The Carbon Border Adjustment Mechanism (CBAM)
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In this article we’ll explore what the CBAM is, why it’s been created, and what importers need to know ahead of its introduction.
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Economic Growth and Emission Curbs: Are They Compatible?
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Historically, a country's economic growth has been linked to its greenhouse gas emissions. The more prosperous a country becomes, generally, the more energy it consumes. Since energy has typically been derived from burning fossil fuels, this leads to increased greenhouse gas emissions. While this correlation persists in many parts of the world, we're witnessing a separation of economic growth and emissions in wealthier nations. The pressing question now is: can this decoupling also be realized in low and middle-income countries?
👉 In this article, we'll delve into the historical connection between economic growth and greenhouse gas emissions, examining if countries can indeed advance their economies while simultaneously curtailing their emissions.
The history of economic growth and emissions
The history of economic growth is also the history of how industry, healthcare, and technology as we know it came to fruition. You see, the world average GDP (gross domestic product) didn’t increase much until the Industrial Revolution. Worldwide, living standards were pretty low (except for a select few), access to education and healthcare was limited, and economies relied primarily on agriculture. This all changed with the start of the Industrial Revolution.
The Industrial Revolution heralded a shift from hand-based production methods to machines. It started in the United Kingdom in 1760 and quickly spread to other countries in continental Europe and the United States. The use of machines for production greatly increased output and improved efficiency. This resulted in lower prices, more goods, higher wages, and the migration of workers from rural areas into urban ones.
Economies shifted from an agrarian-based one to become reliant on large-scale industry and machine-based manufacturing. This allowed a new middle class to develop and grow - they owned and operated the new factories, mines, railroads, and other industries. And although there was still a significant working class with low living standards, the overall result has been to make people better off and to grow the economies of nations that benefited from the Industrial Revolution (primarily Western countries). This has led historians to label the Industrial Revolution as one of the most significant events in human history.
With higher wages and living standards, people had access to better housing, cheaper goods, and better food. Healthcare and education also became more widely available as a result of the industrial revolution. However, these advances came at a cost - manufacturing processes needed fuel to operate.
The Industrial Revolution was primarily fuelled by the mining and burning of coal - the dirtiest fossil fuel of them all. This is why the Industrial Revolution marked not only the start of significant economic growth but also a correlating rise in greenhouse gas emissions. Man-made greenhouse gas emissions can be traced back to this moment in time and have been on the rise ever since. Our reliance on fossil fuels is the primary reason that global temperatures are rising, and that we’re now facing such a grave threat from climate change.
👉 To learn more about the link between the Industrial Revolution and climate change, why not check out our article on the topic.
“ The history of economic growth is the history of how societies left widespread poverty behind. However, it’s also the history of how we became reliant on fossil fuels and how human activities started to alter our global climate for the worse. ”
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The correlation between economic growth and emissions
Economic growth is defined as the rate of change in real gross domestic product (GDP). Real GDP is defined as “a measure of the market value of all final goods and services produced in the economy for a given year, adjusted for inflation, and is used as an indicator of material living standards in a given country.”
As we’ve already discussed, economic development was ignited by the Industrial Revolution in the mid-18th century and has been tied to growing emissions. The simple fact is that growing economies require more energy which leads to higher CO2 emissions.
We’ve seen this trend replicated in many of today's emerging economies. For instance, emissions from Asia’s developing economies grew more than any other region in 2022, increasing by as much as 4.2% from 2021. And much like the Industrial Revolution that started to transform economies in the mid-1700s, a majority of Asia’s increase in emissions came from coal-powered generation.
Concern that economic development needs to be sacrificed to reduce emissions
The undeniable link between economic growth and emissions has led many to speculate that in order to meet vital CO2 reduction targets - such as those laid out by the Paris Agreement - we will need to sacrifice economic development.
Essentially this would mean that we reduce consumption, and therefore produce less, which in turn means less energy and fewer resources are consumed. However, this becomes controversial when considered in the context of developing nations. Many point out that it is hardly fair to ask developing nations to forgo economic growth when the West has already been able to benefit from the unabated consumption of fossil fuels. How can we ask those living in poorer nations to sacrifice improved living standards, better healthcare, and increased opportunities all for the sake of the greater good, while we already have all these benefits, and refuse to change our own lifestyles?
This raises the question - is it possible to benefit from economic growth without having to rely so heavily on fossil fuels? Essentially, can we decouple economic growth from greenhouse gas emissions?
Decoupling economic growth from emissions
The short answer is that yes, it does in fact seem possible to decouple economic growth from greenhouse gas emissions. While it’s true that emissions have historically been linked to the prosperity of a country, nowadays many nations are able to achieve economic growth while also reducing emissions.
What’s important to point out though is that this holds true mainly for higher income countries. The situation is a lot more complex when it comes to low and middle-income countries - but more on this later.
So which countries have been able to reduce emissions while also benefiting from the development of their economy? Well, the UK is one example. Data shows that while the UK’s GDP has increased significantly over the last 30 years, both consumption and production-based CO2 per capita have actually fallen over the same period.
And it’s not just the UK that is witnessing this trend, many countries across Europe are also benefiting from a decoupling of their economic growth and carbon emissions - France, Germany, Sweden, Denmark, Italy, etc. Even the US is starting to separate its economic growth from emissions - not within the last 30 years, but certainly within the last two decades.
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Why have these countries been able to decouple economic growth and emissions?
