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With the economic crisis, la dcroissance est arrive, degrowth has arrived
For twenty years, the orthodox slogan was Sustainable Development (Brundtland Report, 1987), i.e. economic growth that is environmentally sustainable. We know however that economic growth is not environmentally sustainable.
A socio-ecological transition
What is needed is a transition to lower levels of use of energy and materials in the North. The pattern of 300 GJ per person/year, and 15 tons of materials per person/year, cannot be copied sustainably everywhere. The economy of the South must grow. But not continue to be a cheap producer of raw materials, and should not accept the waste from the North (such as the CO2). It should claim the Ecological Debt.
Key words of the past twenty years such as win-win solutions have a hollow ring in the present economic downturn in the OECD countries. The IPCC scenarios never contemplated (self-imposed censorship?), a decline in the rich countries GDP of 10 per cent and then a long period of non-growth as might perhaps be the case. In Spain, after the collapse of the building boom in 2008, the decrease in material flows, in energy consumption, in carbon dioxide production mirrors the decrease in GDP. Absolute dematerialization is taking place before relative dematerialization. This was not in the economists and industrial ecologists script.
The economic crisis means a welcome change to the totally unsustainable increase of carbon dioxide emissions
In the five years before 2008 carbon dioxide emissions grew over 3 per cent per year. They should decrease at least 50 per cent as soon as possible. The Kyoto objective of 1997 generously gave rich countries the property rights on the carbon sinks and atmosphere in exchange for a promised reduction of 5 per cent of their emissions relative to 1990.
The economic crisis means a welcome change to the totally unsustainable increase of carbon dioxide emissions
The modest Kyoto objective will now be fulfilled more easily. The carbon trade is collapsing, unless lower caps be adopted, as they should. Air travel, housing starts decreased in the second half of 2008 in European countries and the USA. Motorists in the USA were buying 10 per cent less petrol in October 2008 than in October 2007. World carbon dioxide emissions will decrease at least 2 or 3 per cent in 2009 (despite Indias economic growth).
Soddys doctrine
Frederick Soddy's Wealth, Virtual Wealth and Debt was published in 1926. He had a Nobel Prize in Chemistry and was a professor at Oxford. His main point was simple and applies today. It is easy for the financial system to increase the debts (private or public debts), and to mistake this expansion of credit for the creation of real wealth. However, in the industrial system, growth of production and growth of consumption imply growth in the extraction and final destruction of fossil fuels. Energy is dissipated, cannot be recycled. Real wealth would be instead the current flow of energy from the sun.
Soddys doctrine
The obligation to pay debts at compound interest could be fulfilled by squeezing the debtors for a while. Other means of paying the debt are either inflation (debasement of the value of money), or economic growth - which is falsely measured because it is based on undervalued exhaustible resources and unvalued pollution. Soddy was certainly a precursor of ecological economics.
Economic accounting was false because it mistook resource depletion and entropy increase for wealth creation.
Then, down below, underneath the economists real economy, there is the third level: the ecological economists real-real economy, the Social Metabolism, the flows of energy and materials whose growth depends partly on economic factors (types of markets, prices) and in part from physical limits.
At present, there are not only resource limits but also sink limits. Climate change takes place because of the excessive burning of fossil fuels and it is a threat to biodiversity. But another immediate threat to biodiversity is the increase of the HANPP, the human appropriation of net primary production.
Keynesian policies
To make the recession less painful, the State should spend more. Thus in the eurozone the Maastricht limit of a maximum public deficit of 3% GDP is allowed to increase. But expenditure in what?
Car industry? More asphalt and cement? Or rather money for schools and universities, and for poor people? Basic income for all? Subsidies for house renting? Solar energy? This should be a time for Participatory Budgets.
The New Deal refers to Roosevelts policies in the 1930s. State expenditure, state regulation This is coming back, it is welcome. A Green New Deal implies focus on the environment. An energy transition is it compatible with support for the car industry? Are we aiming to go back to normal GDP growth trough green investments? Is this possible? Or to a new ecological economy, sustainable degrowth? What will a Green New Deal be?
Keynes was famously concerned about the short term. If there was unused production capacity and unemployment, then the State should spend more. One could not rely on the market to get out of the crisis of 1929. Keynesianism became a doctrine of economic growth in the 1950s, with Harrod and Domar They neglected environmental costs, and forgot about exhaustibility of resources. Then in 1977, Solow and Stiglitz battled against Georgescu-Roegen and Daly. They preached what we now call weak sustainability, i.e. natural resources would be substituted by manufactured capital, and growth could continue.
