial perceptions were that it would be hugely expensive, but the arrival of cost-effective low-sulphur fuel, with a range of supporting technologies, altered the affordability situation such that the goal was attainable for significantly less cost than anticipated--US$90 per ton rather than $1000 to $1500 per ton.

When considering the reductions in associated damage from acid rain, such as costs related to public health and impacts on agriculture and infrastructure (estimated to be in the range of $1000 to $8000 per ton), the phase out did not have an overall negative effect on economic growth. And as can be seen in Figure 1, the Helsinki Target commitment to reduce the levels of emissions by 30 per cent from 1980 to 1993 was well exceeded.

This pattern has occurred in numerous cases when governments have brought in effective environmental policy to address reducing pollution and harmful substances, such as air pollutants, ozone destroying chemicals, lead in petrol and asbestos. In most cases, the chemicals and pollution levels have been significantly lowered with negligible negative effect on economic growth, and often have led to a positive effect due to resource efficiencies and health and environmental benefits.

Generally, once such government regulation and policy changes have been made, businesses innovate to significantly bring down the initial perceptions of the costs of action. (3)

This, together with the fact that the net associated benefits from reduced pollution loads have outweighed the costs of action, means that there is a strong case for a focus on &coupling environment pressures and economic growth. (4)

Figure 2 provides a stylised demonstration of the various trends relevant to &coupling. It is assumed that at the start of the time period, the relative growth rates of both economic growth and environmental pressures are the same so that the trend can be established.

The goal is to first 'relatively' decouple the trends and then 'absolutely' decouple them; however, it is unreasonable to expect that the environmental pressures will reduce to zero. …

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