Growth and the Environment, A Response

In his April 30th article, “Two Environmental Lessons from the Heritage Foundation’s 2016 Index of Economic Freedom,”  Sam Mulopulos uses the Heritage Foundation’s Index of Economic Freedom as a jumping off point for laying out an argument that economic growth and free trade ultimately benefit the environment. There is some merit to this idea in particular circumstances, but also significant flaws to it in others. Economic growth is compatible with tackling both global climate change and local environmental degradation, but only if it is managed in an inclusive, intentional way.

Image courtesy of Huw Williams (Huwmanbeing), © 2008

Image courtesy of Huw Williams (Huwmanbeing), © 2008

Mulopulos’s first argument is that property rights benefit the environment. He bases this on the correlation between poor property rights outside of the OECD countries and what he sees as relatively high environmental degradation in those countries, specifically highlighting Africa and China.

This connection is an indirect one. Property rights go hand-in-hand with economic growth, which in turn enables greater environmental protection in the long-run. It is the growth specifically that he credits with helping the environment, through the phenomenon of the Environmental Kuznet’s Curve.Curve

The idea behind the curve is that countries with low per capita income have a small impact on the environment. As they develop and industrialize, their impact increases, until they hit a turning point where due to both available financial resources and pressing health concerns they invest in reducing their per capita environmental degradation. The problem here is that “degradation” is very loosely defined.

When focusing on specific toxic pollutants and local degradation, there is evidence to support the Curve. Since the 1980’s, the US, despite being the wealthiest large country in the world on a per capita basis, has been managing to reduce it emissions in terms of six key pollutants tracked by the EPA despite continued economic growth. Satellite observations performed by NASA show that the northeastern US, northern Europe, and even affluent cities in China such as Beijing have been able to reduce emissions of nitrogen dioxide between 2005 and 2014.

It is when looking at the most important emission, CO2, that evidence for the curve is much more tenuous, and Mulopulos fails to address climate change at all. Looking at emissions (data from the World Resources Institute Climate Data Explorer) from the major emitters including the US, Canada, Japan, Australia, and the great majority of European countries (categorized as the UNFCCC Annex I countries) shows that the turning point for developed country’s per capita emissions may have come in the 1970’s. Taken as a group, emissions peaked at 12.8 tonnes per capita in 1979, fell slightly during the 80’s to settle between 11 and 11.5 tonnes per capita during the 90’s and early 2000’s, and then fell again during the recession of 2008-2009 and have since stayed around 10.5 tonnes per capita.

This is modest progress, far too modest to affect climate change in any meaningful way. During the same period from 1979-2012, non-Annex I country’s emissions have risen from 1.34 tonnes per capita to 3.32 tonnes per capita. Modest per-capita reductions also mean little when world population has risen from 4.38 billion to 7.02 billion people and total emissions have risen from a little over 18 billion tonnes to over 32 billion tonnes with no signs of abating.

In order to stay under the 2 degree target, we need to not only slow or even level off carbon emissions at the global level. We need cut them drastically. Relying on all the countries gradually reaching the turning point of the Curve will leave the world with massive, unpredictable levels of climate change that would overwhelm any beneficial local impacts of the Curve.

Mulopulos’s second point is that free trade is beneficial to the environment. Again, the connection between environmental degradation and free trade is more complicated than Mulopulos makes them out to be. Yes, where institutions and regulations are strong and transparent, free trade can allow technological advances that make economies more efficient and sustainable can be implemented more quickly at a global scale. However, where institutions and regulations are weak, free trade can encourage unsustainable practices to continue as countries use lax environmental laws to compete for business investment.

Mulopulos acknowledges this, but it is important to emphasize that reaping the benefits of free trade without the perils does not happen in a vacuum of governance. One of the examples he provides of the benefits of free trade is the emergence of chlorofluorocarbon (CFC) substitutes at just the right time to enable the Montreal Protocol to stop the degradation of the ozone layer. That being said, the signing of the Montreal Protocol and the mounting evidence of the damage CFCs were causing the ozone layer helped to spur their development. Rather than this being a picture of the private-sector making responsible choices in a vacuum, the Montreal Protocol is a story of the private-sector, governments, and the scientific community succeeding in making the right changes for the environment through cooperation.

In both of these cases, the conclusions that Mulopulos comes to in his argument are correct but incomplete. Climate change is the critical issue omitted, less an elephant in the room and more a mammoth charging full speed into the side of the house. He also neglects to discuss how “free market,” pro-growth business environments can cause great environmental damage when they are not married with strong, transparent governance and regulations. Economic growth and the environment can be compatible with each other, but this requires good governance and international cooperation.

A policy option that could potentially exemplify sustainability through combining growth with government intervention is climate finance. The fundamental argument of the Environmental Kuznet’s Curve is that a developing country must choose between either growth of environmental sustainability while a developed country can chose both.

By providing subsidies for renewable energy and more efficient, sustainable infrastructure, developed countries can help developing countries achieve the same balance, short-cutting the curve. This policy could also make free trade more environmentally friendly by providing developing countries with the capital needed to implement innovative green technologies imported from abroad or support their own developing green industries. Climate finance has not yet tried on a large scale (the Green Climate Fund has only reached about 10% of its intended funding through 2020), but is worth considering as a way of maintaining global growth while cutting emissions.

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