Economic Growth and Ecological Transition: Inseparable?

The transition to ecosystems consists of implementing a series of measures that can provide lasting solutions on a global scale to the major environmental problems that threaten the planet. This includes key actions along three main axes: energy conversion, industrial conversion and agricultural food conversion.

Posted at 10am

Pierre Cliché

Pierre Cliché
Former Associate Secretary of the Finance Commission and Associate Professor of the National Faculty of Public Administration

The first axis includes replacing fossil energy with renewable energy, improving energy efficiency, and reducing collective and individual energy consumption. The second axis aims to reduce carbon dioxide emissions in industrial production through a detailed review of the life cycle (design, manufacturing, marketing, use, reuse, recycling) of the products produced. The third axis is about providing access to quality food for all while mitigating the negative effects of current agricultural production methods in terms of greenhouse effects, deforestation, soil and water pollution. ..

A noble and vast program that we all want to implement, but not measuring all its impact. This is especially true of the economic costs of this transition.

Cost of transition to eco-society

It’s expensive and very expensive. Various ratings show this. Therefore, researchers at Princeton University estimate that the United States will need to invest 11% of GDP by 2030 to reach its net zero emissions target by 2050. The European Commission predicts that it will further increase 25% of GDP over the next decade. Meanwhile, the European Auditor’s Court predicts that, as part of this, a budget of € 11.2 trillion will be needed between 2021 and 2030 for the transition of the European ecosystem. The impact depends on the economic weight of each country, but in the case of France, for example, the total involved is estimated to be 6% of France’s GDP. There is no same type of rating that can confirm the status of Quebec. However, the cost can be expected to be very high.

Financing for ecological transition

Then there is the problem. How to fund this transition. You can rely on debt, raise taxes, and reduce spending, but none of these measures are sufficient and you probably need to use all three at the same time, expecting relatively strong economic growth.

Bond finance

Debt lending today is very cheap, as interest rates have fallen due to pandemic financial management and global over-savings. However, the situation is temporary, and with the help of inflation, the central bank has reviewed its intervention and announced a gradual increase in base interest rates. Borrowing to fund ecosystem migration is not as easy as it used to be, as the government has so much debt to deal with the health crisis.

To buy public debt securities, investors need to be confident in their ability to repay them, and what is valued is debt sustainability. Countries with low debt and good economies can raise money in the financial markets, albeit at higher interest rates than previous borrowings. Heavy-duty countries with sluggish economies need to accept paying more, seeing shortages and, in some cases, outages. Debt paths to fund ecosystem migration carry significant risks and are not accessible to everyone.

Financing by reducing spending

Certainly, the structure of government spending needs to be reviewed in order to prioritize those that facilitate ecosystem migration. This includes the transition from current spending savings programs to more environmentally friendly programs. But what costs do you need to reduce?

The aging of the population will lead to significant increases in pensions and health care costs, which will continue to dominate a significant portion of the public budget. The same applies to education, workforce training and income support. Difficult choices must be made and the support of the population is needed, especially if one wants to free up significant amounts of money to fund the necessary research and public investment to support ecosystem migration. Reviewing public spending seems inevitable, but you shouldn’t expect miracles.

Financing by taxation

State revenues result from taxes on household and business income. The level of tax pressure that has already been reached determines the space available to fund at least part of the ecological transition. Most governments try not to overburden the middle class and the poor and consider how the upper class can contribute without damaging the economy. Many studies have shown that expected returns are not always achieved. Making some of the costs associated with migration rich is not enough to meet the immense needs of ecological migration.

Another approach is to introduce the cost of carbon into the price of goods and services consumed by carbon taxes or the purchase of pollution rights (carbon exchange). Both involve raising the production costs of GHG producers. By raising the selling price, the supply and demand of products that emit a large amount of carbon will gradually decrease, and companies will have an incentive to invest in energy saving and clean energy. These two financial tools are really effective only when they reach a much higher level than they are today, but doing so not only impacts economic activity, at least temporarily, but also among citizens. There is a risk of creating a lot of dissatisfaction. It is socially unjust.

Financing through growth

Ecosystem transitions cannot truly take root without the turbulence that affects the lives of the population. For governments that want to avoid being perceived as disciplinary about environmental issues, the key is to maintain a good standard of living for their citizens. Social acceptance is at this price.

If economic activity declines, you will not be able to change borrowings, new taxes or spending. It would be too much to raise money to stagnate income. Unless we maintain strong enough growth to support new borrowings, new taxes and new spending, ecosystem migration will not occur as quickly as necessary and can even be questioned.

Ecological transition without economic growth: disappointment on the horizon

More and more environmental groups and political parties support them, claiming that in order to save the planet, we must not only deplete wealth, but also break down the current modes of production and consumption that lead to the destruction of the world. To Based on a number of reports (including IPCC reports) showing that maintaining past and present trends contributes to exacerbating global problems, they have a rapid slowdown in economic growth, or even its cessation or even negative growth. Is also recommended.

Explain what zero or negative growth means in the lives of citizens, or at least if it fails to delay implementation, that an ecological transition without economic growth is destined. Rarely.