By Dennis John, August 2020
For many economies, economic growth is the one, sole and independent determinant of a country’s economic health. However, there has been increasing predominance and prevalence of the term “sustainable” when referring to it. In the twenty-first century, one of the main questions is how to achieve the expansion in our economy, without inhibiting the productive potential of the generations to come. Conventional economic theory clearly identifies the policies of increasing economic growth and increasing environmental growth as two of the clearest examples of macroeconomic policy conflicts. There is the commonly held belief around the world, that the means for a country to attain the upper echelons of economic success can only happen through the ignorance of the environment. This is due to the belief that a country does not have the capability to expand its economy thoroughly without the use of non-renewable, environmentally deteriorating fuels. In our current circumstances, economic growth is most easily accomplished using greenhouse gas emitting fossil fuels. But despite all the ambitions of the UK government to arrive at net-zero carbon emissions, this trend is likely to continue for an even longer time. The UK is significantly off track for its net-zero target and has been made to struggle even more due to the coronavirus pandemic.
However, the main reason to believe that a fall in greenhouse gas emissions may not increase economic growth is the Environmental Kuznets Curve (EKC). The EKC is a curve studying the relationship between economic growth and the level of environmental degradation in an economy. According to the curve, Simon Kuznets hypothesised that as an economy develops, environmental degradation increases until it reaches a peak, at which point environmental degradation decreases in conjunction with a rise in economic growth. This sort of trend could be explained in the future, when investment into renewable fuels should be far greater than it is today, and the reliability and quality of renewable fuels is better.
There are a few reasons to why the EKC should provide the UK economy with a cause for optimism as it tries to decrease greenhouse gas emissions. According to a government paper, from 1990-2015 the UK economy grew by 67%, while greenhouse gas emissions fell by 42%, suggesting the UK is already on the secondary section of the EKC. Before the coronavirus pandemic, the UK had more than 396,000 people in the low-carbon economy, and was worth £44.5 bn in 2017, a figure which was up 7% on the previous year. Furthermore, it is great to see that the government implemented the Clean Growth Strategy in 2017, which has resulted in estimates of the low-carbon economy in the UK increasing by 11%. This should aim to make sustainable economic growth cheaper to attain.
Air pollution is estimated to cost the UK economy £22.6 bn every year, due to it causing more than six million sick days and tens of thousands of sick days every year. A low-carbon economy, henceforth, would decrease air pollution through falling greenhouse gas emissions, but at the same time, increase economic growth due to the increased health and wellbeing of UK residents. In addition, the effect of wellbeing cannot be understated in regards with productivity levels, as higher wellbeing results in higher worker morale, which in turn, results in higher productivity.
Despite this, in the current state of the world economy, environmental degradation and economic growth still have a strong positive correlation. In fact, due to the onset of the coronavirus pandemic, and the resultant global economic recession mirroring the significance of that caused by the Great Frost of 1709, we will fall further behind in the fight to start creating sustainable economic growth. As a result, targets to bring greenhouse gas emissions down will act as a significant hindrance towards achieving economic growth.
Firstly, as after any recession, animal spirits and consumer confidence are incredibly low in the economy. Henceforth, the UK government will immediately act to use economic stimuli to boost economic growth in the economy. These are often short-term solutions, particularly the case after this recession, which has estimates of a fall of 10-15% in economic growth in the UK economy in the second quarter of 2020. Due to the state of the UK economy, the easiest and most efficient option of achieving that economic growth is through the use of non-renewable resources. Furthermore, the money that would usually be used to subsidise the development of the technology used in renewable energy production. As a result, there will be a slower rate of production of renewable resources and henceforth, as they are less readily available, will remain more expensive than their non-renewable counterparts. This means that they will, in the end, be far less attractive for firms, and as a result, firms will be less incentivised to spend money on the renewable options. The Environmental Kuznets Curve theory will hold in this case, however we will still be on the first section (where environmental degradation is proportional to the level of income), and we will be here for a further prolonged time.