There are two key reasons why countries such as the UK and France have been able to benefit from both economic growth and decreasing carbon emissions. The first is that the GDP has increased while the energy use in these countries has remained stable over the last three decades. The second is that these countries are decreasing their reliance on fossil fuels and increasing their use of renewable energy sources.
But the same trends are not being seen in developing countries. This is for several reasons, let’s explore this in more detail below.
Why it’s harder for developing countries to decouple economic growth from emissions
Developing nations face a unique set of circumstances that make the process of decoupling economic growth from emissions particularly challenging. First and foremost, these countries often start from a baseline of needing rapid economic growth to alleviate poverty, improve living standards, and offer basic services such as education and healthcare to their populations. This immediate pressure means that developing countries often focus on industries that provide quick returns, even if they are carbon-intensive. For example, resource-driven sectors like manufacturing, mining, and agriculture remain dominant sources of income for many developing economies. As these nations tap into such sectors, primarily using dated technologies, they inadvertently lock themselves into high-carbon growth trajectories.
Moreover, access to cleaner technologies is often hindered by financial constraints. While developed nations like the UK and France can pump resources into research, development, and the subsequent adoption of greener alternatives, developing countries might find these investments prohibitive. And it’s not just the initial investment that forms a barrier; maintaining and upgrading these technologies also requires substantial funds.
Another point to note is that the dynamics of international trade further exacerbate this situation. Developed economies often outsource carbon-intensive processes to these developing nations, effectively exporting emissions while retaining the end products. This outsourcing not only shifts the burden but also ties into a larger narrative of equity and historical responsibility. The developed world has, over centuries, capitalized on fossil fuels to usher in periods of rapid growth. Consequently, developing nations argue for a similar right to grow, even if it momentarily increases emissions. They champion the stance that they deserve support from their developed counterparts, emphasizing the importance of technological transfers and financial assistance. Their call is not merely for resources but is rooted deeply in principles of global justice, shared responsibility, and collaborative efforts to address a universal challenge: climate change.
India: case study
India stands as a poignant example when examining the intricacies of decoupling economic growth from greenhouse gas emissions. As the world’s third largest emitter of carbon dioxide, behind China and the US, the nation finds itself at the crux of development aspirations and climate responsibilities.
Economic Growth and Emissions Trajectory
Post its economic liberalization in 1991, India has been on an impressive economic growth trajectory. This growth has largely been fuelled by its industrial and service sectors. Understandably, with this rise in industrial activity, India's energy demands have surged. Given its vast reserves of coal, India, like many developing nations, has relied heavily on it for power generation, causing emissions to increase significantly.
Renewable Energy Transition
Recognizing the environmental implications, India has been making efforts to shift towards renewable sources of energy. The country's commitment to the Paris Agreement is evident in its ambitious target of achieving 500 GW of renewable energy by 2030.
The encouraging news is that India has not only met but surpassed its COP21 commitments by achieving 40% of its power capacity from non-fossil fuels - a commendable feat achieved nine years ahead of schedule! This remarkable progress can be largely attributed to India's resolute commitment to solar energy. Presently, constructing solar power plants is more cost-effective in India than coal-based ones. Consequently, the growth rate of renewable electricity in India outpaces that of any other major economy.
👉 To find out more about India’s national action plan for climate change, why not read our article that outlines everything you need to know.
However, this success does not mean that India is without challenges...
Challenges in Decoupling
Population & Development Needs
With over a billion people, many of whom still live in poverty, India’s primary challenge is to provide basic amenities, infrastructure, and jobs. This requires rapid industrialization, often at the expense of increasing emissions.
Financial Constraints
Adopting and maintaining cleaner technologies necessitates significant investments. While India is investing in renewables, coal remains a cheaper, short-term solution for its energy needs.
Equity & Historical Emissions
The argument of historical emissions is significant in India's stance. Developed nations, over their industrial history, have emitted a large share of the total global greenhouse gases. India emphasizes the principle of "common but differentiated responsibilities" in international climate negotiations, indicating that while every nation has a role in mitigating climate change, developed nations should bear a larger share of the responsibility given their historical contributions.
👉 To learn more about India’s climate change challenges, take a look at our article.
“ India’s journey exemplifies the tightrope walk many developing nations face in balancing their developmental aspirations with environmental stewardship. While the country is making significant strides in certain areas, the overarching challenges of equity, development needs, and financial constraints continuously shape its path to decoupling. ”
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Looking forward
Economic growth and emissions are not inextricably linked, as evidenced by developed nations like the UK demonstrating that an economy can flourish while simultaneously reducing its carbon footprint. However, the narrative is more nuanced for developing countries. Rooted in historical climate injustices, these nations often grapple with the daunting choice between mitigating emissions and uplifting the living standards of their citizens - an undeniably unjust dilemma.
The onus, therefore, rests on developed countries to recognize their moral imperative in assisting the transition of developing nations. It's not just about finance; it encompasses technology transfers, sharing expertise, and fostering a collaborative environment. By aiding these nations in building economies founded on renewable energy, developed nations can rectify past wrongs and pave the way for a globally sustainable future.
What about Greenly?
At Greenly we can help you to assess your company’s carbon footprint, and then give you the tools you need to cut down on emissions. Why not request a free demo with one of our experts - no obligation or commitment required.
If reading this article has inspired you to consider your company’s own carbon footprint, Greenly can help. Learn more about Greenly’s carbon management platform here.
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