Your Money or Your Life

“Your current economic system or the ability to survive the collapse,” wasn’t as catchy.

What does an 80s pop singer have to do with degrowth?

For better or worse (mostly worse) Gross Domestic Product (GDP) is the measure that governments use to tell themselves and us whether or not we are successful. High GDP growth is good. Low GDP growth is bad.

If you are interested in GDP growth as a measure, you might want to read the report that just came out from The Potsdam Institute for Climate Impact Research. The report shows that we have already locked in $38 trillion of damage from climate change PER YEAR by mid-century, which will equate to an average income reduction of about 19% for the average person on Earth. The study assumes a rapid reduction in GHG emissions – something that isn’t happening.

To put this in perspective, at the end of 2022, global GDP was $104 trillion. If we assume GDP growth of about 2% annually (modest growth) we can expect a global economy of about $180 trillion per year by mid-century. If $38 trillion of damage per year comes from climate change, that would mean that by mid-century, about 21% of economic production will be wiped out each year by climate change. Although the average income reduction by 2049 will be around 19%, the graphic below from the report shows that this economic damage will be concentrated most in the Global South – those least responsible for historical GHG emissions.

Don’t get smug Canada and the Nordics, things won’t be as bad for you. They will be for all your neighbors, who you might be seeing more of than you want to by 2049.

Projected income changes in 2049 compared to an economy without climate change. Income changes are committed in the sense that they are caused by historical emissions. (Image: Kotz et al., Nature)

The authors of the study note that these near-term damages we will see are the result of past emissions. If we don’t cut our emissions drastically shortly, economic losses could balloon to 60% of the economy by the end of the century.  

 

Degrowth is the answer … to saving your economy, and yourself.

Degrowth is not the same thing as negative economic growth. Negative economic growth is a reduction in GDP, while degrowth, is a path away from an economy based on growth. Adopting degrowth principles can lead to negative economic growth or a reduction in GDP, but they aren't the same thing.

I say that because I wanted to explore a little bit about what negative economic growth or a reduction in GDP could mean for an economy, and our ability to survive.

Of course, a reduction in global GDP which is sustained over time will result in a shrinking of the global economy which will have profound implications for jobs and society. Those are thorny problems some of which I've talked about already some of which I'll talk about in the future.

For this discussion, I want to do the math and see where a reduction in GDP gets us as far as reducing greenhouse gas emissions.

To frame this discussion, I point you to the great book by Peter Victor that came out recently (2023) titled Escape From Overshoot. Peter is Professor Emeritus at York University in Canada. Peter was the founding president of the Canadian Society of Ecological Economics, and he's a past president of the Royal Canadian Institute of Science. He's worked for decades on the overlap between economic and environmental issues, and I've been lucky to talk to him a couple of times in person and through emails to help me understand the concept of overshoot. He’s much better qualified than me to speak on the topic of overshoot, so I’m leaning on him here.

On page 163 of Escape from Overshoot there is a table that shows the rate of reduction in emissions intensity needed to hit current net-zero targets. I have reproduced part of the table below.

The table shows the reduction in emissions intensity needed annually to meet a net zero emissions target in 2050, from a base year of 2022. The rate of reduction needed depends a great deal on the rate of economic growth.

The table shows that for every 1% reduction in the rate of economic growth, there is about a 0.9% reduction in the rate of reduction in emissions intensity needed. The 2.0% growth rate we assumed above needed a 9.7% rate of reduction in emissions intensity each year from 2022 onward, to meet net zero by 2050 goals. Now that it is 2024, that rate is higher.

I asked Peter if this relation would hold if growth went into negative territory. If GDP contracted, what numbers that would give us? I’ve filled in the table with what he told me (this is not in his book).

If we were to target negative economic growth, by following a degrowth path and sunsetting industries that are harmful to our ecosystem (fossil fuels, private jet travel, etc.), we could lower the emissions reduction rate needed per year. If we had economic growth declining by just 1% a year until 2050, we would only need a 7.0% reduction in emissions intensity per year. If that decline in growth was 2.0%, the reduction in emissions intensity needed would be only 6.0%.

Following this logic, if the global economy contracted between 7.5% - 8.0% per year, then the rate of emissions reductions needed would be about zero. Now, I’m not advocating we target GDP reductions of 8.0% for the next thirty years. The example just shows how the math works.

However, if we did follow a degrowth path, with the target of modest global GDP reductions that slowly grow over time (a little less economic growth per year), we would substantially increase our chances of mitigating the worst effects of climate change.

We face a choice.

What this means is that we have a choice. We can degrow and target a slow and managed GDP decline that can result in a much more manageable future. Alternatively, we can continue our efforts to grow our global economy and sabotage our hopes of mitigating the worst of climate change.  

The Potsdam Institute Paper puts the choice before us very clearly. The math is simple.  It is cheaper to save ourselves than it is to destroy ourselves:

“These damages are six times larger than the mitigation costs needed to limit global warming to two degrees.”

The great poet, Adam Ant once said; “Stand and deliver, your money or your life.”

We have that choice before us now.

Which do you choose?