Can European economic growth be green?

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1. Learn the ropes

What is green growth?
Nowadays, what we call “economic growth” refers to the GDP (gross domestic product) growth rate. The OECD (Organization for Economic Co-operation and Development) describes it as the standard measure of the value added created through the production of goods and services in a country during a certain period. According to some economists, we cannot escape capitalism, which economic growth is a part of. This means that we must adapt our current economic system to climate change: green growth would be the solution. The OECD explains that “Green Growth means fostering economic growth and development, while ensuring that natural assets continue to provide the resources and environmental services on which our well-being relies”. Those in favor of green growth believe that it takes into account planetary boundaries, and that it could foster innovation and new employment opportunities. Western leaders, such as Emmanuel Macron or Joe Biden, argue that green growth would be the future of our developed economies. The European Commission has also adopted several measures to support a transition towards a greener and more circular economy.
What’s the European strategy to fight climate change?
In the past few years, the European Union (EU) has adopted several measures to fight global warming. The Green Deal is at the heart of this strategy. It will transform the EU into a modern, resource-efficient and competitive economy, ensuring no net emissions of greenhouse gases by 2050 and economic growth decoupled from resource use. Many other funds, such as the European Regional Development Fund (ERDF) or the recovery plan NextGenerationEU, implement new rules to achieve the Green Deal goals. This means that European countries will benefit from massive investments. For instance, between 2021 and 2027, the ERDF will enable investments to make Europe and its regions greener, low-carbon and resilient. Thanks to REACT-EU (Recovery Assistance for Cohesion and the Territories of Europe), funds will be allocated to European regions until the end of 2023 to support investment projects that foster crisis-repair capacities and contribute to a green, digital and resilient recovery of the economy. The European investment strategy to protect the environment thus relies on green growth.
Will the European strategy be successful?
According to some economists, green growth would be a myth. Even though European investments contribute to developing new sustainable technologies, some believe that this will not be enough to tackle the climate crisis. In a capitalist economy, growth is infinite. Natural resources, on the other hand, only exist in limited quantities. Moreover, the GDP growth rate does not take into account inequalities and negative externalities generated by the creation of wealth. In addition, out of nine planetary boundaries, six have already been overshoot. Many companies use green growth as a pretext to sell more “green” products that are not actually sustainable. As such, if European investments policies can lead to the reallocation of resources towards carbon-neutral activities, many organizations are also accused of greenwashing. Can European economic growth actually be green? Let’s debate!

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Can European economic growth be green?


We need a more sustainable economy

Jordan Hairabedian

Decarbonization Consultant and European climate policies at EcoAct (Atos group)


Today, economic growth does not worry about the environment

Economic growth, in the EU and elsewhere, is the increase in the production of goods and services from one period to the next. It is measured through one indicator: GDP (gross domestic product), which does not include any environmental parameters. This represents a major issue. As described by Stockholm Resilience Center, the concept of economic development only make sense within a society that is itself flourishing in a healthy environment. Without stable ecosystems, there can be no human society. And without a society, no economic system is possible. 

The European Union, a laboratory of innovations to achieve a green transition

The European Green Deal has the merit of starting legislative work, helping our countries evolve towards an economy that would benefit the environment and our societies. We can focus on two examples. First, the EU taxonomy for sustainable activities is a classification system, establishing a list of environmentally sustainable economic activities. It uses criteria such as climate, water, biodiversity, air, circular economy and social impact. Since January 2022, over 11,000 companies and financial institutions have been using this reporting. This common framework, although imperfect, represents significant progress that has already inspired many other countries.

Second, the new Corporate Sustainability Reporting Directive (CSRD) will come into effect in 2024 and will progressively impact over 50,000 stakeholders. It introduces more detailed reporting requirements while capturing additional companies that will be required to report on sustainability issues such as environmental rights, social rights, human rights and governance factors. For instance, companies would need to communicate actions they will take to reduce their Greenhouse Gas emissions in order to reach the goals of the Paris Agreement, their strategies to adapt to climate change, and their actions to protect biodiversity based on the post-2020 Global Biodiversity Framework. 

Rethinking the foundations of growth and of our economic system

The multi-criteria European approach of green transition is a positive signal, but it is necessary to go even further to face climate change, biodiversity loss, and water, air, and soil pollution. The current growth, based on the consumption of fossil fuels (coal, natural gas and oil) is doomed in a world where climate change is getting worse, and where energy is getting more and more difficult to extract. Our economy has to change its priorities to go back to its etymology : in Greek, oikos/nomos means “household management”. We should not only focus on capital growth, but also on regenerating damaged ecosystems, on moving from a linear production model to a local, low-carbon circular economy, and on well-being and social justice. In that regard, the Ellen MacArthur Foundation’s vision is interesting.

As such, rethinking the performance indicators of our economy is essential. The European Union has set a new course within the framework of the 8th Environment Action Programme. The actions are still to be carried out.


The myth of Green Growth

Manuel Mengoni

Economic sustainability specialist


Can green growth be ecologically responsible? Words are important here. Growth is understood as the increase of economic flows, GDP, production and consumption. “Green” or “sustainable” as a state that does not harm the environment. In other words, that remains below the limits where life is possible.

Six planetary boundaries are already in overshoot

The limits of these planetary boundaries (the stability of environmental systems) on which we depend on are known and assessed (Steffen et al. 2015). Six of them are already overshot (and not only the climate change one). In order to consider a system that would be sustainable, we thus need to come back below these boundaries, and not only to reduce our impacts. Therefore, we need to develop activities, production and consumption systems that would “regenerate” natural systems.

The EU is promising us economic growth based on low-carbon energies, reduction of CO2 emissions, more recycling, sustainable agriculture, and “economic growth decoupled from resource use”.

A more intense economic activity requires more energy consumption

Energy consumption is related to changes in the state of a system: a more intense economic activity requires more energy consumption to transform more raw materials. Recycling and a “circular economy”, presented as miraculous solutions for our overconsumption of resources, can only lead to incomplete substitutions, especially in regard to the “dispersive uses” of matter and its entropy in the economic system (metals are used in alloys, often in very small amounts, they disperse while being used, etc). But also because of very low yields in the recycling industry, linked to short-term economic profits as well. 

Generally speaking, the concept of “decoupling”, meaning the capacity of decoupling economic growth from environmental impacts, is a myth. If partial, local and relative decoupling might have been observed (Tim Jackson, 2009), our growing needs and activities have always been correlated with an increase in impact, although this increase in impact can sometimes be less intense than the acceleration of these activities. In short, we could pollute less for each unit of wealth created, but if we persist in always getting wealthier, we will continue to increase our impact.

It really is time for economics to take a real interest in its consequences on the environment

As it is fashionable to do so, we have to use an argumentation “in order of magnitude”: even a weak GDP growth rate, say 2%, involves doubling the economic activity in the next 35 years. This means the consumption of twice as much energy, metals and resources between 2025 and 2060 than we have used between 1990 and 2025 (that being tempered by the increase in value, not just volume, of the economy, i.e. the monetary inflation rate). Since resources are only available in limited amounts, this vision isn’t realistic, unless we achieve a technological leap. In other words, the advent of a new technological era. The bet is therefore hazardous and risky. 

It really is time for economics to take a real interest in its consequences on the environment, and in the resources that enable the creation of wealth. We must indeed face a real “economic transition”.

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