Green growth or slump?

Three sharply divergent views on the economic impacts of climate change action emerged this week. One, in an article written by James M Taylor and posted on Forbes website, argues that the US should abandon what he asserts would be costly and futile attempts to cut emissions, given the growth in emissions from China. Mr Taylor is senior fellow for environment policy at the Heartland Institute, which has received substantial funding from, amongst others, the oil company Exxon, the tobacco industry and the Koch brothers.  The Institute’s hostility to action to mitigate climate change is well known. Here Mr Taylor argues that it  will be economically disastrous for the US.  

He writes:  

..  forcing consumers to purchase wind and solar power (the only acceptable power alternatives, according to environmental activists) rather than coal and natural gas will result in very painful economic consequences….

Just as importantly, the number of jobs created by investing in wind and solar power would be dwarfed by the number of jobs eliminated elsewhere in the economy. Forcing people to remove budgetary dollars from food, clothing, shelter, education, health care, consumer goods, etc., in order to redirect these dollars to more expensive wind and solar power will kill jobs in each of these other job sectors–not to mention the jobs that will be eliminated in the coal and natural gas sectors.

It’s a stark picture. But if Mr Taylor is right, how do we account for the conclusion reached in the second report, commissioned by the German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety? These authors conclude that, far from bringing economic catastrophe, ambitious mitigation targets would be the shot in the arm that European economies need – so much so, they believe, that the faster the EU moves to a unilateral 30 per cent emissions reduction target the better.

Raising the target from 20% to 30% could open the way towards higher growth and increased employment, rather than the job losses Mr Taylor foresees for the US. Despite the hostility of the EU energy commissioner to the idea, the authors argue that  inaction is a bigger problem than action.  

..  under business as usual it will be hard to even maintain the growth rate of the pre-crisis times. As a result, unemployment across Europe is likely to stay high …  Sticking to the 20% target in a situation where this target has become too weak to mobilize innovations and to stabilize political will is the equivalent of digging deeper while being stuck in a hole.  

Moving to a 30 per cent target, they say, could be doubly beneficial …  

Europe can define its role in the global economy by focusing on high-quality products where stable unit costs do not depend on low wages but on continuous learning-by-doing.

European industry can then maintain and enhance its competitiveness by developing the low carbon materials and technologies that will shape the future.

In the coming decade, Europe will need to accept the challenge of. New model
results show that these three goals ( increasing economic growth while reducing both unemployment and greenhouse gas emissions) can actually reinforce one another. Over the coming decade raising the EU’s climate target from 20% to 30% can foster the following outcomes

• increase the growth rate of the European economy by up to 0.6% per year
• create up to 6 million additional jobs Europe-wide
• boost European investments from 18% to up to 22% of GDP
• increase European GDP by up to $2004842 bn
• increase GDP by up to 6% both in the old (EU15) and new (EU12) member states.

What does China think in this debate? Judging by its heavy investments in renewables and the drive towards low carbon growth outlined in the 12th Five Year Plan, China favours the EU perspective – that the future lies in carbon mitigation, energy efficiency, clean technologies and sustainability.  And finally, the UN weighed in with undoubtedly the heaviest work on the subject – a UNEP report on the benefits of the green global economy that comes down heavily on the side of green. Not only would a green economy mitigate climate risk, it ways, but it would deliver higher GDP growth per capita within ten years. What’s more, it will create more jobs than it loses and the whole transition could be paid for by axing harmful subsidies to special interest groups.