Indeed, an economic crisis affords an opportunity to put the economy of the rich countries on a different trajectory as regards material and energy flows. Now is the time in rich countries for a socio-ecological transition to lower levels of energy and materials use.
Moreover, it seems that happiness is not related to income growth, above a certain level of income.
The crisis requires a restructuring of social institutions.
Fossil fuels
Our economy depends not only on current environmental services but also, mainly, on the photosynthesis of millions of years ago for our main energy sources, it depends on ancient biochemical cycles for other mineral resources that we are squandering without replacement.
In the case of oil, we are now taking almost 86 mbd in terms of calories, the world average is equivalent to about 20,000 kcal per person/day (ten times the food energy intake), and in the USA it is equivalent to 100,000 kcal per person/day. In exosomatic energy terms, oil is then far more important than biomass.
Possibly peak-oil reached in 2007-08 at 87 mbd. Hence all the cracy investments (with low EROI) in Alberta tar sands, Orinoco Delta heavy oil, or agrofuels.
The new supplies from renewable energy sources (photovoltain, wind mills) are welcome they will go to substitute for descreasing oil supplies.
Partial nationalization of banks in the EU and the USA will perhaps prevent sudden widespread bank failure, at the cost of rising the public deficit (as is normal in a crisis). In any case, this does not address one root cause of the crisis, triggered by high oil prices due not only to the OPEC oligopoly but also to the approaching peak-oil. In fact, economic theory does not say that an exhaustible resource should be sold at the marginal cost of extraction. Oil at 140 US$ a barrel was cheap from the point of view of its fair inter-generational allocation and the externalities it produces. As the crisis deepens, the price of oil goes down but it will recover in real terms if and when the economy grows again. OPEC will try and reduce oil extraction during the crisis.
As with tobacco, it might be that a certain percentage of the population of rich countries has lost its taste for big cars even when they could afford them. Thanks to the big spike in oil prices until July 2008, Americans now prefer smaller cars. Sales of gas-guzzling SUVs plummeted in late 2008 and early 2009, although petrol prices are much lower now than in mid-2008. Perhaps one part of the population has become aware of climate change plus the threat of peak-oil. This applies to the USA and the EU whose car market was anyway very near saturation point. The potential demand for cars in China, India is of course very large.
In the next 40 years, the worlds fleet of cars is expected to increase from around 700m today to nearly 3 billion (The Economist, 14 Nov. 2008).
While the United States have nearly one car for every person of driving age, China has less than three cars for every 100 people and India fewer still. Once people have a roof over their heads, meat on the table and a good job, the next thing they want is a set of wheels pontificates The Economist.
How will the real economy impact on the real-real economy? How will the cars be fuelled? Electricity? Hydrogen? What will the energy cost be?
Lower EROI
There is a historic trend towards increasing energy costs of obtaining energy (a lower EROI). Coming down from the peak of the Hubbert curve will be politically and environmentally difficult. Not easy to get new oil, after peak oil. Conflicts arise in the Niger Delta and in the Amazonia of Peru and Ecuador. Appeal to energy sources like agrofuels and nuclear energy will compound the difficulties. Natural gas, wind, photovoltaic energy are increasing. They will partly compensate for the dwindling supplies of oil over the next few decades. Coal supplies are increasing (they already grew seven times in the 20th century) but coal is noxious locally and also globally because of carbon dioxide emissions.
An authomatic de-stabiliser
A well-known economic authomatic stabiliser is the mechanism by which, when there is no growth and unemployment increases, the State spends more on unemployment benefits and this money goes to consumption.
There is an authomatic de-stabiliser in the fact that when oil prices go down, less investment is made in new wells. So, if there is an economic recovery, we shall again have high oil prices (because of lack of investment, peak oil approaching, and OPEC oligopoly) that might choke the recovery.
On the liability side of the balance sheet, accounting conventions do not deduct damages to the environment.
An enormous "carbon debt" is owed to future generations, and to poor people of the world who produced little greenhouse gases.
Large environmental liabilities are also due by private firms. Chevron-Texaco is being asked to pay back 16 billion dollars in a court case in Ecuador. The Rio Tinto company left behind large liabilities since 1888 in Andalusia, in Bougainville, in Namibia, in West Papua together with Freeport McMoran... debts to poor or indigenous peoples. Shell in the Niger Delta.
These poisonous debts are in the history books but not in the accounting books.
