New research from experts at Wharton and elsewhere refutes conventional wisdom among policymakers that economic growth is the inevitable victim of reduced greenhouse gas emissions. Economic growth can be achieved with emission reductions if policymakers incorporate “mediation mechanisms,” they argued in a document based on their findings.

Entitled “The decarbonization of the energy system and productivity gains reduced the coupling between CO2 emissions and economic growth in 73 countries between 1970 and 2016”, The document identified five mediation mechanisms as influential:

1. increased economic productivity
2. decarbonization of the energy system
3. electrification
4. winter warming
5. de-industrialization.

The authors of the article are Ranran Wang, assistant professor at Leiden University in the Netherlands; Valentina A. Assenova, professor of management at Wharton; and Edgar G. Hertwich, professor of energy and process engineering at the Norwegian University of Science and Technology.

“Our article clearly shows that emissions can be reduced consistently over time and successfully,” Hertwich said. “It also establishes that there is a trade-off between economic growth and greenhouse gas emissions. The faster the economy grows, the more aggressively you have to switch to decarbonizing the energy system. “

The article states that the higher the carbon intensity and the lower the productivity of an economy, the more emissions increase. The policy implications of this finding are that it is “essential that decarbonization and productivity improvements occur first,” the authors noted.

“The faster the economy grows, the more aggressively you have to shift to decarbonizing the energy system.” –Edgar G. Hertwich

The article presents evidence to support these claims. “Our results indicate that countries like Germany, Denmark, Finland, New Zealand and Uruguay have succeeded in achieving decoupling, that is, in reducing CO2 emissions during periods of economic growth, mainly through the decarbonization of the energy system, ”the authors said.

Main conclusions

The main results of the study highlight the role of mediating mechanisms in reducing carbon emissions:

• Before taking into account the mediation mechanisms, a 1% increase in GDP per capita was associated with a 1% increase in CO2 emissions per capita on average.
• Mediation mechanisms have reduced emissions by 22 petagrams, mainly during periods of economic growth. Decarbonization of the energy system and productivity growth have been the main mechanisms for reducing carbon at upper and lower levels of development, respectively.
• A 1% increase in a country’s overall economic productivity was associated with an annual reduction of about 0.5% in its CO2 emissions per capita.
• Deindustrialization, such as the shift to services, reduced CO2 emissions by around 0.8%, as the share of non-industrial production in GDP increased by 1%.
• Over 80% of the emission reduction effect of deindustrialization was attributable to reduced use of primary energy. A 1% annual increase in the share of renewables used in energy supply was associated with a 1.5% annual decrease in CO2 emissions per capita on average.
• Switching to renewables is about 1.5 times more efficient than switching from coal to gas in reducing CO2 emissions.
• Annual per capita CO2 emissions decreased 0.6% for every 1% increase in the share of natural gas substituted for coal.
• Much of the decarbonization effect of switching fuel was due to reduced carbon intensity, and the rest was due to improved energy efficiency. Concretely, for each 1% increase in the share of natural gas substituted for coal, the direct reduction in CO2 emissions was 0.4%.
• Each 1% increase in the share of electricity in final energy supply was associated with a 1.3% decrease in annual CO2 emissions per capita.
• Winter warming has also reduced national CO2 emissions per capita. A 1 ° C increase in the mean temperature of the coldest month was associated with a 0.5% annual reduction in carbon emissions.

Hertwich said this study is an advancement over existing research on climate change outcomes in that it incorporates changes in the energy mix in different countries, driven by changes in policy or other market forces instead. than to consider “economic growth as a single explanatory factor” for CO2 emissions. . The study also analyzed “the largest data set” covering 73 economies between 1970 and 2016 to empirically assess the relationship between carbon emissions and economic growth, and mediation mechanisms, he added.

“People often assume that if you clean up your energy system faster, you run the risk of slower economic growth. In our analysis, we did not find this, ”Wang said. The study found that a transition to a cleaner energy system, for example through electrification or increasing the share of renewables in energy supply, allowed economies to grow without causing an increase. carbon emissions.

“People often assume that if you clean up your energy system faster, you run the risk of slower economic growth. In our analysis, we did not find this. –Ranran Wang

Window for emerging economies

Significantly, the results offer a decarbonization pathway for developing countries like China and India. Policymakers in these countries have long argued that it is unfair to expect them to accelerate the shift from coal and other carbon-emitting energy sources to cleaner energy as developed countries have moved forward. had the early advantage of industrializing their economies through carbon-intensive energy policies. The alternative path for developing countries includes increased electrification and use of renewable energy, increased productivity and a transition to a service-based economy.

“The challenge for developing and emerging economies is that they enter industrialization and development at a critical time in history when climate change and carbon emissions present difficult challenges for sustainable development,” he said. declared Assenova. “On the one hand, we want to improve human well-being in emerging economies by continuing to accelerate the pace of economic growth. These economies need to build infrastructure such as roads and schools, and carbon emissions accompany development. At the same time, these economies also need to think about how they could overtake what developed economies have done and get around some of the policies that have contributed to the catastrophic effects of climate change. “

Research has shown that developing countries have benefited from increased productivity, electrification and decarbonization of the energy system. But their growing emissions are rooted in how their energy mixes have developed historically, the document notes. “A dramatic upgrade of their energy system is still needed to mitigate climate change and meet global temperature targets,” the authors added.

Policy mismatches

For the United States, policy coherence is essential to effectively address climate change. The Biden administration has brought “renewed attention to the need to tackle climate change issues,” but at the same time, it is embarking on “a major overhaul of infrastructure that could be counterproductive to efforts to combat it. against climate change, ”Assenova said.

“The challenge for developing and emerging economies is that they enter industrialization and development at a critical time in history when climate change and carbon emissions present difficult challenges for sustainable development.” –Valentina Assenova

A trillion dollars infrastructure investment bill which was recently passed by the Senate aims to rebuild deteriorating roads and bridges, but also funds new climate resilience programs. Yet he has been criticized for his relatively low allowance for electrification and electric vehicles. Another source of concern relates to emissions resulting from proposed infrastructure investments. “As politicians tout ‘green recovery’ and ‘build back better’, a recent count Energy-focused spending in stimulus packages indicates higher subsidies for fossil fuels than for clean energy, ”the authors said.

“The [U.S. economic] the recovery is driven by growth in manufacturing and construction, while service industries are still suffering, ”the authors said. “A stimulus for construction and manufacturing cannot help the required transition unless spending is explicitly directed towards mitigation measures such as building renovations and necessary transmission network upgrades.” to absorb higher shares of renewable energy. “

Below targets

The authors presented several key takeaways for policymakers in the context of disappointing progress in reducing greenhouse gas emissions after the 2015 Paris Agreement, where 192 countries agreed to halt the increase in gas emissions. global temperature well below 2 degrees, preferably 1.5 degrees. Achieving a 1.5 ° C warming target requires reducing global GHG emissions by more than 7% per year on average from 2020, the newspaper said.

“[But] current climate commitments, even if fully realized, are far from sufficient to meet the Paris Agreement target, ”the authors said. “Worse, countries have not been on track to meet their past commitments, and global GHG emissions continued to increase in 2019 and only declined by 6.4% in 2020 due to the pandemic. of COVID-19. The authors added that based on observed trends, “even the best performing countries are unlikely to achieve the decoupling required to meet the Paris target.”