Sustainability, well-being, and economic growth
Substantial reductions in economic growth for environmental and social sustainability may be unnecessary. Policies and market signals are required to conserve natural resources, equally distribute wealth and mitigate the impacts of climate change. It is argued that environmental and social goals are of greater importance in meeting the needs of society than economic development.
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OVERVIEW
This report examines the interactions between economic growth, human well-being and sustainability in modern society. Two separate viewpoints are argued as to how society can meet our present needs without compromising the needs of future generations.
Sustainable development is defined as a process that meets the current needs of society without compromising the needs of future generations, as opposed to a focus on economic growth.
It is argued that the production and consumption of goods and services are the proximate cause of greenhouse gas emissions. If little consideration is given to the long-term consequences of production and consumption, environmental degradation and natural resource depletion will lead to an irreversible economic collapse by the early twenty-first century.
As such, a strong emphasis on sustainable equity and the conservation of natural resources and ecosystems is necessary. Equity can be achieved through redistributing wealth to alleviate poverty, and the conservation of natural resources builds a foundation for a sustainable future.
The first argument states that the costs of transitioning from a high-carbon to low-carbon energy economy would have a negligible effect on economic growth. Although the U.S. Energy Information Administration predicted that implementing the Kyoto Protocol would reduce national economic output by 4.3 per cent in 2010, this was based on assumptions that emissions cuts were not introduced in a smooth and efficient transition.
The Stern Review on Climate Change, however, found that limiting the global temperature increase to 2 degrees Celsius would reduce economic output by 1 per cent. Stern’s analysis implies that a gradual phasing-in of climate change policies would have a minor effect on economic growth. The transition to a green energy system is hindered by a lack of policies and price signals to balance out environmental technology costs.
The second argument is that economic growth only leads to enhanced human well-being in poorer societies. In these societies, growth provides urgently-required economic goods, whereas in affluent societies, the social and environmental costs outweigh the effect on life satisfaction.
The Daly and Cobb’s Index of Sustainable Economic Welfare (ISEW) measures social welfare on a monetary scale which accounts for:
- The consumption of private goods and services
- The social costs of inequality
- The value of non-market production e.g. household work
- Environmental degradation
- Defensive expenditures (the cost of protecting oneself from environmental harms)
- Net capital investment
- Natural resource depletion
Economic growth increases life satisfaction when the goods and services produced satisfy the basic needs of society. In high-income societies, increases in production and consumption have almost no effect on average well-being, and actually generate negative costs of the kind measured by ISEW.
Contrary to a ‘grid lock’ between environmental and economic costs, policies that promote sustainability will likely lead to long-term economic growth. An emphasis placed on the achievement of social justice and ecological protection will create a sustainable future for current and future generations.
KEY INSIGHTS
- Economic growth will occur organically through the redistribution of equity and conservation of natural resources for current and future generations. Material production and consumption are limited by the availability of natural resources, and growth of Gross Domestic Product can be achieved through low-carbon technology and consumption.
- A gradual transition to a low-carbon economy is required in order to limit reduction of economic output to 1 per cent, rather than 4.3 per cent. This transition would occur over four decades, reducing greenhouse gas emissions in the U.S. by 80 per cent.
- The gradual phase-in of climate change policies would have an indistinguishable effect on economic growth. The Intergovernmental Panel on Climate Change assumed mid-range costs of climate policies. Given these figures, an economy with annual growth of 3.00 per cent would instead grow at 2.95 per cent per year.
- A range of low-cost technologies capable of abating greenhouse gas emissions are available or projected to become available. These technologies, sufficient to reduce U.S. emissions in 2030 by up to 46 per cent at a maximum cost of US$50 per tonne of carbon dioxide, would have little impact on overall economic activity.
- Shifts in technology, economic structure, and products that consumers demand would significantly reduce carbon dioxide emissions. High-carbon goods are currently in high demand due to the low economic cost of fossil fuels, which do not reflect the damage that climate change will incur in the future.
- In the long-term, climate change stabilisation will benefit the economy. If greenhouse gas emissions continue at the current rate, the economic damages are estimated at a permanent 5-20 per cent reduction in consumption and income. Stern concludes that the benefits of global climate stabilisation will exceed the costs by a factor of five to twenty.
- Economic growth increases life satisfaction of members in low-income societies when the goods and services being produced are used to satisfy basic needs. In affluent societies, however, production and consumption have almost no effect on the average wellbeing of individuals, and actually generate negative costs in terms of social and environmental factors.
- If social resources were reallocated to leisure, community life, and environmental quality, the wellbeing of society would improve. A graduated consumption tax could serve as an incentive to signal the social cost of private decisions. This is likely to enhance human wellbeing in societies where material goods are abundant and social and environmental quality is low.
- If individuals continue to prioritise consumption over leisure and the environment, and climate change goes unmitigated, greenhouse gas emissions are forecast to double over the twenty-first century. This model is based on relatively modest climate damages.
RELATED QUOTES
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“an overemphasis on growth, markets and our identities as consumers has crowded out our human roles as citizens, community members, caretakers, and friends.”
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