Growth in the New Climate Economy

MILAN – Action to reduce carbon-dioxide emissions and mitigate climate change has long been viewed as fundamentally opposed to economic growth. Indeed, the fragility of the global economic recovery is often cited as a justification to delay such action. But a recent report, “The New Climate Economy: Better Growth, Better Climate” released by the Global Commission on the Economy and Climate, refutes this reasoning. Far from being a detriment to economic growth, the report concludes that efforts to combat climate change could boost growth considerably – and relatively soon.

Anyone who has studied economic performance since the onset of the financial crisis in 2008, understands that damage to balance sheets – such as excess debt and unfunded non-debt liabilities – can cause growth slowdowns, sudden stops, or even reversals. And those familiar with growth in developing countries know that underinvestment in human capital, infrastructure, and the economy’s knowledge and technology base eventually produces balance sheets that cannot support continued growth.

Climate change is not very different from these unsustainable or defective growth patterns. It, too, is essentially a balance-sheet problem, based on the stock of CO2 in the atmosphere

On its current trajectory, the world has only 3-4 decades (or less) before atmospheric CO2 reaches levels that disrupt climate patterns, with catastrophic consequences for the environment and, in turn, economic and social systems. Allowing the world’s “natural capital” – the resources and ecosystems that underpin these systems – to be depleted is essentially another form of destructive underinvestment.