Monday, 15 September 2008

Sustainable Economic Theory

For those of you interested in the long term economic implications of reducing our use of fossil fuels, there's an interesting paper from the Global Development and Environment Institute.

The problem is whether economic growth can continue without also increasing the use of fossil fuels. As the paper puts it "While it is theoretically possible to conceive of economic growth being “de-linked” from fossil fuel consumption, any such de-linking would represent a drastic change from economic patterns of the last 150 years".

It's an interesting paper - you can read the whole thing here - but to quote the abstract:

"To achieve a low-carbon path requires population stabilisation, limited consumption and major investments in environmental protection and social priorities such as public health, nutrition, and education. Macroeconomic theory must be adapted to reflect these new realities."

The paper proposes a reclassification of macroeconomic variables to distinguish between those categories of goods and services that can expand over time, and those that must be limited to reduce carbon emissions. "This reformulation makes it clear that there are many possibilities for environmentally beneficial economic expansion. New forms of Keynesian policy oriented towards ecological sustainability, provision of basic social needs such as education and health care, and distributional equity can provide a basis for a rapid reduction in carbon emissions while promoting investment in human and natural capital."

It brings home the point that sustainability, at least in some views (which I agree with), will not just mean a modification of industry practices but a complete re-think of economies and growth.

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