Secondly, if we are to look at the Environmental Kuznets Curve, we need to base our analysis after studying the history of the UK’s economy, as well as looking at the sector diversity of the UK and its balance of payments trade deficit in tandem. Since privatisation in the UK, in particular the North-East of England, in the 1980s, the UK achieved significant increases in the average per capita income. In fact, in 1986, 1987 and 1988 the UK achieved persistent rates of more than 20% year-on-year growth in per capita income. Furthermore, there have been significant drops in the greenhouse gas emissions (GHGs) since this point, indicated by the 35% fall in UK greenhouse gas emissions since 1990, a trend which started after the decline of the UK coal industry in the mid-1980s.
This suggests that there is a strong negative correlation between income per capita and environmental degradation. However, this is certainly not the case. Energy production is a very significant factor in causing greenhouse gas emissions. Net import dependency is a metric which is used to measure the proportion of the UK’s energy supply that comes from imports. It is calculated by dividing net energy imports by the total amount of energy used. The UK has been a net energy importer since 2004, and this has coincided with increases in income per capita every year up until 2008, where incomes per capita dropped due to the recession. In truth, there has been no net pollution reduction globally despite the increases in income per capita seen in the UK, and most other countries across the world. Rather, wealthy nations have the habit of exporting their most pollution-inducing activities, like coal mining in the UK, out to developing nations, where the opportunity cost of attaining economic growth is far greater than the relevance they give to environmental sustainability. As a result, the UK have become significantly dependent on energy imports, meaning that the UK economy’s carbon footprint is significantly larger than it seems. This means that if there is a breakdown in trade relations between the UK and its partners, it is very possible that other, less readily available options of energy production are required for the UK. This could possibly result in a resurgence of the use of fossil fuels, which would mean that there would be far less investment into renewable resource producing technologies. This would mean that there would be a fall in the economic sustainability of renewable resources, meaning it will be harder to bring down GHGs. Firms, who at this point have become accustomed to using greenhouse gas emitting resources again, will be less willing and able to use renewable resources without forgoing significant levels of profit, due to the great comparative inequality of the reliability of renewable energy and its non-renewable counterparts. Again, government legislation (or subsidisation) for firms to use more eco-friendly alternatives would just be an inhibitor to achieving economic growth. At the same time, a report conducted by the Committee for Climate Change in 2019, pointed out very little had been done to combat the levels of greenhouse gas emissions as a result of household emissions. This accounts for nearly three-quarters of global greenhouse gas emissions, yet the UK government have not really tried enough to decrease emissions through everyday consumption of products.
To conclude, it is clear to see that despite the EKC acting as a form of respite, it will most certainly be a major struggle to see the UK decreasing GHGs without there being a significant impact on economic growth. As of now, technology is just not developed enough to compete with non-renewable sources of energy. In the future, it is very likely that we will be able to have completely sustainable eco-friendly economic growth. When we reach that point, however, is a question that is almost unpredictable, due to the volatility of the business cycle.
References (using Harvard citations):
1. Energy & Climate Intelligence Unit. 2020. Net Zero: Economy And Jobs. [online] Available at: <https://eciu.net/analysis/briefings/net-zero/net-zero-economy-and-jobs>
2. 2020. UK Economic Update - COVID-19. [ebook] PWC, p.21. Available at: https://www.pwc.co.uk/premium/covid-19/uk-economic-update-covid-19.pdf
3. Macrotrends.net. 2020. U.K. GDP Per Capita 1960-2020. [online] Available at: <https://www.macrotrends.net/countries/GBR/united-kingdom/gdp-per-capita>
4. Ons.gov.uk. 2016. UK Perspectives 2016: Energy And Emissions In The UK - Office For National Statistics. [online] Available at: <https://www.ons.gov.uk/economy/environmentalaccounts/articles/ukperspectives2016energyandemissionsintheuk/2016-05-26>
5. Ft.com. 2019. UK Set To Miss Goal To Cut Carbon Emissions To ‘Net Zero’ By 2050. [online] Available at: <https://www.ft.com/content/6fb7fce0-ec37-11e9-a240-3b065ef5fc55>
Comments