In National Income Accounting one could introduce valuations of ecosystem and biodiversity losses either in satellite accounts (physical and monetary) or in adjusted GDP accounts (Green Accounts). The economic valuation of losses might be compared to the economic gains of projects that destroy biodiversity.
However, which groups of people suffer most by such losses? The direct beneficiaries of forest biodiversity and ecosystem services are the poor. Their poverty makes these losses more acute as a proportion of their livelihood incomes than is the case for the population at large. Hence the notion of "the GDP of the Poor (Sukhdev and Gundimedia).
When water in the local river or aquifer is polluted because of mining, the poor cannot afford to buy water in plastic bottles. When poor people see their chances of livelihood threatened by mining projects, dams, tree plantations, or large industrial areas, they complain not because they are professional environmentalists but because they need the services of the environment for their immediate survival.
Refinery in Lanjigarh, Orissa, meant to refine the bauxite from nearby Niyamgiri. The refinery was built before environmental clearance was granted for the mining project.
The Niyamgiri hill is sacred to the Dongria Kondh. We could ask them: How much for your God? How much for the services provided by your God?
The question is, who has the power to simplify complexity and impose a particular language of valuation?
The question is not whether economic value can only be determined in existing markets. We know that economists have developed methods for the monetary valuation of environmental goods and services or of negative externalities outside the market. Rather, the question is: must all evaluations in a given conflict (e.g. on extraction of copper and gold in Peru, a hydel dam in the North-East of India, the determination of the suitable level of carbon dioxide emissions by the European Union), be reduced to a single dimension?
Pluralism of Values
Decisions may indeed be improved by giving money values to negative externalities and to environmental resources and services which are undervalued or not valued at all in conventional economic accounting. But there are other considerations. First, don't forget our uncertain knowledge about the working of ecosystems, and about the impact of technologies. Second, include nonmonetary values in decision making processes. Don't practice the fetishism of fictitious commodities.
Pluralism of values
In decision-making processes, economics becomes a tool of power. This is the case when applying economic costbenefit analysis to individual investment projects. It is also the case at the level of the macroeconomy where increases in GDP trump other dimensions. We should favour instead the acceptance of a plurality of incommensurable values.
Countries or regions of the South that export cheap raw materials should move towards endogenous development.
The increase in commodity prices (helped also by misguided agrofuel subsidies and by the OPEC cartel) continued for some months after the decline in the stock exchange started in January 2008. However, in late 2008 commodity prices went down. The exporting countries might irrationally increase the supply in an attempt to maintain revenues. Instead, this would be the moment for Latin America, Africa and other net energy-andmaterials exporters, to think of endogenous development, moving towards an ecological economy.
More roads, pipelines, harbours and hidrovias, more imports and exports of oil, gas, coal, copper, iron ore, soybeans and ethanol, this was President Lulas credo for Latin America. In late 2008, and in total opposition to the views of Via Campesina and the MST in Brazil, Lula was still preaching a general opening of world markets to agricultural exports. He went to India in October to try and increase the rate of farmers suicides by pushing for the liberalization of agricultural imports and exports in the Doha round.
With the economic crisis, la dcroissance est arrive in Europe, the United States, Japan at least for 2009. At first sight, Southern countries have something to lose and little to gain from Degrowth in the North: fewer opportunities for commodity and manufactured exports, less availability of credits and donations. But, the movements for Environmental Justice of the South are the main allies of the Sustainable Degrowth movement of the North.
Imports of energy and materials must be relatively cheap for the social metabolism of rich countries to work properly. As Hornborg put it in 1998, market prices are the means by which world system centres extract exergy (i.e. available energy) from the peripheries, aided some times by military power.
A refusal from the South to provide cheap commodities to the industrial economy, imposing eco-taxes, would help the North (including some parts of China) in its necessary path towards an economy that uses less materials and energy.
Export taxes (retenciones ambientales) should be imposed because of the local externalities and also as natural capital depletion taxes.
The price of oil peaked in 2007-08. Things were so good for the oil exporting countries that when Ecuador rejoined OPEC in 2007, president Correa cleverly proposed to put an eco-tax on exports that would be recycled for social and environmental purposes, financing the necessary energytransition. This eco-tax would show the concern of OPEC countries for the greenhouse effect.
The international movements for environmental justice must have a clear objective: an economy that sustainably fulfils the food, health, education and housing needs for everybody and provides as much joie de vivre as possible to a world population that should decline a bit. Now is the time in rich countries for socially sustainable economic de-growth, reinforced by an alliance with the environmentalism of the poor of the South.