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Can zero emissions and economic growth go together? Yes, but conditions apply.

The percentage of GDP required to achieve zero emissions decreases as GDP rises
June 8, 2021

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In principle, the nations of the world broadly agree on the importance of reducing pollution and achieving “zero emissions” – ambitions enshrined in the Paris Agreement and the UN Sustainable Development Goals.

But many governments worry that investing in pollution cleanup and cleaner manufacturing processes could hurt the economy. This doesn’t have to be the case, researchers in Japan report in the Journal of Cleaner Production. “The main message of this paper is that zero emissions for environmental protection and sustainable economic growth are theoretically compatible,” says study team member Hideo Noda, professor of economics at the Tokyo University of Science.

Right now, the relationship between zero emissions and economic growth isn’t well understood. So Noda and his collaborator, Shigeru Kano of the Shoko Chukin Bank, developed a mathematical model that sheds new light on the topic.

The model reflects how, in the real world, economies oscillate between two phases: One in which businesses innovate rapidly, and another in which businesses accumulate capital and do not innovate.

This is important because previous models of economic growth and environmental protection left out innovation – which is an important driver of economic growth in developed economies. And few previous studies have taken into account the cyclical fluctuations of economies.

Pursuing zero emissions is compatible with consistent economic growth, the model shows. But there are two conditions: First, this only applies to countries where GDP, a measure of a nation’s wealth, is relatively high in the first place.

Second, countries shouldn’t expect to allocate a constant percentage of GDP to cleaning up pollution. If they do, countries can achieve zero emissions, but not sustained economic growth.

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Instead, the model shows, the percentage of GDP required to achieve zero emissions decreases as GDP rises. So the good news is that the portion of the economy devoted to pollution cleanup should even fall over time.

Moreover, during the no-innovation phase of the economy, GDP growth is higher and the proportion of GDP spent on cleaning up pollution decreases rapidly. During the innovation phase, GDP growth is slower and the proportion of GDP needed to achieve zero emissions declines more slowly.

The challenging upshot: if the economy is slowing and GDP is expected to decline, countries should increase the percentage of GDP devoted to pollution cleanup in order to stay on track for zero emissions, Noda says.

The model doesn’t capture all aspects of economies and environmental problems, he adds. For example, it assumes that all pollution is created and cleaned up within a given country. “So, construction of a multi-regional model that takes into account the situation of transboundary pollution remains an issue for the future.”

Source: Noda H. and S. Kano “Environmental economic modeling of sustainable growth and consumption in a zero-emission society.” Journal of Cleaner Production 2021.

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